Could an Illinois governmental unit use the exempt-organization event rules for food and alcohol sales at community festivals?

Plain-English summary

An Illinois governmental unit sold soft drinks, water, food, and alcohol at community festivals. It asked to use what it understood as a two-event sales exemption under Section 130.2005.

IDOR said that rule did not apply to governmental bodies. Section 130.2005 allowed limited retail activity by exclusively charitable, religious, and educational organizations holding exemption numbers, including certain member sales, noncompetitive sales, and occasional dinners or similar activities.

Governmental bodies instead fell under Section 130.2055(a). A state or local government, agency, or instrumentality incurred Retailers' Occupation Tax when it sold tangible personal property at retail to the public outside the direct performance of a governmental function.

IDOR concluded that a governmental body's alcohol sales were not in direct performance of its governmental function. Festival sales of tangible personal property, including alcohol, were therefore taxable.

What this means for you

A government unit could not claim a charitable-organization event exception merely because festival proceeds paid event expenses. Its public retail sales remained taxable unless they directly performed a governmental function.

Common questions

Did the two-event rule apply to the governmental unit? No.

Were the festival's alcohol sales a governmental function? IDOR said no.

Were festival food and beverage sales taxable? Yes, as sales of tangible personal property under the guidance given.

Citations and references

• 86 Ill. Adm. Code 130.2005(a)(2)-(4).
• 86 Ill. Adm. Code 130.2007.
• 86 Ill. Adm. Code 130.2055(a).

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-14-0051.pdf

Original ruling text

ST 14-0051-GIL 12/2/2014 Exempt Organizations
The State of Illinois or any local governments in Illinois, or any agency or instrumentality
of any such government body, incurs Retailers' Occupation Tax liability when it engages
in the selling of tangible personal property at retail to the public other than in the
performance of a governmental function.” See 86 Ill. Adm. Code 130.2055. (This is a
GIL.)

December 2, 2014

Dear Xxxx:
This letter is in response to your letter dated September 24, 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:
The ASSOCIATION is a governmental unit within the State of Illinois. In
the course of our governmental business, we sponsor several community
events each year, including FESTIVAL 1, FESTIVAL 2 and a FESTIVAL 3
event. Usually we resell pop, water, and food. This past year, the Festival
3 event was restructured and the ASSOCIATION became responsible for
beer sales in the beer tent.
As a reseller of items, we have been collecting sales tax and submitting to
the Illinois Department of Revenue on a quarterly basis (pursuant to IDOR
direction). It has now come to our attention that Section 130.2005 does
allow for sales tax exemption for two events for our type of agency. . We
would like to apply for said exemption for our FESTIVAL 3 and FESTIVAL
2 events. As a governmental unit, all sales go toward expenses to
sponsor the community events.
We would greatly appreciate your direction as to the steps/procedures to
apply for this exemption, or if appropriate, that this letter be considered our

request for exemption of the collection of sales tax on sales beginning with
our 2014 FESTIVAL 3 which was held [DATES] and our upcoming and
FESTIVAL 2 event on [DATE]. We fully understand, as indicated in
Section 130.2005, that once we choose the two events, tax exemption
may not be altered.
Please contact me in our Finance Department with the exemption
information. Thank you for your consideration.

DEPARTMENT’S RESPONSE:
Organizations that qualify as exclusively religious, charitable, or educational
organizations can apply to the Illinois Department of Revenue to obtain a tax exemption
identification number (“e-number”). Please see 86 Ill. Adm. Code 130.2007 for the
requirements for making application for an e-number. E-numbers establish that the
Department recognizes said organizations as exempt from incurring Use Tax when
purchasing tangible personal property in furtherance of their organizational purposes.
While organizations and institutions that are both operated and organized exclusively for
charitable, religious, or educational purposes are as a general matter subject to
Retailers' Occupation Tax upon their own sales of tangible personal property, there are
limited exceptions where such organizations are authorized to engage in a restricted
amount of retail selling activity without incurring Retailers Occupation Tax liability.
Exclusively charitable, religious and educational organizations that hold exemption
numbers may engage in sales to members, noncompetitive sales, and certain
occasional dinners and similar activities without incurring Retailers' Occupation Tax
liability. 86 Ill. Adm. Code 130.2005(a)(2)-(4). Please note that Section 130.2005 does
not apply to sales by governmental bodies.
Section 130.2055(a) of the Administrative Code, in contrast, governs sales by
governmental bodies. Section 130.2055(a) provides that “the State of Illinois or any
local governments in Illinois, or any agency or instrumentality of any such government
body, incurs Retailers' Occupation Tax liability when it engages in the selling of tangible
personal property at retail to the public other than in the performance of a governmental
function.” The object of this rule is to ensure that governmental bodies do not have a
competitive advantage when selling items that are also sold by Illinois retailers. The
Illinois General Assembly did not intend to give government a competitive selling
advantage over Illinois citizens.
An example of sales that may be made by a governmental body to the public that
involves the performance of a governmental function is the sale of motor vehicle license
plates by the State of Illinois. Where a governmental unit makes sales that are not in the
direct performance of its governmental function, the sales are taxable. Examples of
taxable sales by governmental units include the operation of concession stands by park
districts, sales of smoke detectors by fire protection districts, sales of leaf bags by
municipalities, sales of T-shirts, caps and mugs by State agencies, and sales of books
by libraries.

It is the Department’s position that sales of alcohol by a governmental body are
not in the direct performance of its governmental function. Sales of tangible personal
property, including alcohol, by a governmental body at a festival are subject to Retailers’
Occupation Tax.
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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