Were restaurant meal-delivery fees taxable when separately stated but customers were not told they could choose carryout?

Plain-English summary

A national restaurant chain separately listed meal-delivery fees but did not tell phone or online customers that they could avoid the charge by picking up the food. It asked whether the actual availability of carryout was enough to exclude the fee from tax.

IDOR said no. Delivery was outside selling price only when buyer and seller separately agreed to the delivery service. A separate invoice line by itself did not prove that agreement.

The restaurant needed to disclose that customers could choose carryout at the meal's purchase price or delivery for that price plus an ascertainable charge. A separate delivery contract was the best evidence, but documented notice and customer choice could also establish separateness.

Without notifying customers of the carryout option, the restaurant had no evidence of a separate delivery agreement and the delivery charge was taxable even though separately stated. Any portion of a delivery charge above the restaurant's delivery cost was taxable as well.

What this means for you

Operationally allowing pickup was not enough. Ordering screens, phone scripts, contracts, or other records needed to communicate the choice before the transaction and support a separately agreed delivery charge.

Common questions

Was a separate delivery line enough? No.

Did the restaurant need to disclose carryout? Yes, under the analysis in this letter.

Was a delivery markup taxable? Yes, to the extent the charge exceeded delivery cost.

Citations and references

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

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-15-0022-gil.pdf

Original ruling text

ST 15-0022-GIL 04/06/2015 DELIVERY CHARGES
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 86 Ill. Adm. Code 130.415.
(This is a GIL.)

April 6, 2015

Dear XXXX:
This letter is in response to your letter dated February 12, 2015, 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:
We would like a non-binding General Information Letter in connection with
sales tax on separately stated delivery fees charged by our client, a
national restaurant chain (the “Taxpayer”).
Facts:
Some of the restaurants operated by Taxpayer in Illinois are owned by the
Taxpayer, while some of the restaurants are owned and operated by
franchisees. In either case, the same information systems (point of sale
system, software, and programming) are used by the Taxpayer and the
franchisees. Customers may order a meal in person at the restaurant,
order by phone, or order over the website maintained by Taxpayer.

The Taxpayer imposes a charge to deliver the meals to customers. Based
on the configuration of the information system by the Taxpayer or the
franchisee, the software program calculates the amount due from the
customer for the meals, the delivery charge and the sales tax. The
delivery charge is separately stated; however, a customer is not given
written or oral notification that the delivery charge can be avoided if the
customer picks up the meals at the restaurant, whether the order is
phoned in or placed on the Taxpayer’s website.
Based on its interpretations of the Illinois sales tax laws, the Taxpayer has
been collecting sales tax on the separately stated delivery charges
because the Taxpayer does not give any notification to its customers that
the delivery charge can be avoided if the customer picks up the meals.
Requested Advice:
We would request that you confirm whether or not the separately stated
delivery fees are subject to Illinois sales or use tax, because customers
have the option to avoid the delivery fees by arranging to pick up the meal
themselves, taking into consideration that the customers are not given
notice that they may avoid the delivery charge by picking up the meal
themselves.
Please do not hesitate to contact me in the event you need any additional
information.
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 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

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 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.
In order to document that a separate agreement for delivery exists, your client
should separately state delivery fees on the invoice and disclose to customers that they
have the option of choosing carryout for the purchase price or delivery for the purchase
price plus an ascertained or ascertainable delivery charge. If your client does not notify
its customers that they have the option of taking delivery of the food 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, the
delivery charges are taxable, as no evidence of a separate agreement for delivery
exists. Please note that this is the case even if such delivery charges are separately
stated on the invoice because in order for delivery charges to be considered
nontaxable, the taxpayer must also show that a separate agreement for delivery exists,
such as documentation demonstrating that purchasers have the option of delivery or
carryout at the taxpayer’s business.
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