Could an Illinois school buy required books tax-free for resale and then sell them tax-free to students?

Plain-English summary

An Illinois school bought required classroom books without tax and resold them to students at cost plus an amount intended to cover sales tax, with a small rounding profit. It asked whether it could stop paying and filing sales tax.

IDOR said the school could purchase books tax-free for resale by giving the supplier a valid Certificate of Resale. That certificate was prima facie proof of resale when its statement was correct.

The later sale to students was different. Although qualifying exempt schools had limited exceptions for some student sales, IDOR had determined that retail sales of school books and supplies to students were not primarily for the school's purpose. The school therefore incurred Retailers' Occupation Tax on those sales.

What this means for you

The resale exemption shifted tax from the school's inventory purchase to its retail sale; it did not make the student transaction tax-free. Exempt organizational status did not change the specific school-book rule.

Common questions

Could the school buy the books without tax? Yes, for resale with a valid certificate.

Were the sales to students exempt? No.

Did selling only to students change the result? No.

Citations and references

• 86 Ill. Adm. Code 130.1405.
• 86 Ill. Adm. Code 130.2005(a)(2)(C) and (b)(4)(C)(i).
• 35 ILCS 105/3; 86 Ill. Adm. Code 150.101 and 150.130.

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-14-0037.pdf

Original ruling text

ST 14-0037-GIL 08/05/14 SALE FOR RESALE
This letter addresses sales for resale. See 86 Ill. Adm. Code 130.1405. (This is a GIL.)

August 5, 2014

Dear Xxxx:
This letter is in response to your letter dated April 9, 2014, 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:
I am writing to request a Letter of Ruling regarding Sales & Use Tax for SCHOOL,
Taxpayer ID XX-XXXXXXX, Account ID XXXX-XXXX, I have discussed the following
circumstances over the phone with an IDOR representative. He indicated that based
upon the information I provided and the IDOR Rules Section 130.2005, Section 3,
Paragraph B, his non-binding recommendation is that SCHOOL does not need to pay
Sales & Use Tax and no longer needs to file form ST-1.
The information I provided to the IDOR representative via phone is as follows:

The students at SCHOOL are required to read specific books for various
classes they take at the high school.

The books that are to be read by the students are selected by SCHOOL
Staff on an annual basis for the upcoming school year.

The SCHOOL library staff orders and purchases the books selected by the
staff. SCHOOL does not pay sales tax on these purchases.

The books are sold to the students at the time they are to be used during
the semester. The books are sold at cost plus the sales tax that is to be
remitted to the state. A small amount of profit is made due to rounding of the
sales price on the sale of these books. For example, if the cost of a book is
$4.50, the amount charged to the student would be $4.50 x 1.07= $4.82
rounded to $5.00.

Books are sold only to students.
I would like to request a Letter of Ruling based upon the above information and
the IDOR Regulations. Please feel free to contact me with any questions at
(XXX)XXX-XXXX.

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. Code 130.101. 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.
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 35 ILCS 105/3; 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 the retailer does not collect the Use Tax from the
purchaser for remittance to the Department, the purchaser is responsible for remitting the Use Tax
directly to the Department. See 86 Ill. Adm. Code 150.130.
When an Illinois retailer sells tangible personal property and delivers it in Illinois, sales tax is
due unless an exemption can be documented. The resale exemption is applicable when making
purchases of tangible personal property that the purchaser intends to in turn sell. Thus, if a school
purchases books with the intent of selling them to its students, the school can purchase them tax free
for resale if the school gives its supplier a resale certificate. For general information regarding resale
certificates, the Department’s regulation entitled “Seller's Responsibility to Obtain Certificates of
Resale and Requirements for Certificates of Resale,” is found at 86 Ill. Adm. Code 130.1405.
A Certificate of Resale is a statement signed by the purchaser that the property purchased by
him is purchased for purposes of resale. Provided that this statement is correct, the Department will
accept Certificates of Resale as prima facie proof that sales covered thereby were made for resale.
The Department’s regulation entitled “Persons Engaged in Nonprofit Service Enterprises and
in Similar Enterprises Operated As Businesses, and Suppliers of Such Persons is found at 86 Ill.
Adm. Code 130.2005. That regulation provides, in part, that exclusively charitable, religious and
educational organizations that have an exemption identification number (“E” number) incur Retailers'
Occupation Tax liability when they engage in selling tangible personal property at retail except in
three situations – (1) sales to members, etc., (2) noncompetitive sales, and (3) occasional dinners
and similar activities.
The first exception, noted above, is that the sales by such an organization are not taxable if
they are made to the organization's members, or to its students in the case of a school or to its
patients in the case of a nonprofit hospital which qualifies as a charitable institution, if the sales are
primarily for the purposes of the selling organization. Please note that the Department has
determined that the selling of school books and school supplies by schools at retail to students is not
be deemed to be "primarily for the purpose of" the school which does such selling. Consequently,
schools incur Retailers' Occupation Tax liability when they engage in selling school books or school
supplies at retail to their students.
See 86 Ill. Adm. Code 130.2005(a)(2)(C) and
130.2005(b)(4)(C)(i)).
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,

Debra M. Boggess
Associate Counsel

DMB:lkm