Is a hotel's service charge on a customer's high-speed internet access subject to Illinois sales or service tax?

Plain-English summary

An Illinois hotel used an outside vendor for banquet audiovisual equipment and internet access. The vendor billed the hotel, and the hotel charged customers the full amount plus a 24% service charge. The hotel asked specifically whether a $7.20 service charge associated with high-speed internet access was taxable.

IDOR answered conditionally. Retailers' Occupation Tax and Use Tax apply to tangible personal property, not sales of service. Under the Service Occupation Tax Act, a service provider can be taxed on tangible personal property transferred as an incident to a service.

If the internet-access transaction transferred no tangible personal property to the customer, IDOR said it generally would not be subject to Retailers' Occupation Tax, Use Tax, Service Occupation Tax, or Service Use Tax.

What this means for you

The tax treatment turns on what the customer actually receives. A separately stated charge associated with a service is generally outside these Illinois taxes when the transaction does not transfer tangible personal property. This GIL did not give a broader rule for the hotel's audiovisual, food, beverage, room, or other banquet charges.

Common questions

Did IDOR say every internet-related fee is exempt? No. Its answer was expressly based on a transaction that does not transfer tangible personal property.

Is this letter binding on IDOR? No. It is a General Information Letter, not binding Department policy.

Citations and references

• 35 ILCS 120/2.
• 35 ILCS 105/3.
• 86 Ill. Adm. Code 130.101.
• 86 Ill. Adm. Code 140.101.
• 86 Ill. Adm. Code 150.101.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2016.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2016/st-16-0004-gil.pdf

Original ruling text

ST 16-0004-GIL 01/13/2016 SALE OF SERVICE
If no tangible personal property is transferred to the customer, then no Illinois Retailers’
Occupation Tax or Service Occupation Tax would apply. See 86 Ill. Adm. Code Parts 130 and

140. (This is a GIL.)

January 13, 2016

Dear Xxxxx:
This letter is in response to your letter November 25 2015, in which you requested 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:
Our Illinois hotel has an outside vendor who provides banquet audio visual equipment
and internet access services for our clients. We are billed directly for these services by
the vendor, less a commission. Our clients are charged the full amount plus a 24%
service charge for each service and/or equipment provided.
We typically tax any service charges at the same rate as the revenue it is associated
with. See example below. The question is - although charges for internet access are not
taxable, is the service charge associated with the internet access charges taxable?

Example
Food
Lunch Buffet

$ 385.00

Beverage
Domestic Beer

$ 156.00

Audio Visual
See ABC Rental proposal for internet
24% service charge plus tax to be added to proposal
High Speed Internet Access
See ABC Rental proposal for internet access
24% service charge to be added to proposal
Room Rental
Room #2

$ 135.00

$

30.00

$ 150.00

14.25% Banquet Gratuity
9.75% Banquet Administrative Fee
24 % HSIA Service Charge
24% AV Service Charge
24% Room Facility Fee
9.25% State Sales Tax
13.75% Room Rental Tax
9% AV & HSIA Service Charge Vendor Tax
.25% City of Chicago Restaurant Tax
Grand Total

$
$
$
$
$
$
$
$
$

77.09
52.75
7.20
32.40
36.00
62.05
25.58
3.56
1.35

$ 1,153.98

Is the $7.20 service charge associated with the high speed internet fee taxable?
Any assistance you can provide in clarifying the taxes would be much appreciated. I
look forward to hearing from you.
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 35 ILCS
120/2; 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
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
purchases occur outside Illinois, purchasers must self assess their Use Tax liability and remit it
directly to the Department.
Retailers' Occupation and Use Taxes do not apply to sales of service. Under the Service
Occupation Tax Act, businesses providing services are taxed on tangible personal property
transferred as an incident to sales of service. See 86 Ill. Adm. Code 140.101. If the transaction you
are inquiring about does not involve the transfer of any tangible personal property to the customer,
then the transaction generally would not be subject to Retailers’ Occupation Tax, Use Tax, Service
Occupation Tax, or Service 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:bkl