Were an online retailer's mandatory shipping-and-handling fees taxable, and could it allocate fees between taxable and exempt items?

Plain-English summary

An online retailer sold to Illinois customers through out-of-state affiliate fulfillment centers. Customers had to select a shipping speed, paid one separately stated shipping-and-handling fee covering fulfillment and common-carrier delivery, and could not pick up orders at the centers.

IDOR said the charge was taxable when the purchased item was taxable. A separately stated line did not prove a separate delivery agreement. Because shipping was required to complete the order and customers had no pickup option, delivery was inseparably linked to the merchandise under Nancy Kean v. Wal-Mart Stores, Inc.

Delivery could be excluded only when separately agreed apart from the property sale, supported by a distinct contract or a documented choice between pickup at the seller's location and delivery for an added ascertainable charge. Any charge above actual delivery cost was taxable.

For a shipment containing both taxable and exempt items, the portion of shipping and handling included in the exempt items' selling price was not taxable. The retailer could use a reasonable allocation method, but had to preserve records supporting it for audit.

What this means for you

Mandatory fulfillment and shipping charges generally followed the tax treatment of the merchandise. Mixed orders required a consistent, reasonable, and auditable allocation rather than taxing or exempting the entire fee without support.

Common questions

Did separate statement make the fee nontaxable? No.

Why was it taxable? Customers could not complete the purchase without shipping and had no pickup option.

Could exempt items receive an allocated shipping exclusion? Yes, with a reasonable documented method.

Citations and references

• 35 ILCS 120/1.
• 86 Ill. Adm. Code 130.410 and 130.415(d).
• 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/2015.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2015/st-15-0017.pdf

Original ruling text

ST 15-0017 GIL 03/18/2015 DELIVERY CHARGES
This letter explains the rules regarding the taxability of shipping and handling charges.
See 86 Ill. Adm. Code. 130.415. See also Nancy Kean v. Wal-Mart Stores, Inc., 235 Ill.
2d 351, 919 N.E.2d 926 (2009). (This is a GIL.)

March 18, 2015

Dear XXXX:
This letter is in response to your letter dated November 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:
COMPANY (“Taxpayer”) respectfully requests a private letter ruling
from the Illinois Department of Revenue (“Department”) pursuant to 2 Ill.
Adm. Code § 1200.110, to obtain guidance on whether Taxpayer is
required to collect and remit Illinois retailers’ occupation tax (“ROT”)
and/or use tax (“Use Tax”) on shipping and handling fees (“S&H Fees”)
charged to customers in Illinois.
As required by 2 Ill. Adm. Code § 1200.110, Taxpayer provides the
following disclosures: (1) Taxpayer is not under audit by the Department;
(2) Taxpayer is not engaged in litigation with the Department; (3) to the
best of the Taxpayer’s knowledge, the Department has not previously
ruled on the same or a similar issue for the Taxpayer or a predecessor; (4)
Taxpayer has not previously submitted the same or a similar issue to the
Department for a letter ruling and withdrawn the request before a letter
ruling was issued; (5) this request for a Ruling describes all authorities
relevant to the request. This Ruling is intended to address current and

future tax periods to which the facts described below apply. Taxpayer
requests the opportunity to delete any identifying information prior to
public dissemination of the Ruling.

I. Facts
Taxpayer sells tangible personal property listed on the COMPANY
website to Illinois customers. The distribution, fulfillment, and related
services (e.g., inventory storage, packaging, and shipping services) for
such sales are handled by fulfillment centers (“FCs”) which are leased and
operated by Taxpayer’s affiliated entities, all of which are located outside
of Illinois. FCs purchase products from various vendors and hold the
inventory for resale to both related and unrelated parties. When a
customer purchases tangible personal property from Taxpayer listed on
the COMPANY website, an FC will drop ship the tangible personal
property to the customer via common carrier.1 Additionally, FCs provide
packaging, labeling, shipping and other related services to Taxpayer.
When a customer purchases tangible personal property from
Taxpayer, the customer is required to select a shipping speed and the
customer will generally be charged a S&H Fee. The S&H Fee is a charge
for the following: (1) preparing the order for shipment, which includes
picking, packaging, and fulfilling the order; and (2) shipping the order from
the FC to the customer via common carrier. The S&H Fee is separately
stated on the customer’s order summary or receipt as a single line item,
separate from the total sales price of the tangible personal property and
any applicable ROT, Use Tax, or other charges.
The S&H Fee contains a shipping component and a handling
component. Taxpayer’s shipping charges for tangible personal property
shipped within the contiguous U.S. vary based on the following: (1) the
product category of the item(s) shipped, and (2) the shipping speed
selected by the customer. Depending on the item and the delivery
address, Taxpayer offers the following various shipping speeds: (1)
standard (delivery within 3 to 5 business days); (2) two-day (delivery within
2 business days); (3) one-day (delivery within 1 business day); and (4)
local express delivery (same-day delivery on items ordered before the cutoff time). Generally, the quicker the delivery method, the greater the total
shipping cost. In addition to the shipping charge, the S&H Fee also
includes a handling charge. The handling fee is a charge for picking,
packing, and fulfilling the customer’s order. The customer is required to
1

The FC sells the tangible personal property ordered by the customer to Taxpayer; the FC
prepares the shipment and a common-carrier picks up the shipment at the FC. Title passes
immediately from the FC to the Taxpayer and then to the customer when the item is placed with
the common carrier for delivery.

select a shipping and handling option during the checkout process as
customers cannot pick up packages at FCs.
II.

Issues
Are the S&H Fees charged by Taxpayer on sales of tangible
personal property shipped to customers in Illinois taxable under the ROT
and/or Use Tax when the item purchased is taxable? Is Taxpayer
permitted, when a shipment contains both taxable and exempt items, to
apportion the S&H Fee between such items based on the selling price of
each item and collect tax only on that portion of the S&H Fee attributable
to taxable items?
III.

Illinois Law

Under Illinois law, persons with nexus in Illinois who are selling
tangible personal property to Illinois customers are subject to the ROT or
have a Use Tax collection obligation. However, persons are not
exclusively subject to the ROT or the Use Tax. Instead, the application of
the specific tax is determined on a sale by sale basis.2
1.

Retailers’ Occupation Tax

Illinois imposes the ROT “upon persons engaged in the business of
selling at retail tangible personal property….”3 The legal incidence of the
ROT is on the seller, rather than on the purchaser.4 The “business of
selling” is the composite of many activities extending from the preparation
for, and the obtaining of, orders for goods to the final consummation of the
sale by the passing of title and payment of the purchase price.”5 A “sale at
2

Ex-Cell-O Corp. v. McKibbin, 384 Ill. 316, 321-22 (Ill. 1943); see also Ill. Private Letter Ruling
No. ST 12-0007-PLR (Aug. 17, 2012) (An “Illinois Retailer” is “one who either accepts purchase
orders in the State of Illinois or maintains an inventory in Illinois and fills Illinois orders from that
inventory.” An “Illinois Retailer” is “liable for Retailers’ Occupation Tax on gross receipts from
sales and must collect the corresponding Use Tax incurred by the purchasers.”); see also
Automatic Voting Machine Corp. v. Daley, 409 Ill. 438 (Ill. 1951) (An out-of-state corporation
selling voting machines to the city of Chicago was not liable for the Retailers’ Occupation Tax
when its activities in Illinois were limited to promotional work, delivery of bids, transfer of title,
delivery of the machines and servicing them. The submission of bids, together with the
promotional work of its agents was not sufficient to subject the company to the Retailers’
Occupation Tax. Mere execution of contract in Illinois was not sufficient to constitute engaging in
the business of selling at retail in Illinois.).
3
35 ILCS § 120/2.
4
86 IAC 130.101(d). A retailer who is “liable for Retailers’ Occupation Tax on gross receipts
from sales [] must collect the corresponding Use Tax incurred by the purchasers.” Ill. Private
Letter Ruling No. ST 12-0007-PLR (Aug. 17, 2012). Such a retailer, however, is “allowed to
retain the amount of Use Tax paid to reimburse themselves for their Retailers’ Occupation Tax
liability incurred on those sales.” Ill. Dep’t of Rev. General Info. Letter No. ST 11-0040-GIL
(May 26, 2011).
5
Ex-Cell-O Corp. v. McKibbin, 384 Ill. 316, 321-22 (Ill. 1943); see also Ill. Private Letter Ruling
No. ST 12-0007-PLR (Aug. 17, 2012); see also Automatic Voting Machine Corp. v. Daley, 409 Ill.
438 (Ill. 1951).

retail” is defined as “any transfer of the ownership of or title to tangible
personal property to a purchaser … for a valuable consideration.”6
Under the ROT, tax is calculated as a percentage of the “gross
receipts from sales of tangible personal property made in the course of
business.”7 “Gross receipts from the sales of tangible personal property”
is defined to mean “the total selling price or the amount of such sales[.]”8
The “selling price” is generally the consideration received valued in
money:
“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, other than as hereinafter provided, and services, but not
including the value of or credit given for traded-in tangible personal
property where the item that is traded-in is of like kind and character as
that which is being sold, 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, but does not include
charges that are added to prices by sellers on account of the seller’s [ROT
liability], or on account of the seller’s duty to collect, from the purchaser,
the tax that is imposed by the Use Tax Act[.]9
2.

Use Tax

The Illinois Use Tax is “imposed upon the privilege of using in
[Illinois] tangible personal property purchased at retail from a retailer….” 10
The use tax “shall be collected from a purchaser by a retailer maintaining
a place of business in [Illinois] or a retailer authorized by the Department
under Section 6 of [Illinois’ Use Tax Act], and shall be remitted to the
Department….”11

6

35 ILCS § 120/1.
35 ILCS § 120/2-10.
8
35 ILCS § 120/1.
9
35 ILCS § 120/1.
10
35 ILCS § 105/3.
11
35 ILCS § 105/3-45. Persons who are considered to be “retailers maintaining a place of
business” in Illinois “because of their Illinois activities are required to collect Use Tax on sales
made to all Illinois purchasers regardless of the manner in which the orders are placed.” Ill. Dep’t
of Rev. Gen. Info. Letter ST 05-0006-GIL (Jan. 11, 2005). A retailer who is considered to
maintain a place of business in Illinois is required to “collect Use Tax on all his sales to Illinois
purchasers, regardless of whether those sales are placed by mail order, telephone order or over the
Internet.” Id. Out-of-State sellers who fall under the definition of a “retailer maintaining a place
of business in Illinois” are required to “register to collect Illinois Use Tax from Illinois customers
and remit that tax to the Department.” Ill. Dep’t of Rev. General Info. Letter No. ST 11-0040-GIL
(May 26, 2011). A retailer who is liable for collecting Use Tax because it maintains a place of
business in Illinois may not incur any Retailers’ Occupation Tax Liability. See Ill. Private Letter
Ruling No. ST 12-0007-PLR (Aug. 17, 2012).
7

The Use Tax is calculated as a percentage of “either the selling
price or the fair market value, if any, of the tangible personal property.” 12
The “selling price” is generally the consideration for a sale valued in
money:
“Selling price” means the consideration for a sale valued in money
whether received in money or otherwise, including cash, credits, property
other than as hereinafter provided, and services, but not including the
value of or credit given for traded-in tangible personal property where the
item that is traded-in is of like kind and character as that which is being
sold, 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, but does not include interest or finance
charges which appear as separate items on the bill of sale or sales
contract nor charges that are added to prices by sellers on account of the
seller’s tax liability under the “Retailers’ Occupation Tax Act”, or on
account of the seller’s duty to collect, from the purchaser, the tax that is
imposed by this Act[.]13
The Use Tax regulations provide that “[t]o avoid needless repetition, the
substance and provisions of all [ROT] Regulations … which are now in
effect or which may hereafter be amended or promulgated, and which are
not incompatible with the Use Tax Act or any special Regulations that may
be promulgated by the Department thereunder, are incorporated herein by
reference and made a part [of the Use Tax regulations].”14
B. Transportation or Delivery Charges
The taxability of transportation and delivery charges depends upon
“whether the transportation or delivery charges are included in the selling
price of the property which is sold or whether the seller and the buyer
contract separately for such transportation or delivery charges by not
including such charges in such selling price.”15 The taxability of such
charges does not depend on “the separate billing of such transportation or
delivery charges or expense[.]”16 “Transportation and delivery charges”
are defined to include “freight, express, mail, truck or other carrier,
conveyance or delivery expenses” and are “many times designated as
shipping and handling charges.”17 Thus, while the ROT and Use Tax are
broadly imposed on the “selling price,” such taxes are not imposed on
transportation or delivery charges if: (1) the charges are separately agreed

12

35 ILCS § 105/3-10.
35 ILCS § 105/2.
14
86 Ill. Adm. Code § 150.1201.
15
86 Ill. Adm. Code § 130.415(b).
16
Id.
17
86 Ill. Adm. Code § 130.415(a).
13

upon between the seller and buyer; and (2) the charges do not exceed
actual costs.18

1. Separately Agreed Upon
   As noted above, whether transportation or delivery charges are
   included in the selling price depends on whether the seller and buyer
   contract for such charges separately.19 The primary authorities for what
   constitutes separately agreed upon transportation and delivery charges for
   purchases made over the Internet20 consists of a regulation issued by the
   Department (86 Ill. Adm. Code § 130.415) and a decision issued by the
   Illinois Supreme Court (Kean v. Wal-Mart Stores, Inc.).
   a. 86 Ill. Adm. Code § 130.415
   In Illinois, transportation and delivery charges are taxable if they are
   not separately agreed upon:
   If the seller and buyer agree on 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 part of
   the ‘selling price’ of the tangible 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 [ROT] liability. 21
   The regulation provides that delivery charges are “deemed to be agreed
   upon separately … so long as the seller requires a separate charge for
   delivery[.]”22 The “best evidence” that such charges “were agreed to
   separately and apart from the selling price, is a separate and distinct
   contract for transportation or delivery.” 23 However, the regulation also
   provides that “documentation which demonstrates that the purchaser had
   18

86 Ill. Adm. Code § 130.415. The ROT and the Use Tax are complementary taxes and the
regulations interpreting “selling price,” including the regulation explaining the application of ROT
to transportation and delivery charges, also apply to the Use Tax. See 86 Ill. Adm. Code
150.1201; see also Kean v. Wal-Mart Stores, Inc., 919 N.E.2d 926, 932 (Ill. 2009) (“The
complementary nature of the two statues is further exemplified by the Department’s incorporation
in its Use Tax Act administrative regulations all ROTA regulations which are not incompatible
with the Use Tax Act.”).
19
86 Ill. Adm. Code § 130.415.
20
In the context of mail order sales, the Department has issued general information letters
explaining that mail order delivery charges “are deemed to be agreed upon separately from the
selling price of 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.” Ill. Dep’t of Rev. GIL ST 01-0230-GIL (Oct. 29, 2001); see also Ill. Dep’t of Rev. GIL
ST 99-0327-GIL (Nov. 4, 1999); Ill. Dep’t of Rev. GIL ST 99-0024-GIL (Jan. 7, 1999).
21
86 Ill. Adm. Code § 130.415(d).
22
86 Ill. Adm. Code § 130.415(d).
23
86 Ill. Adm. Code § 130.415(d).

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.”24
b. Kean v. Wal-Mart Stores, Inc.
In Kean v. Wal-Mart Stores, Inc., the Supreme Court of Illinois
addressed when shipping charges are considered separately agreed upon
in the context of Internet purchases of tangible personal property. 25 Kean,
the original plaintiff, and Russell, an intervenor, bought tangible personal
property from Wal-Mart’s website, and Wal-Mart collected Use Tax on the
tangible personal property and the shipping charges. 26 Kean argued that
“the shipping charges for her internet purchase were separately agreed
upon and were not part of Wal-Mart’s ‘selling price’ or ‘gross receipts’ on
which the sales tax is properly assessed.”27
In holding that Wal-Mart appropriately collected sales tax on the
shipping charges, the court stated that the issue is “whether the
transportation or delivery charges are included in the selling price of the
property which is sold or whether the seller and the buyer contract
separately for such transportation or delivery charges by not including
such charges in the selling price.”28 The court determined that “no
separate agreement for transportation arose, nor could it” between the
plaintiffs and Wal-Mart, because the “plaintiffs could not submit their
internet orders unless and until they selected a shipping option.”29
Moreover, the “plaintiffs did not have option of buying the product on the
internet and picking it up at a brick and mortar Wal-Mart.”30 Thus, the
court determined the “selling price” actually included the cost of shipping.31
The court further explained that while “service occupations are
beyond the reach of [the ROT], the line between the provision of a
nontaxable service and a taxable retail sale of tangible personal property
is not always clear.”32 However, a service is considered taxable in Illinois
if it is “an ‘inseparable’ or ‘indispensable’ part of the retail sale.”33 The
court agreed with Wal-Mart and the Department that “an ‘inseparable link’

24

86 Ill. Adm. Code § 130.415(d).
919 N.E.2d 926 (Ill. 2009).
26
Id. at 928, 930.
27
Id. at 929.
28
Id. at 934. Furthermore, if the transportation and delivery charges “exceed the cost of delivery
or transportation, the excess amount is subject to tax.”
29
Id. at 935.
30
Id. at 936.
31
Id. at 935.
32
Id. at 939.
33
Id.
25

exist[ed] between the sale and delivery of the merchandise plaintiffs
purchased from Wal-Mart’s internet store.”34

2. Actual Costs
   86 Ill. Adm. Code § 130.415 also states that to be exempt from tax,
   transportation and delivery charges must be “reflective of the costs of such
   shipping, transportation or delivery.”35 Thus, if transportation and delivery
   charges exceed actual costs, the excess is subject to tax.36
   Recent general information letters issued by the Department and
   an order issued by the Circuit Court of Cook County confirm that the
   relevant authority on the taxability of delivery and transportation charges is
   86 Ill. Adm. Code § 130.415 and the Kean decision.37
   IV.

Legal Analysis

The S&H Fee charged by Taxpayer is taxable by inclusion in the
“selling price” of the product. The ROT and Use Tax are broadly imposed
on the “selling price,” which includes transportation or delivery charges if:
(1) the charges are not separately agreed upon between the seller and
buyer; or (2) the charges exceed actual costs.38 Taxpayer’s S&H Fee
34

Id. at 940. The Illinois Supreme Court also distinguished the appellate court’s opinion in Airco
Industrial Gas Division, where the customers had the option to either take delivery of the gases in
their own storage tanks, by noting that the delivery service purchased by the plaintiffs was not
optional (i.e., plaintiffs could not complete the transaction without selecting a delivery option).
Kean, 919 N.E.2d at 940 (citing Airco Industrial Gas Division, the BOC Group, Inc. v.
Department of Revenue, 223 Ill.App.3d 386, 392 (Ill. App. 1991)).
35
86 Ill. Adm. Code § 130.415(d).
36
86 Ill. Adm. Code § 130.415(b).
37
See Ill. Dep’t of Rev. GIL ST 14-0044-GIL (Aug. 12, 2014)(“Please note that unless separately
contracted for as provided above, [shipping and handling] 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.”); see also Ill.
Dep’t of Rev. GIL ST-14-0004-GIL (Mar. 4, 2014)(“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.”); Ill. Dep’t of Rev. GIL ST 12-0029GIL (June 15, 2012) (“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, then 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).”); Schad, Diamond and Shedden
v. Fansedge Inforporated, No. 11 L 9550 (Ill. Cir. Ct. Cook County June 5, 2014).
38
86 Ill. Adm. Code § 130.415. The ROT and the Use Tax are complementary taxes and the
regulations interpreting “selling price,” including the regulation explaining the application of ROT

does not meet the first of these two requirements, and as a result, we do
not analyze the second requirement.
The S&H Fee charged by Taxpayer is not separately agreed upon
between Taxpayer and its customers. Although it could be asserted that
Taxpayer’s S&H Fee is similar to mail order delivery charges and exempt
because it is a separate line item charge, the Illinois Supreme Court in
Kean determined that Wal-Mart’s shipping charges for orders placed from
its website were taxable when its customers were required to select a
shipping option. Like the plaintiffs in Kean, Taxpayer’s customers are
required to select a shipping option for tangible personal property in order
to complete their orders. Taxpayer does not enter into a separate
agreement with its customers for shipping and handling services and
Taxpayer’s customers are required to select shipping and handling option
because they do not have the option to pick up purchased products at a
brick and mortar location. Moreover, Illinois law is clear that Taxpayer’s
practice of separately stating the S&H fees on an invoice is insufficient to
render such fees not taxable. Thus, an “inseparable link” appears to exist
between the sale and delivery of the merchandise to Taxpayer’s
customers, and therefore, Taxpayer’s S&H Fee would not qualify as
separately agreed upon.
Because Taxpayer and its customers do not separately agree upon
the S&H Fee, it is not necessary to determine whether Taxpayer’s S&H
Fee exceeds its actual costs for such services. Based on the above
analysis, the “selling price” of tangible personal property purchased by
Taxpayer’s customers includes any separately stated S&H Fees. Along
the same lines, if a customer purchases an exempt item, the S&H Fee
charged to ship the exempt item to the customer would also be exempt
from tax by virtue of their being no “selling price.”
V.

Conclusions

Taxpayer seeks the Department’s confirmation that the separately
stated S&H Fee charged by Taxpayer on sales of tangible personal
property shipped to customers in Illinois is taxable when the item
purchased is taxable. Additionally, Taxpayer seeks confirmation that
when a shipment contains both taxable and exempt items, the S&H Fee
may be apportioned between such items based on the selling price of
each item and only that portion of the S&H Fee attributable to taxable
items will be subject to tax.

to transportation and delivery charges, also apply to the Use Tax. See 86 Ill. Adm. Code
150.1201; see also Kean v. Wal-Mart Stores, Inc., 919 N.E.2d 926, 932 (Ill. 2009) (“The
complementary nature of the two statues is further exemplified by the Department’s incorporation
in its Use Tax Act administrative regulations all ROTA regulations which are not incompatible
with the Use Tax Act.”).

Prior to the issuance of the Ruling, Taxpayer respectfully requests
that the Department contact us to discuss any facts or questions that may
potentially result in a nontaxable Ruling. Taxpayer reserves the right to
withdraw the request. Should you have any questions regarding this
request, please contact me at [XXX-XXX-XXXX or NAME@EMAIL].
DEPARTMENT’S RESPONSE:
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. 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 a retailer’s 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
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). 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.
A separate listing on an invoice of transportation and delivery charges is not
sufficient to demonstrate a separate agreement. The best evidence that such 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.
The Illinois Supreme Court’s decision in Nancy Kean v. Wal-Mart Stores, Inc.
provides further guidance. In Kean, a customer purchased an item online and was
required to choose a shipping method to complete the transaction. The subtotal could
never represent the full selling price of the item, but rather had to include shipping

charges in order to complete the transaction. Thus, the Illinois Supreme Court held that
the shipping charges were part of the selling price and therefore taxable as the
customer did not have another option for obtaining the product she purchased. The
court stated that this creates an inseparable link between the delivery of the item and
the sale of the merchandise, and the delivery charge is included in the selling price of
the merchandise. See Nancy Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351, 919 N.E.2d
926 (2009).
In the event that you are collecting Use Tax, based on the descriptions of sales in
your letter, your shipping and handling charges are taxable gross receipts when the
item purchased is taxable.
To the extent that a sale includes both taxable and exempt items, and the
shipping and handling charges are included in the selling price of each item, the
shipping and handling charges for the exempt item(s) are not subject to tax. You may
use a reasonable apportionment method to exclude shipping charges on nontaxable
items from the taxable gross receipts. Please be sure to maintain records and ensure
that the method can be documented at the time of an audit.
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
CB:kad