Are separately listed delivery and installation charges subject to Illinois sales tax?

Plain-English summary

In Illinois, a retailer's delivery and installation charges are generally part of the taxable "gross receipts" subject to Retailers' Occupation Tax — and simply listing them separately on the invoice does not make them tax-free. A seller's cost of doing business (labor, service, overhead, "or any other expense whatsoever") cannot be deducted from gross receipts under 86 Ill. Adm. Code 130.410, even if separately stated.

There is a narrow way out: charges the seller and buyer actually agreed on separately from the selling price are excluded. But the separate agreement — not the separate line item — is what matters.

Delivery and transportation charges

Delivery charges are outside the "selling price" only when they are agreed on separately from the price of the goods (86 Ill. Adm. Code 130.415(d)). The Department's guidance on proof:

• A separate listing on the invoice is not sufficient by itself.
• The best evidence is a separate, distinct contract for transportation or delivery.
• Documentation that the buyer had the option to take delivery at the seller's location for the purchase price, or have the seller deliver for an ascertained or ascertainable delivery charge, will also suffice.
• If a delivery charge exceeds the actual cost of delivery, the excess is taxable (citing Nancy Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351 (2009)).

Installation and special-service charges

Under 86 Ill. Adm. Code 130.450, when a retailer sells tangible personal property and installs, alters, or performs another special service on it, those charges are included in taxable gross receipts if they are included in the selling price — and billing them separately does not change that. They are excluded only if the seller and buyer agreed on the special-service charges separately from the selling price. As the letter sums up: delivery and installation fees are generally taxable as part of gross receipts "unless it can be shown that they were contracted for separately," and listing them separately does not remove them from tax.

If the work affixes property to real estate

The letter notes it could not tell from the invoices whether installed items were permanently affixed to real property. A business that contracts to permanently incorporate tangible personal property into real estate acts as a construction contractor, which Illinois treats as the end user — the contractor owes Use Tax on the cost price of the materials (86 Ill. Adm. Code 130.1940, 130.2075), and its customers incur no Use Tax. A contractor may pass its tax cost along in the price or as a stated "reimbursement of tax," but not billed to the customer as "sales tax."

Common questions

Q: My invoice lists shipping separately. Is it automatically nontaxable?

A: No. A separate line item alone is not enough. The delivery charge is excluded only if it was agreed on separately from the price of the goods.

Q: How do I show delivery was "separately agreed"?

A: With a separate delivery contract, or documentation that the buyer could have picked the item up for the purchase price instead of paying an ascertainable delivery charge.

Q: What if I overcharge for delivery?

A: Any part of a delivery charge that exceeds the actual cost of delivery is taxable.

Q: Are separately stated installation charges tax-free?

A: Only if the installation was contracted for separately from the selling price. If installation is part of the sale of the property, it is taxable even when billed separately.

Citations and references

• 35 ILCS 120/1 — definition of "selling price" (no deduction for cost of property, materials, labor, or service)
• 86 Ill. Adm. Code 130.410 — cost of doing business not deductible from gross receipts
• 86 Ill. Adm. Code 130.415 — transportation and delivery charges
• 86 Ill. Adm. Code 130.450 — installation, alteration, and special service charges
• 86 Ill. Adm. Code 130.1940, 130.2075 — construction contractors as end users
• Nancy Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351, 919 N.E.2d 926 (2009)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2014.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2014/st-14-0018.pdf

Original ruling text

ST 14-0018-GIL 04/04/2014 GROSS RECEIPTS
This letter discusses the rules regarding handling and installation charges. See 86 Ill. Adm. Code 130.410. See
also 86 Ill. Adm. Code 130.415 and 86 Ill. Adm. Code 130.450. (This is a GIL.)
April 4, 2014
Dear Xxxx:
This letter is in response to your letter dated December 23, 2013, 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 is a corporation operating under an FEIN of XX-XXXXXXX. We also
operate under a trade name of COMPANY 2. We are requesting a tax determination
letter on two topics: labor/installation and shipping/handling charges.
We have a vendor, COMPANY 3, that is trying to charge us sales/use tax on
installation/labor as well as shipping and handling. On the actual invoice (attached for
your convenience), both installation/labor and shipping/handling are separately listed. It
is our understanding that, if listed separately, we are not responsible for remitting
sales/use tax on these two types of services. Further, COMPANY 3 delivers all of the
materials to our facility at the time of installation.
We’ve had our understanding confirmed each time we’ve called the State of Illinois
sales tax department (which has been a total of four times on this topic). In order to
have these tax billings removed from our account, COMPANY 3 is requesting a
determination letter.
We attached a copy of the invoice in question (there are more than just one, but your
answer to this invoice will clear up the remaining items as well) and highlighted the
installation/labor and shipping/handling charges in yellow.
Thank you in advance for your assistance. If you require any additional information,
please feel free to reach me via phone at xxx.xxx.xxxx x:xxx or via email at
xxxx@xxxxx.
DEPARTMENT’S RESPONSE:

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April 4, 2014
The Retailers’ Occupation Tax is imposed upon persons engaged in this State in the business
of selling tangible personal property for use or consumption. Retailers’ Occupation Tax is based upon
the “selling price” of the tangible personal property sold. Section 1 of the Retailers’ Occupation Tax
Act defines the term, “selling price,” as the “consideration for a sale valued in money … and shall be
determined without any deduction on account of the cost of the property sold, the cost of materials
used, labor or service cost or any other expense whatsoever….” See 35 ILCS 120/1. As indicated by
this definition, a retailer’s cost of doing business is not deductible from his or her gross receipts. This
principle is articulated in Section 130.410 of the Department’s rules, enclosed. (86 Ill. Adm. Code
130.410) This rule states that in calculating Retailers’ Occupation Tax liability, “labor or service costs”
. . . “overhead costs” . . . “or any other expenses whatsoever” are not deductible from gross receipts.
The rule provides that these costs of doing business are an element of the retailers’ gross receipts
subject to tax even if separately stated on the bill to the customer.
If a seller delivers the tangible personal property to the buyer, and the seller and the buyer
agree upon the transportation or delivery charges separately from the selling price of the tangible
personal property which is sold, then the cost of the transportation or delivery service is not a part of
the "selling price" of the tangible personal property personal property which is sold, but instead is a
service charge, separately contracted for, and need not be included in the figure upon which the
seller computes his or her tax liability. See the Department’s regulation at 86 Ill. Adm. Code
130.415(d).
A separate listing on an invoice of such charges is not sufficient to demonstrate a separate
agreement. The best evidence that transportation or delivery charges were agreed to separately and
apart from the selling price is a separate and distinct contract for transportation or delivery. However,
documentation which demonstrates that the purchaser had the option of taking delivery of the
property, at the seller's location, for the agreed purchase price, or having delivery made by the seller
for the agreed purchase price, plus an ascertained or ascertainable delivery charge, will suffice. Note,
as stated in Section 130.415 of the Department’s regulations, if the charges for transportation or
delivery exceed the cost of delivery or transportation, the excess amount is subject to tax. For further
information, see Nancy Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351, 919 N.E.2d 926 (2009).
Generally, labor is not taxable unless you transfer tangible personal property incident to a
service. See 86 Ill. Adm. 140.101. In some cases, labor may be taxable. When you sell tangible
personal property and perform labor associated with that property, the taxability hinges on whether
the labor was separately contracted for. Section 130.450 (86 Ill. Adm. Code 130.450) states that
“[w]here the seller engages in the business of selling tangible personal property at retail, and such
tangible personal property is installed or altered for the purchaser by the seller (or some other special
service is performed for the purchaser by the seller with respect to such property), the gross receipts
of the seller on account of his charges for such installation, alteration or other special service must be
included in the receipts by which his Retailers' Occupation Tax liability is measured, if such
installation, alteration or other special service charges are included in the selling price of the tangible
personal property which is sold.” This rule goes on to say that that the fact that the special services
are billed separately from the charge for the property sold does not change this result.
Section 130.450 goes on to say that if the seller and the buyer agree on the special service
charges separately from the selling price of the property, then those charges are excluded from
Retailers’ Occupation Tax. Simply stating the fees separately does not change the facts of the sale.
In sum, in accordance with Sections 130.415 and 130.450, delivery and installation fees are generally

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April 4, 2014
subject to Retailers’ Occupation Tax as part of gross receipts unless it can be shown that they were
contracted for separately. The fact that the fees are listed separately does not, as indicated above,
remove it from the purview of the Retailers’ Occupation Tax.
We cannot tell from the invoices that you have provided whether some of the items that are
installed are permanently affixed to real property. If a person or business enters into a contract to
permanently incorporate tangible personal property into real estate, then it would be acting as a
construction contractor. In Illinois, construction contractors are deemed end users of tangible
personal property purchased for incorporation into real property. As end users of such tangible
personal property, contractors incur Use Tax liability for such purchases based upon the cost price of
the tangible personal property personal property. See 86 Ill. Adm. Code 130.1940 and 86 Ill. Adm.
Code 130.2075. Persons from other states who act as construction contractors in Illinois by
permanently affixing tangible personal property to real estate owe Illinois Use Tax on the cost price of
the tangible personal property affixed to that real estate.
It is important to note that since construction contractors are the end users of the materials that
they permanently affix to real estate, their customers incur no Use Tax liability and the construction
contractors have no legal authority to collect the Use Tax from their customers. However, many
construction contractors pass on the amount of their Use Tax liabilities to customers in the form of
higher prices or by including provisions in their contracts that require customers to “reimburse” the
construction contractor for his or her tax liability. Please note that this reimbursement cannot be billed
to a customer as “sales tax,” but can be listed on a bill as a reimbursement of tax. The choice of
whether a construction contractor requires a tax reimbursement from the customer or merely raises
his or her price is a business decision on the construction contractor’s part.
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,

Cara Bishop
Associate Counsel

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