Did a contractor installing blinds, shutters, and flooring pay Use Tax on materials or collect sales tax from the customer?

Plain-English summary

A company permanently installed blinds, shutters, and flooring under construction contracts and asked whether it should pay tax on the materials or collect Retailers' Occupation Tax from customers.

IDOR treated a construction contractor as the end user of materials incorporated into real estate. The contractor owed Use Tax on its cost of permanently affixed floor coverings and related materials, blinds, shutters, shades, and similar installed items. It did not owe Retailers' Occupation Tax on its gross receipts from the construction contract.

The customer incurred no Use Tax, and the contractor had no authority to collect it as "sales tax." The contractor could raise its price or require contractual reimbursement of its tax cost, but the invoice had to describe that amount as reimbursement rather than sales tax.

What this means for you

Tax permanently installed materials when the contractor acquires them, based on cost. Do not calculate customer tax on the full installed selling price merely because product and installation appear as invoice lines.

Common questions

Who owed the tax? The construction contractor.

What was the tax base? The contractor's cost of the permanently installed materials.

Could the contractor pass the cost through? Yes, but not label it sales tax.

Citations and references

• 86 Ill. Adm. Code 130.1940 and 130.2075.
• 86 Ill. Adm. Code 130.2101(d).
• 86 Ill. Adm. Code 150.310.

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-15-0065-gil.pdf

Original ruling text

ST 15-0065-GIL 11/05/15 CONSTRUCTION CONTRACTORS
When a construction contractor permanently affixes tangible personal property to real property,
the contractor is deemed the end user of that tangible personal property. As the end user, the
contractor incurs Use Tax on the cost price of that tangible personal property. See 86 Ill. Adm.
Code 130.1940 and 86 Ill. Adm. Code 130.2075. (This is a GIL.)

November 5, 2015

Dear Xxxxx:
This letter is in response to your letter dated October 9, 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 writing for a ruling on liability for Retailers' Occupation Tax and or Use Tax, as
advised by your tax department, on behalf of our client. We are inquiring for a General
Information Letter or a Private Letter Ruling.
Do we pay Retailers' Occupation Tax and charge to customer or pay Use Tax on the
material purchased?
Our client is a blinds, shutters and flooring company, installing blinds, shutters and
flooring as a construction contractor. They install the blinds, shutters and flooring in
accordance with the manufacturer's installation guidelines. Installation of these items is
that they be permanently affixed to the real property. As shown in enclosed
attachments.
It is stated in Illinois Code 130.940 section (c) Construction Contractors -- When Not
Liable for Tax
"A construction contractor does not incur Retailers' Occupation Tax liability as to
receipts from labor furnished and tangible personal property (materials and fixtures)
incorporated into a structure as an integral part thereof for an owner when furnished and
installed as an incident of a construction contract. The construction contractor incurs
Use Tax on the cost price of the tangible personal property that is incorporated into real

estate.” In your example you mention Venetian blinds, window shades and flooring that
are permanently affixed to the structure.
The invoice used totals window treatments then adds installation charges on our
invoice.
Enclosed is
1)
A sample proof of invoice.
2)
Instructions to show blinds and shutters are permanently attached.
Thank you for your help with this issue.
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. See 86 Ill.
Adm. Code 130.101. 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 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.
A contract that provides for both the sale and installation of tangible personal property that is
permanently affixed or incorporated into a structure is considered a construction contract. The tax
liabilities regarding construction contractors in Illinois may be found at 86 Ill. Adm. Code 130.1940
and 130.2075 on the Department’s Internet website. The term construction contractor includes
general contractors, subcontractors, and specialized contractors such as landscape contractors.
In Illinois, construction contractors are deemed end users of tangible personal property purchased for
incorporation into real property. As end users of such tangible personal property, these contractors
incur Use Tax liability for such purchases based upon their cost price of the tangible personal
property. Therefore, any tangible personal property that a construction contractor purchases that will
be permanently affixed to or incorporated into real property in this State will be subject to Use Tax. If
such contractors did not pay the Use Tax liability to their suppliers, those contractors must self assess
their Use Tax liability and pay it directly to the Department. If the contractors have already paid a tax
in another state regarding the purchase or use of such property, they will be entitled to a credit
against their Illinois Use Tax liability to the extent that they have paid tax that was properly due to
another state. See 86 Ill. Adm. Code 150.310.
Construction contractors who permanently affix floor coverings to real estate under the terms
of construction contracts incur tax liability based on their cost price of the floor covering and materials
that they affix to real estate. In a construction contract situation, the construction contractor does not
incur Retailers' Occupation Tax liability on his gross receipts from sale. Rather, the construction
contractor incurs tax based on his cost price of the floor covering and materials transferred to his
customer under the terms of the construction contract. 86 Ill. Adm. Code 130.2101(d). A construction
contractor also does not incur Retailers' Occupation Tax liability on receipts from selling and installing
screen doors and windows; storm doors and windows; weather stripping; insulation material;
Venetian blinds; window shades; awnings; and cabinets built into the structure.

It is important to note that since construction contractors are the end users of the materials that
they permanently affix to real estate, their customers incur no Use Tax liability and the construction
contractors have no legal authority to collect the Use Tax from their customers. However, many
construction contractors pass on the amount of their Use Tax liabilities to customers in the form of
higher prices or by including provisions in their contracts that require customers to “reimburse” the
construction contractor for his or her tax liability. Please note that this reimbursement cannot be
billed to a customer as “sales tax,” but can be listed on a bill as a reimbursement of tax. The choice
of whether a construction contractor requires a tax reimbursement from the customer or merely raises
his or her price is a business decision on the construction contractor’s part.
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.]
Sincerely,

Richard Wolters
Associate Counsel
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