Must an Illinois caterer tax separately billed equipment, labor, setup, and delivery, and how are cleaning supplies treated?

Plain-English summary

A CPA firm asked whether a catering client should tax only the food portion of its invoices or could exclude separately negotiated charges for dishes, chairs, tables, labor, delivery, setup, rentals, and cleaning or organizing services.

IDOR said a caterer selling meals owed Retailers' Occupation Tax on the entire gross receipts associated with the food sale. Selling price allowed no deduction for property cost, materials, labor, services, or other expenses. Charges for linens, tables, chairs, dishes, glasses, flowers, labor, setup, and delivery were therefore taxable catering overhead even when separately billed.

Charges for items genuinely unrelated to the food sale could be excluded. The letter gave singers and bands as examples of entertainment and required those charges to be separately listed on the customer invoice and initialed by the customer.

Cleaning and janitorial providers generally transferred no tangible property to customers. They were the users of cleaning supplies, paper products, linens, uniforms, and garbage bags consumed in performing their contracts and owed Use Tax on those purchases. Their customers owed no tax on the providers' use of the supplies, and the providers could not buy the supplies for resale.

What this means for you

Breaking a catering invoice into food, equipment, labor, setup, and delivery lines did not remove food-related costs from taxable gross receipts. Only genuinely separate non-food items met the letter's exclusion, with the required invoice documentation.

Common questions

Were separately billed tables, dishes, labor, and delivery taxable? Yes, when associated with the catered food sale.

Could entertainment be excluded? Yes, if it was separate from the food sale, separately invoiced, and initialed by the customer.

Who owed tax on cleaning supplies? The cleaning or janitorial provider owed Use Tax as the consumer; the customer did not owe tax on the provider's use.

Citations and references

• 35 ILCS 120/1; 86 Ill. Adm. Code 130.410.
• 86 Ill. Adm. Code 130.2145.
• 35 ILCS 105/3; 86 Ill. Adm. Code 150.101 and 150.130.
• 86 Ill. Adm. Code 140.101 through 140.109.

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-15-0051-gil.pdf

Original ruling text

ST-15-0051 GIL - August 21, 2015 - GROSS RECEIPTS
Caterers incur Retailers’ Occupational Tax liability on their entire gross receipts from sale,
without deductions on account of overhead costs, such as charges for linens, dishes, flowers
or delivery. (This is a GIL.)

August 21, 2015

Dear Mr. XXXX:
This letter is in response to your letter June 19, 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 are a Certified Public Accounting firm and have acquired a catering client and we
have a sales tax question we need answered.
In reviewing the internet we found one letter from the sales tax department, one dated
December 12, 2008 which I am enclosing. We need verification as to equipment
showing whether it is [sic] dishes, chairs, tables, etc, subject to sales tax. We also need
verification as to Personal cleaning and organizing service for parties and events
Delivery and set up Rental items for customer use subject to sales tax.
The client has a location in which they cook the food and then go to banquet halls or to
people houses and cater the party. We believe that only the food portions should be
subject to sales tax and that the catering bill which is a service should not be subject to
sales tax. The bill on the invoice is separated to reflect the Food portion and the
catering portion labor is broken down. The fees are negotiated separately and specified
on the contract separately.
Could you please help us and give us a letter explaining what the correct sales tax laws
are in regard to the above.

DEPARTMENT’S RESPONSE:
Retailers’ Occupation Tax Act
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 tax is measured by the seller's gross receipts from retail sales made in the
course of such business. "Gross receipts" means the total selling price or the amount of such sales.
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.
In Illinois, Use Tax is imposed on the privilege of using, in this State, any kind of tangible
personal property that is purchased anywhere at retail from a retailer. See 35 ILCS 105/3; 86 Ill.
Adm. Code 150.101. These taxes comprise what is commonly known as "sales tax” in Illinois. If the
purchases occur in Illinois, the purchasers must pay the Use Tax to the retailer at the time of
purchase. The retailers are then allowed to retain the amount of Use Tax paid to reimburse
themselves for their Retailers' Occupation Tax liability incurred on those sales. If the retailer does not
collect the Use Tax from the purchaser for remittance to the Department, the purchaser is responsible
for remitting the Use Tax directly to the Department. See 86 Ill. Adm. Code 150.130.
Service Occupation Tax Act
Illinois Service Occupation and Service Use Taxes do not apply to sales of service that do not
involve the transfer of tangible personal property to customers. However, if tangible personal
property is transferred incident to sales of service, this will result in either Service Occupation Tax
liability or Use Tax liability for the servicemen depending upon his activities. For your general
information, see 86 Ill. Adm. Code 140.101 through 140.109 regarding sales of service and Service
Occupation Tax.
Catering
As noted above, the Retailers' Occupation Tax is imposed upon persons engaged in this State
in the business of selling tangible personal property for use or consumption. Persons that are
engaged in the business of selling meals to purchasers for use or consumption incur Retailers'
Occupation Tax liability on their gross receipts from such sales. See 86 Ill. Adm. Code 130.2145.
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 … 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. See also 86 Ill. Adm. Code 130.410.
As a result, tax is imposed upon a caterer's entire gross receipts from a sale, without any
deduction on account of service costs or other overhead costs. A caterer's gross receipts would
include all receipts associated with his sale of food. Such costs would include charges for linens,
tables, chairs, dishes, glasses, flowers, labor, set-up, and delivery. Each of these items is a part of
the cost of doing business as a caterer. It is immaterial that the customer is separately billed for the
price of these items. These costs are costs of doing business as a caterer, just as they would be part
of the overhead expenses incurred by a restaurant owner.

When a caterer makes separate charges to customers for items which are not associated with
the sale of food, such items are not taxable, provided that they are separately listed on the invoice to
the customer and are initialed by the customer. This would be the case, for instance, with charges for
entertainment (singers, bands, and the like).
Personal Cleaning Or Janitorial Services
It is the Department’s understanding that normally no tangible personal property is transferred
to customers of personal cleaning or janitorial services. However, persons who provide cleaning or
janitorial services and use cleaning supplies as part of those services incur Use Tax liability on the
cost price of those cleaning supplies because they are using those cleaning supplies in this State.
The recipients of those services incur no tax liability in regards to the use of the supplies by the
cleaning or janitorial service providers. Because the supplies are used by the providers of cleaning or
janitorial services, they cannot be purchased for resale.
Persons providing cleaning or janitorial services will be subject to Use Tax on purchases of
paper products because those persons are purchasing these items in order to fulfill their obligations
under the contract. The purchase of cleaning supplies and other items, which may consist of linens,
uniforms and garbage bags, is also subject to Use 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,

Debra M. Boggess
Associate Counsel
DMB:mdb