How did Illinois answer a 2014 sales-tax survey on nexus safe harbors, special charges, local taxes, and virtual currency?

Plain-English summary

IDOR answered a broad 2014 annual survey covering nexus safe harbors, special charges, state and local tax measures and rates, local administration, virtual currency, and common filing mistakes.

Illinois had no safe-harbor zones where the listed business activities could be conducted without creating nexus.

A retailer's retained restocking or reshelving fee was not taxable gross receipts. Even so, when merchandise was returned, the retailer was to refund all sales tax to the customer rather than reduce the tax refund by the fee.

Handling charges were taxable costs of doing business. Combined shipping-and-handling or delivery charges could be nontaxable when separately contracted for and reflective of actual shipping cost; any excess over shipping cost was taxable. Mail-order delivery charges were treated as separately agreed when the order form required a separate charge and the amount reflected shipping cost.

The 2014 state general-merchandise rate stated in the letter was 6.25%, while food, drugs, and medical appliances were stated at 1%. Local rates and whether a local use tax applied varied. IDOR did not administer every local tax, and some special-district occupation taxes crossed multiple local jurisdictions.

IDOR said it had issued no guidance on the sale or use of virtual currency. It nevertheless explained that gross receipts included consideration received in money or otherwise and that virtual currency did not fall within the listed exemption for specified government-issued legal tender, currency, coinage, and bullion.

What this means for you

This is a multi-topic snapshot of Illinois's 2014 answers, not current-rate confirmation. The most transaction-specific guidance distinguishes a retained restocking fee from taxable handling and limits nontaxable shipping treatment to separately agreed, cost-reflective charges.

Common questions

Was a retained restocking fee taxable? No, but all sales tax still had to be refunded.

Was every shipping-and-handling charge nontaxable? No. Separate agreement and actual shipping cost mattered.

Had IDOR issued virtual-currency guidance? No, not as of this letter.

Citations and references

• 86 Ill. Adm. Code 130.401(b).
• 86 Ill. Adm. Code 130.410 and 130.415(d).
• 35 ILCS 120/1.

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-14-0044.pdf

Original ruling text

ST 14-0044-GIL 08/12/14 MISCELLANEOUS
This letter responds to an annual survey. (This is a GIL.)
August 12, 2014
Dear Xxxxx:
This letter is in response to your email dated June 16, 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 requires that we respond
with a GIL. In your letter you have stated and made inquiry as follows:

SAFE HARBOR NEXUS ZONES
▪ Does your state provide safe-harbor areas within which certain business activities may be
conducted without creating nexus for the taxpayer conducting the business?
 Yes  No
▪ If YES, what types of business activities may be conducted without creating nexus for the
taxpayer conducting the business?
 Call center
 Fulfillment center
 Distribution center
 Trade show
 Other, explain: __________
▪ If fulfillment center or distribution center operations can be conducted without creating nexus,
does the exemption extend to the taxpayer who is storing goods or inventory in:
▪ Fulfillment center?  Yes  No
▪ Distribution center?  Yes  No

SPECIAL CHARGES. When goods are returned to the vendor after some time period has elapsed, many
vendors will levy a restocking charge to reverse the transaction and return the item purchased to
inventory. The charge can either be a fixed sum or a percentage of selling price of the item returned with a
minimum charge of some amount. Other special charges may be imposed for handling of the item
(preparing it for shipment), processing a small order below some minimum, or splitting a shipment to more
than one destination.
▪ Which of the following charges are subject to sales tax in your state (check all that apply)?
 Restocking charges
 Handling charges
Small order charges
 Split shipment charges

MEASURE OF TAX
▪ Is the measure of tax the same at the state and local jurisdictional level?
▪ If NO, how do they different?

 Yes  No

 Exemptions differ, explain:________
 Tax measure differs, explain:________
RATE OF TAX
▪ Do all local jurisdictions impose a sales tax?
 Yes  No
▪ If NO, what local jurisdictions do not impose a sales tax (check all that apply)?
 No local sales tax in any jurisdiction
 City
 County
 School District
 Special District (name: ________)
▪ Do all local jurisdictions impose a use tax?
 Yes  No
▪ If NO, what local jurisdictions do not impose a use tax (check all that apply)?
 No local use tax in any jurisdiction
 City
 County
 School District
 Special District (name: ________)
▪ Do all local jurisdictions impose the same rate of tax
(e.g., all cities are authorized to impose a 0.5% sales tax)?
 Yes  No
▪ If NO, what are the authorized rates or ranges of rates by taxing jurisdiction?
City _
County ___
School District __
Special District (name: ________)
JURISDICTIONAL BOUNDARIES
▪ Do some local taxing jurisdictions have non-geographical boundaries
(e.g., eastern part of one county and the adjoining western part of another county)?

 Yes  No

ADMINISTRATION
▪ Does the state administer all local taxes, i.e., collect receipts and perform audits for local jurisdictions?
 Yes
 No, local jurisdictions audit and collect their own taxes

[67] VIRTUAL CURRENCY. The use of virtual currency is a growing phenomenon across the
Internet. Virtual currency has developed into a new medium of exchange that is difficult to trace
and whose ownership may not be readily apparent. However, its use continues to expand
because of the relative security and anonymity offered by such means of payment. The IRS has
determined that virtual currency is not a new form of legal tender and that its sale generates
capital gains and losses, rather than holding that it is a fungible good.
▪ Does your state consider virtual currency when purchased or acquired, the purchase of a
taxable
commodity for sales tax purposes, i.e., is the acquisition of virtual currency a taxable
transaction?
▪ Does your state consider virtual currency to be taxable consideration for the purchase of
goods
and services?
▪ If YES, how is it valued for sales tax purposes?
 Cash equivalent market value of item or service purchased
 Market value of virtual currency on date of purchase
 Other, explain:

YES NO








[68] COMMON MISTAKES CORPORATIONS MAKE IN FILING RETURNS AND REMITTING TAXES
▪ What are the most common mistakes that corporations make in filing sales and use tax returns and
remitting sales and use taxes? For ease of presentation in a chart, please organize your response as a
bullet point list, as follows:
1.

2.

3.

and so on

DEPARTMENT’S RESPONSE:
Safe Harbor Nexus Zones
The State of Illinois does not have any safe harbor zones or areas in which a business may
operate or conduct business activities without creating nexus.
Special Charges
When a retailer makes a charge for restocking or re-shelving returned merchandise, the
receipts retained by the retailer to cover the restocking or re-shelving fee are not considered taxable
gross receipts for purposes of the Retailers' Occupation Tax liability. When a customer returns
merchandise to the retailer, the retailer should refund all of the sales tax to the customer even though
he or she will not be refunding the entire purchase price because of a restocking or re-shelving policy.
86 Ill. Adm. Code 130.401(b).
Handling charges represent a retailer's cost of doing business and consequently are always
includable in gross charges subject to tax. See, 86 Ill. Adm. Code 130.410. However, such charges
are often stated in combination with shipping charges. In this case, charges designated as "shipping
and handling," as well as delivery or transportation charges in general, are not taxable if it can be
shown that they are both separately contracted for and that such charges are actually reflective of the
costs of shipping. To the extent that shipping and handling charges exceed the costs of shipping, the
charges are subject to tax. As indicated above, charges termed "delivery" or "transportation" charges
follow the same principle.
Please note that unless separately contracted for as provided above, these charges are
considered to be part of the selling price of the tangible personal property being sold. Such charges
are considered a cost of doing business, which are always includable in the gross receipts subject to
tax.
The best evidence that shipping and handling or delivery charges have been contracted for
separately by purchasers and retailers are separate contracts for shipping and handling or delivery.
However, documentation that demonstrates that purchasers had the option of taking delivery of the
property at the sellers' locations for the agreed purchase price, plus an ascertained or ascertainable
delivery charge, will suffice. If retailers charge customers shipping and handling or delivery charges
that exceed the retailers' cost of providing the transportation or delivery, the excess amount is subject
to tax.
Mail order delivery charges are deemed to be agreed upon separately from the selling price of
the tangible personal property being sold so long as the mail order form requires a separate charge
for delivery and so long as the charges designated as transportation or delivery or shipping and

handling are actually reflective of the costs of such shipping, transportation or delivery. See
subsection (d) of Section 130.415. If the retailer charges a customer shipping and handling or
delivery charges that exceed the retailer's cost of providing the transportation or delivery, the excess
amount is subject to tax.
Measure of Tax
The State Retailers’ Occupation Tax imposes a general merchandise rate on the sale of
tangible personal property of 6.25% of gross receipts. Food, drugs and medical appliance are taxed
at the rate of 1%. Units of local government authorized by statute to impose an occupation tax
generally are allowed to set the rate of tax. Most units of local government cannot tax titled and
registered items, food, drugs and medical appliances as part of their occupation taxes. Occupation
taxes imposed by units of local government that are administered by the Illinois Department of
Revenue generally are subject to the same exemptions contained in the State Retailers’ Occupation
Tax Act.
Rate of Tax
Generally, home rule and non-home rule municipalities, counties, school districts and special
districts may impose occupation taxes. See Illinois Municipal Code (65 ILCS 5) and Counties Code
(55 ILCS 5). Special Districts (for example, airport, forest preserves, fire protection, park, sanitary,
transit and water) can be found in Chapter 70 of the Illinois Complied Statutes beginning with 70 ILCS
5 and ending at 70 ILCS 3720. Not all units of local government impose a local occupation tax. Not
all units of local government impose the same rate of tax. Not all units of local government impose a
use tax. A tax rate finder is located on the Department’s website.
Jurisdictional Boundaries
Generally, local occupation taxes that are imposed by units of local government are confined
to the geographic boundaries of the local government adopting the tax. However, some local
occupation taxes imposed by special districts may cover multiple jurisdictions, for example, transit
taxes.
Administration
The Department does not administer all local taxes. One must review the statute authorizing a
local tax to determine if the tax is administered by the Department.
Virtual Currency
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 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. "Gross receipts"
means the total selling price or the amount of such sales. The Department rules state that "’gross
receipts’ means all the consideration actually received by the seller, except traded-in tangible
personal property.” 86 Ill. Adm. Code 130.401. “‘Selling price’ or the ‘amount of sale’ means the
consideration for a sale valued in money whether received in money or otherwise, including cash,
credits, property. . .” 35 ILCS 120/1.

The Department has not issued any guidance on the sale or use of virtual currency. The
Retailers’ Occupation Tax only exempts “[l]egal tender, currency, medallions, or gold or silver coinage
issued by the State of Illinois, the government of the United States of America, or the government of
any foreign country, and bullion.” 35 ILCS 2-5(18). Virtual currency does not fall within the
exemption.
Common Filing Mistakes
The Department has prepared a document that identifies common sales tax filing mistakes. It
is located on the Department’s website at:
http://tax.illinois.gov/Businesses/AvoidCommonSalesTaxFilingMistakes.htm
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

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