Could a cash-management company pay tax on customer safes and then bill one untaxed charge for the safe, armored transport, and cash services?

Plain-English summary

A company provided customers a “total solution”: use of a company-owned safe, armored transport, and cash-management services for one invoice charge. The safe was drop-shipped to the customer, title remained with the company, and the company intended to recover it when the long-term contract ended. The company asked whether paying Illinois tax on the safe allowed it to leave the single customer charge untaxed.

IDOR said the company appeared to be the end user of the safe and liable for Use Tax. But it could not determine the exact customer-side result without reviewing the contracts and deciding whether the arrangement was a lease.

The letter then gave the classification rules:

• A conditional sale generally involved a nominal buyout or a guaranteed transfer to the customer. The lessor-retailer owed Retailers' Occupation Tax on receipts, and a purchaser buying for resale could give a resale certificate.
• A true lease generally had no buyout, or only a fair-market-value option. The lessor was the end user and owed Use Tax on the property's cost. Illinois imposed no tax on rental receipts, so the lessee incurred no tax on those receipts.
• Tax properly paid to another state could offset Illinois Use Tax to the extent stated in Section 150.310(a)(3).

Because IDOR did not review the agreements, it did not verify that the bundled customer charge qualified for true-lease treatment.

Common questions

Who appeared to owe tax on the safe? The cash-management provider, as the safe's end user.

Did IDOR approve the single untaxed customer charge? No. It needed the contracts to determine the arrangement.

Were true-lease rental receipts taxed? No; the lessor instead owed Use Tax on its cost.

Citations and references

• 86 Ill. Adm. Code 130.2010, 130.220, and 130.1405
• 86 Ill. Adm. Code 150.310(a)(3)

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-12-0065.pdf

Original ruling text

ST 12-0065-GIL 12/27/2012 USE TAX
The Illinois Use Tax Act imposes a tax on the purchaser by taxing the use of tangible
personal property purchased from a retailer. See 35 ILCS 105/3. (This is a GIL.)
December 27, 2012
Dear:
This letter is in response to your letter dated November 2, 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 has recently begun selling a new service to its customers. The service is
the use of a safe that is drop-shipped from the manufacturer directly to the customer’s
place of business, plus the associated armored car services to securely transport the
currency when requested and cash management services to properly deposit the
currency according to the customer’s instructions. The agreement between COMPANY
and our customer is a long-term contract and the agreement does not state that the safe
is being rented or leased; only that the agreement allows for the use of the safe. Title to
the safe remains with COMPANY throughout the term of the contract, at the end of
which it is COMANY’s intention to recover the safe. The service is represented to the
customer as a “total solution”; using a safe provided by COMPANY and our secure
armored transportation and cash management services for a single charge on their
invoice.
COMPANY requests a written ruling, on which it can rely on audit, regarding the
following question:
Because COMPANY is paying Illinois sales tax to the safe manufacturer or accruing
and remitting applicable state and local use tax on our purchase of the safe, is it proper
for COMPANY to then bill the customer for the single charge without including Illinois
sales tax since each of the services would not otherwise be subject to Illinois sales tax?
If you have any questions regarding this matter, please call me at X.
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 to purchasers for use or consumption. See 86 Ill. Adm.

ST 12-0065-GIL
December 27, 2012
Page 2
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. The tax is
measured by the seller's gross receipts from retail sales made in the course of such business.
"Gross receipts" means the total selling price or the amount of such sales. The retailer must pay
Retailers' Occupation Tax to the Department based upon its gross receipts, or actual amount
received, from the sale of the tangible personal property.
Based on the facts of your case, it appears you are the end user of the safe and are liable for Use
Tax. However, without reviewing the agreements between you and your customers, we cannot
determine the exact nature of your arrangement with your customers and whether a lessor/lessee
arrangement exists regarding the safe. I would note that the State of Illinois taxes leases differently
for Retailers’ Occupation Tax and Use Tax purposes than the majority of other states.
For Illinois sales tax purposes, there are two types of leasing situations: conditional sales and true
leases. A conditional sale is usually characterized by a nominal or one dollar purchase option at the
close of the lease term. Stated otherwise, if a lessor is guaranteed at the time of the lease that the
leased property will be sold to the lessee, that transaction is considered to be a conditional sale at the
outset of the transaction. Persons who purchase items for resale under conditional sales contracts
can avoid paying tax to suppliers by providing certificates of resale that contain all the information set
forth in 86 Ill. Adm. Code 130.1405. All receipts received by a lessor/retailer under a conditional
sales contract are subject to Retailers’ Occupation Tax. See 86 Ill Adm. Code 130.2010.
A true lease generally has no buy out provision at the close of the lease. If a buy-out provision does
exist, it must be a fair market value buy-out option in order to maintain the character of the true lease.
Lessors of tangible personal property under true leases in Illinois are deemed end users of the
property to be leased. See 86 Ill. Adm. Code 130.220. As end users of tangible personal property
located in Illinois, lessors owe Use Tax on their cost price of such property.
The State of Illinois imposes no tax on rental receipts. Consequently, lessees incur no tax liability.
As stated above, in the case of a true lease, the lessors of the property being used in Illinois would be
the parties with Use Tax obligations. The lessors would either pay their suppliers, if their suppliers
were registered to collect Use Tax, or would self-assess and remit the tax to the Department. If the
lessors already paid taxes in another state with respect to the acquisition of the tangible personal
property, they would be exempt from Use Tax to the extent of the amount of such tax properly due
and paid in such other state. See subsection (a)(3) of 86 Ill. Adm. Code 150.310.
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