Were separately billed vending-program implementation, hosting, management, and processing fees part of an Illinois retailer's taxable gross receipts?

Plain-English summary

A retailer placed company-owned vending machines at customer worksites to sell fasteners and industrial supplies. Customers paid separately billed implementation, web-hosting, machine-stocking management, and alternate-payment processing fees in addition to the taxed products dispensed by the machines.

IDOR said those fees appeared to cover costs incurred in selling tangible personal property through the vending program.

Illinois gross receipts included costs of doing business even when itemized separately. The regulation listed property cost, materials, labor or service costs, idle time, freight, overhead, processing charges, commissions, interest, and other expenses as nondeductible. On the stated facts, the four fees therefore remained part of taxable gross receipts.

The letter also noted that the owner of products sold through vending machines made the retail sales and owed Retailers' Occupation Tax. When no sales ticket was issued, a vending seller could use the posted-sign method to disclose that tax was included in the selling price.

Common questions

Did separately stating the fees remove them from gross receipts? No.

Which fees were addressed? Implementation, web hosting, management/stocking, and alternate-payment processing fees.

Who made the vending-machine retail sale? The person owning the products in the machines.

Citations and references

• 86 Ill. Adm. Code 130.410 and 130.2135
• 86 Ill. Adm. Code 150.1305 and 150.1310

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2012.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2012/st-12-0045.pdf

Original ruling text

ST 12-0045-GIL 08/02/2012 GROSS RECEIPTS
In computing Retailers' Occupation Tax liability, no deductions shall be taken by a
taxpayer from gross receipts on account of the cost of the property sold, or any other
cost of doing business. See 86 Ill. Adm. Code 130.410. (This is a GIL.)
August 2, 2012
Dear:
This letter is in response to your letter received May 17, 2012, in which you request information. The
Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are issued by the
Department in response to specific taxpayer inquiries concerning the application of a tax statute or
rule to a particular fact situation. A PLR is binding on the Department, but only as to the taxpayer
who is the subject of the request for ruling and only to the extent the facts recited in the PLR are
correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in the
Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information Letter
(“GIL”) is to direct taxpayers to Department regulations or other sources of information regarding the
topic about which they have inquired. A GIL is not a statement of Department policy and is not
binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website at
www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to your
inquiry.
The nature of your inquiry and the information you have provided require that we respond with a GIL.
In your letter you have stated and made inquiry as follows:
COMPANY sells fasteners (screws, nuts, etc) industrial, construction and safety
supplies. COMPANY is developing a new service, the PROGRAM, intended to improve
lean management and convenience for our end customers. The PROGRAM initiative
places COMPANY owned vending machines on the customer's worksite to allow them
instant access to product typically picked up or shipped by our local branches. We are
seeking a letter of ruling to determine whether four service charges are considered
taxable services by your state law.
The customer will enter into the PROGRAM by signing a contract (see attachment) for
service for 3+ years. The customer signing the contract is the end user of all products
purchased through the vending machine. A sample of likely customers include:
manufacturing sites, ship and rail yards, maintenance areas and refineries. The
customer will be billed and taxed accordingly for the product purchased on a weekly
basis.
The service charges in question are not related to the sales of the product from the
machine. The service charges are incurred by the customer in exchange for access to
the worksite vending option and do not represent any transfer of ownership of any
tangible personal property. PROGRAM charges are billed separately on an initial
invoice, followed by an annual invoice every 12 months from the installation date. The
service charges are fixed as negotiated in the contract and will come due regardless of
the volume of sales generated through the PROGRAM.
The service charges in question are:

IT 12-0045-GIL
August 2, 2012
Page 2
1.

Implementation Fee - a one time fee assessed to the customer for PROGRAM
vending machine to be delivered and connected to the customer worksite.

2.

Web Hosting Fee - an annual fee assessed to the customer in exchange for
service via internet that allows the customer to review usage reports and for
COMPANY employees to determine stocking needs of the customer.

3.

Management Fee - an annual fee assessed to the customer for the labor
associated with COMPANY branch employees traveling to the customer site and
stocking the vending machine.

4.

Process Fee (if applicable) - an annual fee assessed to the customer due to the
increased overhead required to process the payment in an alternate option of
CREDIT, INVOICING or Credit Card as opposed to the DEBIT option of
payment, which incurs no Process Fee.

Please contact me if any additional clarification is needed regarding the PROGRAM. Attached for
additional reference are a sample contract, sample invoices and an informational brochure. Please
issue a written determination regarding whether any of the four above described service charges are
taxable.
We really appreciate your help!
DEPARTMENT’S RESPONSE:
The Illinois Retailers' Occupation Tax Act imposes a tax upon persons engaged in this State in the
business of selling tangible personal property at retail to purchasers for use or consumption. See 86
Ill. Adm. Code 130.101. In Illinois, Use Tax is imposed on the privilege of using, in this State, any
kind of tangible personal property that is purchased anywhere at retail from a retailer. See 86 Ill.
Adm. Code 150.101. These taxes comprise what is commonly known as "sales" tax in Illinois. If the
purchases occur in Illinois, the purchasers must pay the Use Tax to the retailer at the time of
purchase. The retailers are then allowed to retain the amount of Use Tax paid to reimburse
themselves for their Retailers' Occupation Tax liability incurred on those sales.
If a retailer is required or authorized to collect the Use Tax, his records must show that he states such
tax separately to the purchaser from the selling price of the tangible personal property that he is
selling. In cases where it is not practicable to issue receipts showing the tax as a separate item, the
seller is not required to separately state the tax. For example, retailers who make sales from vending
machines are not required to separately state the tax. See 86 Ill. Adm. Code 150.1305. In these
situations, the retailer must post a sign stating that the tax is included in the selling price of the item
being sold. The posted sign method may not be used where the retailer issues sales tickets to
customers. See 86 Ill. Adm. Code 150.1310
Where tangible personal property is sold to users or consumers by means of vending machines, the
person owning the property contained in such vending machines makes final sales of such property
for use or consumption and becomes liable for Retailers' Occupation Tax. 86 Ill. Adm. Code
130.2135.

IT 12-0045-GIL
August 2, 2012
Page 3
In computing Retailers' Occupation Tax liability, no deductions shall be made by a taxpayer from
gross receipts or selling prices on account of the cost of property sold, the cost of materials used,
labor or service costs, idle time charges, incoming freight or transportation costs, overhead costs,
processing charges, clerk hire or salesmen's commissions, interest paid by the seller, or any other
expenses whatsoever. Costs of doing business are an element of the retailer's gross receipts subject
to tax even if separately stated on the bill to the customer. See 86 Ill. Adm. Code 130.410.
Based on the information you have provided, it appears the fees you identify in your letter are
intended to cover costs incurred by COMPANY in selling tangible property to its customers through
the use of the vending machines on the customers’ premises.
I hope this information is helpful. If you require additional information, please visit our website at
www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.
Very truly yours,

Richard S. Wolters
Associate Counsel