Could an Illinois retailer advertise sales as tax-free, omit tax from receipts, and pay the sales tax itself?

Plain-English summary

A retailer opening its first Illinois store planned to sell to resale-certificate customers and the general public. Retail customers could pay a membership fee tied to their savings and buy at wholesale prices. The company proposed showing no sales tax on the receipt, paying the tax itself, and advertising merchandise as "Tax-Free to the Public."

IDOR limited its response to tax collection and did not approve the other parts of the proposed arrangement. It said an Illinois retailer had to collect Use Tax from customers by adding the tax to the selling price. If tax was not separately stated, the regulation presumed the seller was not collecting it; simply paying the tax without charging customers was improper.

The Department treated the tax-free advertising as a separate statutory violation. The Use Tax Act prohibited a retailer from telling the public that the retailer would assume or absorb the tax or would not add it to the selling price. The violation was a Class A misdemeanor. IDOR directed the company to stop the advertising immediately and warned that continued violations could result in criminal prosecution.

What this means for you

An Illinois retailer could not market a discount by saying the retailer would absorb the customer's Use Tax. Pricing and membership promotions still had to preserve the statutory collection and receipt treatment described in the letter.

Common questions

Could the retailer pay the tax itself instead of charging customers? No.

Was "Tax-Free to the Public" advertising allowed? No.

Did the GIL approve the proposed membership-fee structure? No. IDOR expressly limited its response to tax collection.

Citations and references

• 35 ILCS 105/3-45 and 105/7.
• 86 Ill. Adm. Code 150.401 and 150.515.

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-15-0042-gil.pdf

Original ruling text

ST 15-0042 GIL 06/25/2015 TAX COLLECTION

A retailer maintaining a place of business in Illinois must collect tax from users in accordance with the
Retailers’ Occupation Tax Act and the Use Tax Act by adding the tax to the selling price of tangible
personal property, when sold for use. See 86 Ill. Adm. 150.401.

June 25, 2015

Dear Mr. XXXX:

This letter is in response to your letter dated April 2, 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:

General Information:

1) | am an Officer of the company, COMPANY and am authorized to represent the
company before the Illinois Department of Revenue.

2) The Private Letter Ruling (“PLR”) is not requested with regard to hypothetical or
alternative proposed transactions. The PLR is requested to determine the Retailers’
Occupation Tax consequences of the actual business practices of the Company.

3) The Company is not currently under audit by the Department in regards to this or any
other tax matter.

4) To the best of knowledge of the Company has not previously ruled regarding this matter
for the Company. In addition, the Company has not submitted the same or similar issue
to the Department.

5) The Company is not currently engaged in litigation with the Department in regards to
this or any other tax matters.

6) The Company is not aware of any authority contrary to the authorities referred to and
cited below.

Statement of Material Facts
1) The Company is in the process of opening its first store in CITY, Illinois (COUNTY).
2) The Company is part of a group of companies that include a Manufacturing/Wholesale
Company.

3) The Company will acquire all of its inventory from the Manufacturing Company.
Substantially all of these products will be private labeled as to the manufacturing
Company.

4) The Company’s store will be open to the customers of the Manufacturing Company to
purchase goods at wholesale prices. These customers will be required to present a
valid Reseller’s Certificate and not be subject to Sales Tax. The Company will also
open the Store to the general public, to purchase the same goods at retail prices. Sales
to the public are being offered as a way to enhance the product name and increase
demand for the Manufacturing product line.

5) The Company will display two prices on the shelf for each product, the Wholesale price
and the retail price.

6) The Company desires to pass along additional savings to the Retail customer by
offering them the ability to pay the Wholesale prices, with the payment of a membership
fee. The membership fee is based on a percentage of the savings of the retail
customer.

7) At the checkout, the Retail customer will be presented with the total of their purchase at
retail pricing. They will also be shown that the total of their purchase would be at
wholesale pricing along with the amount of the membership fee to be paid to obtain the
favorable pricing. If they choose not to take advantage of the offer, the sale will
continue at full retail pricing. If they choose to pay the membership fee, the sale will be
concluded at wholesale pricing and the membership fee will be added to their purchase.

8) The receipts will not show any Sales Tax charged to the Retail customers at Wholesale
price plus membership fee.

9) The company will pay the Sales Tax ourselves base on the gross receipts without
charging our customers Sales Tax on the Company Sales Tax return.

10)We would really appreciate if the Department can expedite the PLR at your earliest
convenience.

11)The store is scheduled to be opened in the next XX to YY days.

Ruling Requested
The Company requests the Illinois Department of Revenue to rule that it
is legal for the Company not to collect Sales Tax from our customer and the Company
will pay all Sales Tax required from the Sales.

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. 86 Ill. Adm.
Code 130.101. The Use Tax Act imposes a tax upon the privilege of using in this State tangible
personal property purchased at retail from a retailer. 86 III. Adm. Code 150.101.

Please note that this response is limited to your question regarding the collection of sales tax
from customers. This response does not make any representations regarding any of the other items
listed in your statement of material facts. Your letter states that receipts for the sale of tangible
personal property will not show any sales tax charged to the customer. We suggest that you refer to
86 III. Adm. Code 150.401 which states that it will be assumed that the seller is not collecting the tax if
he/she does not state it as a separate item from the selling price of the tangible personal property.
Furthermore, your letter states that the company will pay the sales tax without charging customers
sales tax. This is improper. A retailer maintaining a place of business in Illinois must collect tax from

users in accordance with the Retailers’ Occupation Tax Act and the Use Tax Act by adding the tax to
the selling price of tangible personal property, when sold for use. See 86 Ill. Adm. 150.401.

It has also come to our attention that you are advertising that merchandise at your store is
“Tax-Free to the Public.” Please consider this letter as fair notice that this conduct violates the
provisions of the Use Tax Act. Section 35 ILCS 105/3-45 of the Use Tax Act requires Illinois retailers
to collect the Use Tax from purchasers by adding the tax to the selling price of the tangible personal
property when sold for use. Section 7 of the Use Tax Act states:

It is unlawful for any retailer to advertise or hold out or state to the public or to any
purchaser, consumer or user, directly or indirectly, that the tax or any part thereof
imposed by Section 3 hereof will be assumed or absorbed by the retailer or that it will not
be added to the selling price of the property sold, or if added that it or any part thereof
will be refunded other than when the retailer refunds the selling price and tax because of
the merchandise’s being returned to the retailer or other than when the retailer credits or
refunds the tax to the purchaser to support a claim filed with the Department under the
Retailers’ Occupation Tax Act or under this Act. Any person violating any of the
provisions of this Section within this State shall be guilty of a Class A misdemeanor. See
35 ILCS 105/7.

As indicated above, it is a class “A” misdemeanor for a retailer to advertise that it will pay the
taxes applied to a purchase. Please refer to 86 Ill. Adm. Code 150.515 that describes this statutory
prohibition. While we do not want to interfere with your advertising techniques, under the
circumstances, we are compelled to do so. You should immediately cease advertising “Tax-Free to
the Public.” Any future advertisements of this kind will be viewed as a continuing violation, which
could result in criminal prosecution.

| 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:kd