Are fees for a paid membership add-on (offering delivery perks and item discounts) subject to Illinois Retailers' Occupation Tax, Use Tax, Service Occupation Tax, or Service Use Tax?

Plain-English summary

An online retailer asked the Illinois Department of Revenue whether a paid add-on membership program was subject to any of Illinois' four transaction taxes: the Retailers' Occupation Tax, the Use Tax, the Service Occupation Tax, and the Service Use Tax. The add-on membership was only available to customers who already belonged to the company's base subscription program, and it added benefits such as same-day or next-day delivery, free delivery on orders over a certain amount, access to an exclusive catalog of groceries and household essentials, and discounts on certain items. Customers could try the add-on membership free for one month before being charged a recurring monthly fee.

The Department's answer built on its own settled position: none of the four tax Acts apply unless tangible personal property is actually being transferred to the customer, or transferred incident to a taxable service. A membership fee, standing alone, is a payment for a bundle of intangible rights and privileges -- the right to receive delivery perks and discounts later -- not a payment for goods. Because the fee itself does not hand over any tangible personal property, the Department treated it as "gross receipts" from the sale of an intangible under 86 Ill. Adm. Code 130.401(d), which are outside the scope of Retailers' Occupation Tax and Use Tax liability.

The Department also noted this conclusion was consistent with an earlier General Information Letter it had issued to the same company about its base membership program (which included perks like free shipping, streaming video, e-book lending, music streaming, and cloud photo storage). In that earlier letter, the Department had already determined that the base membership fee was not taxable because it didn't transfer tangible personal property either. The Department extended that same logic to the new add-on membership, and also confirmed that the free one-month trial period was likewise not taxable, since no tangible personal property changes hands during the trial either.

Importantly, the Department flagged a caveat: if a membership fee ever entitled a customer to receive a specific item of tangible personal property, or if tangible property is transferred incident to a service included in the membership, then that charge could become taxable under the Retailers' Occupation Tax, Service Occupation Tax, or Use Tax. The ruling only holds because, on the facts presented, the add-on membership fee purchased access and discount privileges -- not goods themselves; the actual purchases customers later make through the program remain separately taxable as ordinary retail sales.

What this means for you

If you sell subscription or membership programs

If your business charges a separate fee for membership, loyalty, or subscription access -- and that fee by itself does not hand over any tangible personal property -- Illinois generally treats that fee as a nontaxable sale of an intangible under 86 Ill. Adm. Code 130.401(d). This applies even if the membership unlocks perks like faster shipping, discounts, or access to an exclusive catalog, as long as the membership fee itself is not being exchanged for goods. Any goods a member later buys through the program are still taxed normally at the point of sale.

If you offer free trial periods

The same reasoning extends to promotional free trials. Because a free trial period does not involve any transfer of tangible personal property in exchange for the (waived) fee, it does not create Retailers' Occupation Tax, Use Tax, Service Occupation Tax, or Service Use Tax exposure either.

Know the limits of this ruling

This is a Private Letter Ruling. It legally binds the Department only as to the specific company that requested it, and only so long as the facts described are accurate and complete. The Department also stated in this letter that it will generally decline to issue further PLRs on membership-fee taxability going forward because it considers its position "quite clear," so other businesses should look to the Department's regulations and published guidance (such as 86 Ill. Adm. Code 130.401(d)) rather than expect a new individualized ruling on this exact question.

Common questions

Q: Does this mean membership or subscription fees are never taxable in Illinois?
A: No. If the membership fee itself entitles the customer to receive a specific item of tangible personal property, or if tangible property is transferred incident to a taxable service included in the membership, that charge can trigger Retailers' Occupation Tax, Service Occupation Tax, or Use Tax liability. The nontaxable treatment here applies because the fee only bought delivery perks, catalog access, and discount privileges -- not goods.

Q: Are the actual items a member buys through the program taxed?
A: The ruling is about the membership fee itself, not about purchases made using the membership. Ordinary purchases of tangible personal property made by members remain subject to the normal Illinois sales/use tax rules that would apply to any customer.

Q: Does a free trial period change the tax analysis?
A: No. The Department confirmed that the free one-month trial of the add-on membership is not subject to Retailers' Occupation Tax, Use Tax, Service Occupation Tax, or Service Use Tax for the same reason as the paid membership -- no tangible personal property is transferred in exchange for it.

Q: Can another business rely directly on this ruling?
A: No. As a Private Letter Ruling issued under 2 Ill. Adm. Code 1200.110, it binds the Department only with respect to the requesting company and only to the extent the facts given were correct and complete. The Department also indicated it will generally not issue new PLRs on this same membership-fee question going forward, viewing its position as already well-established.

Citations and references

• 86 Ill. Adm. Code 130.101 -- Retailers' Occupation Tax imposed on the business of selling tangible personal property
• 86 Ill. Adm. Code 130.401(d) -- membership fees not from the sale of tangible personal property are gross receipts from an intangible, not subject to Retailers' Occupation Tax or Use Tax
• 86 Ill. Adm. Code 140.101 -- Service Occupation Tax imposed on transfers of tangible personal property incident to sales of service
• 86 Ill. Adm. Code 150.101 -- Use Tax imposed on the privilege of using tangible personal property purchased at retail
• 86 Ill. Adm. Code 160.101 -- Service Use Tax imposed on transfers of tangible personal property incident to sales of service
• 86 Ill. Adm. Code 1200.110 -- procedures governing Private Letter Ruling requests
• 86 Ill. Adm. Code 1200.110(a)(3)(D) -- Department may decline to rule where case law or regulations are already dispositive
• 86 Ill. Adm. Code 1200.120 -- General Information Letters are not binding statements of Department policy
• 2 Ill. Adm. Code 1200.110(e) -- Private Letter Rulings expire and cease to bind the Department after a set period absent a change in law or facts
• 35 ILCS 120/2-5(35-5) -- Retailers' Occupation Tax Act exemption provision referenced regarding food items

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2017.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2017/st-17-0008-plr.pdf

Original ruling text

ST 17-0008-PLR 09/14/2017 GROSS RECEIPTS
Membership fees are not gross receipts from the sale of tangible personal property.
Membership fees are gross receipts received in exchange for an intangible. See 86 Ill. Adm.
Code 130.401(d) and 86 Ill. Adm. Code 140.101. (This is a PLR.)

September 14, 2017

Dear Xxxxx:
This letter is in response to your letter dated May 22, 2017 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.
Review of your request disclosed that all the information described in paragraphs 1 through 8
of Section 1200.110 appears to be contained in your request. This Private Letter Ruling will bind the
Department only with respect to COMPANY, for the issue or issues presented in this ruling, and is
subject to the provisions of subsection (e) of Section 1200.110 governing expiration of Private Letter
Rulings. Issuance of this ruling is conditioned upon the understanding that neither COMPANY, nor a
related taxpayer is currently under audit or involved in litigation concerning the issues that are the
subject of this ruling request. In your letter you have stated and made inquiry as follows:
COMPANY (the “Company”), an affiliate of COMPANY 1, respectfully submits this
request, pursuant to 2 Ill. Admin. Code 1200.110, for a Ruling from the Illinois
Department of Revenue (“Department”) regarding the applicability of Illinois Retailers’
Occupation Tax, Use Tax, Service Occupation Tax, and Service Use Tax to sales of the
membership program more fully described below.
As required by 2 Ill. Adm. Code § 1200.110, Company provides the following
disclosures: (1) Company is not under audit by the Department; (2) Company is not
engaged in litigation with the Department; (3) to the best of the Company’s knowledge,
the Department has not previously ruled on the same issue for the Company or a
predecessor, except as discussed herein; (4) Company has not previously submitted
the same issue to the Department for a letter ruling and withdrawn the request before a

ST 17-0008-PLR
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letter ruling was issued; (5) this request for a Ruling describes all authorities relevant to
the request. This Ruling is intended to address current and future tax periods to which
the facts described below apply. Company requests the opportunity to delete any
identifying information prior to public dissemination of the Ruling.
By way of background, on November 24, 2014, Company submitted a request to the
Department regarding the applicability of Illinois Retailers’ Occupation Tax, Use Tax,
Service Occupation Tax, or Service Use Tax to another membership program offered by
Company known as PROGRAM (‘PROGRAM” or “PROGRAM Membership”). The
“PROGRAM Ruling Request,” is attached hereto as Exhibit A. On April 30, 2015 the
Department issued a General Information Letter in response to the PROGRAM Ruling
Request. The “PROGRAM Information Letter” is attached hereto as Exhibit B. In the
PROGRAM Information Letter, the Department explained that the receipts from the sale
of the PROGRAM Membership did not constitute the sale of tangible personal property
or a taxable service. Therefore, because the Retailers’ Occupation Tax, Use Tax,
Service Occupation Tax, and Service Use Tax are imposed when tangible personal
property is being transferred to the customer or there is a taxable service provided; the
sale of the PROGRAM Membership would not be subject to Illinois Retailers’
Occupation Tax, Use Tax, Service Occupation Tax, or Service Use Tax. Based on the
Department’s rationale, the new membership program, described below in more detail,
should not be subject to Illinois Retailers’ Occupation Tax, Use Tax, Service Occupation
Tax or Service Use Tax.
I.

FACTS

Company offers a membership program known as PROGRAM 1 Add- On (“PROGRAM
1” or “PROGRAM 1”). The membership program is available to existing PROGRAM
members for an additional membership fee.
PROGRAM 1 allows members to shop for groceries, everyday essentials, favorites from
local shops and restaurants on COMPANY 1 (the “Website”) in select cities. Customers
may sign up for a free month trial membership and thereafter a paid monthly
membership. Participants in the PROGRAM 1 membership program are referred to as
“PROGRAM 1 Members” or “PROGRAM 1 Members.” In order to be an PROGRAM 1
Member, a customer is also required to have an PROGRAM (separate membership
available for $$$ a month or $$$ annually and agree to the PROGRAM Terms &
Conditions to activate their PROGRAM 1 membership.)1 While an PROGRAM
Membership is a prerequisite to purchasing PROGRAM 1 a participant in PROGRAM
may decide to purchase PROGRAM 1 at any time during their PROGRAM Membership.
Further, the fees for the PROGRAM and PROGRAM 1 memberships are separately
stated on each participant’s bill. The current benefits of PROGRAM 1 include:


1

Delivery – PROGRAM 1 members are entitled to receive same day or next
day scheduled delivery. Free delivery is available on PROGRAM 1 orders

A copy of the PROGRAM Terms & Conditions is attached hereto as Exhibit C.

ST 17-0008-PLR
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over $$$, as well as other discounted shipping benefits on eligible
PROGRAM 1 purchases made on the Website. Products eligible for these
shipping benefits are designated as PROGRAM 1 on the Website’s
product pages.

II.



PROGRAM 1 Items – PROGRAM 1 Members receive access to the
PROGRAM 1 groceries, everyday essentials, and selections from
neighborhood shops and restaurants. Examples include fresh produce,
meats, dairy, frozen items, and household essentials such as soap and
detergents. Customers that are not PROGRAM 1 Members may purchase
other items (other than perishable items) on the Website for a regular or
PROGRAM shipping charge.
While the PROGRAM 1 catalog is
“exclusive” to PROGRAM 1 Members, many of the items available in the
catalog are not exclusive.



PROGRAM 1 Deals – PROGRAM 1 Members receive discounts on
certain items of tangible personal property. For example, PROGRAM 1
Members can purchase certain fruits and vegetables at a discount. The
suite of products offered to PROGRAM 1 Members at a discount
continues to change based on availability.
ISSUES
A. Is the PROGRAM 1 membership subject to Illinois Retailers’
Occupation Tax, Use Tax, Service Occupation Tax, or Service Use
Tax when sold to a customer located in Illinois?
B. Is Company’s provision of a free, one-month trial period of an
PROGRAM 1 membership to Illinois customers subject to Retailers’
Occupation Tax, Use Tax, Service Occupation Tax, or Service Use
Tax?

III.

ANALYSIS
A. PROGRAM Information Letter
In the PROGRAM Ruling Request submitted by Company, Company
described the PROGRAM Membership and the benefits which include: (1)
free two-day shipping and other shipping benefits; (2) access to
PROGRAM Instant Videos which can be viewed an unlimited number of
times for no additional costs; (3) the ability to borrow certain electronic
books from the PRODUCT Owner’s Lending Library; (4) unlimited access
to PROGRAM Music; (5) unlimited access to storage for photos in the
CLOUD; (6) flat rate shipping of $$$ for heavy/bulky items in PROGRAM
Pantry; (7) discounts on certain items through PROGRAM Pricing; and (8)

ST 17-0008-PLR
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the ability for PRODUCT owners to receive one free e-book per month. In
the PROGRAM Information Letter, the Department stated that the Illinois
Retailers’ Occupation Tax and Use Tax are imposed on the sale or use of
tangible personal property. Likewise, the Service Occupation Tax and
Service Use Tax are imposed on transfers of tangible personal property
incident to sales of a service. Specifically, the Department stated that the
sale of a membership is not a sale of tangible personal property, but rather
a membership is a right to receive certain benefits at a later time and
therefore would not be subject to Retailers’ Occupation Tax, Use Tax,
Service Occupation Tax, or Service Use Tax. Based on the guidance
provided in the PROGRAM Information Letter, Company determined that
the sale of a PROGRAM Membership is not subject to Illinois Retailers’
Occupation Tax, Use Tax, Service Occupation Tax, or Service Occupation
Use Tax.
B. PROGRAM 1
Consistent with the Department’s guidance in the PROGRAM Information
Letter, PROGRAM 1 offers members several benefits including: (1) same
day or next day delivery, free delivery on orders over $$$ and other
discounted shipping benefits; (2) access to PROGRAM 1 items; and (3)
discounts on certain PROGRAM 1 items. Similar to PROGRAM, none of
the PROGRAM 1 benefits are subject to Illinois Retailers’ Occupation Tax,
Use Tax, Service Occupation Tax, or Service Use Tax. The primary
PROGRAM 1 benefit and the main reason customers become PROGRAM
1 Members is to obtain prepaid shipping. While one of the additional
benefits of PROGRAM 1 is discounts on PROGRAM 1 items, a large
portion of the items offered through PROGRAM 1 constitute nontaxable
food items in Illinois.2 As a result, because both PROGRAM and
PROGRAM 1 qualify as a notaxable membership, sales of PROGRAM 1
memberships, like PROGRAM Memberships, are not subject to Illinois
Retailers’ Occupation Tax, Use Tax, Service Occupation Tax, or Service
Use Tax.
IV.

CONCLUSION
Company respectfully requests confirmation from the Department of the
following:
A. Sales of PROGRAM 1 memberships to Illinois customers are not
subject to Illinois Retailers’ Occupation Tax, Use Tax, Service
Occupation Tax, or Service Use Tax.

2

35 Ill. Comp. Stat. 120/2-5(35-5).

ST 17-0008-PLR
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B. The free, one-month trial PROGRAM 1 membership provided to Illinois
customers is not subject to Illinois Retailers’ Occupation Tax, Use Tax,
Service Occupation Tax, or Service Use Tax.
If any of the facts or analysis provided in this ruling request requires clarification, please
do not hesitate to contact me. Additionally, we reserve the option to withdraw the
request before a response is completed.
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 Ill. Adm. Code 150.101. If no tangible
personal property is being transferred to the customers, then neither Illinois Retailers’ Occupation Tax
nor Use Tax would apply. Likewise, the Service Occupation Tax Act and Service Use Tax are
imposed on the transfer of tangible personal property incident to sales of service. 86 Ill. Adm. Code
140.101 and 160.101. If no tangible personal property is being transferred to customers incident to
the services being provided, then neither Illinois Service Occupation Tax nor Service Use Tax would
apply.
Generally, the Department does not consider receipts from the sale of membership fees to be
gross receipts from the sale of tangible personal property. Rather, a membership fee is considered an
intangible, which is not subject to Retailers' Occupation Tax or Use Tax liability. 86 Ill. Adm. Code
130.401(d). This is the case when the sale of membership rights does not include the transfer of
tangible personal property. However, if the membership charge entitles the customer to receive an
item of tangible personal property or to receive a service and tangible personal property is transferred
incident to that service, then that charge may result in either Retailers’ Occupation Tax liability,
Service Occupation Tax liability or Use Tax liability.
Based upon the information you provided in your letter, it appears that customers who become
PROGRAM 1 members do not receive any tangible personal property as part of their membership in the
PROGRAM 1 program. As such, none of the PROGRAM 1 benefits are subject to the Illinois Retailers’
Occupation Tax Act, the Use Tax Act, the Service Use Tax Act or Service Occupation Tax Act. Similarly, it
appears that your customers who receive the free, one-month trial PROGRAM 1 membership also do not
receive any tangible personal property as part of the trial PROGRAM 1 membership. Thus, the free, onemonth trial PROGRAM membership would also not be subject to the four tax Acts listed above.
The Department’s regulation “Public Information, Rulemaking and Organization” provides that
“[w]hether to issue a private letter ruling in response to a letter ruling request is within the discretion of the
Department. Further, the Department’s regulations regarding Private Letter Rulings provide that “[i]f there
is case law or there are regulations dispositive of the subject of the request, the Department will decline to
issue a letter ruling on the subject." 86 Ill. Adm. Code 1200.110(a)(3)(D). The Department believes that its
position with respect to the sale of memberships that do not include the transfer of tangible personal
property is quite clear – the Department considers those types of sales of memberships to be sales of
intangibles not subject to tax. The Department will no longer issue private letter rulings regarding
membership programs unless the letter raises a unique issue.

ST 17-0008-PLR
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The factual representations upon which this ruling is based are subject to review by the
Department during the course of any audit, investigation, or hearing and this ruling shall bind the
Department only if the factual representations recited in this ruling are correct and complete. This
Private Letter Ruling is revoked and will cease to bind the Department 10 years after the date of this
letter under the provisions of 2 Ill. Adm. Code 1200.110(e) or earlier if there is a pertinent change in
statutory law, case law, rules or in the factual representations recited in this ruling.
I hope this information is helpful. If you have further questions concerning this Private Letter
Ruling, you may contact me at (217) 782-2844. If you have further questions related to the Illinois
sales tax laws, please visit our website at www.tax.illinois.gov or contact the Department’s Taxpayer
Information Division at (217) 782-3336.
Very truly yours,

Richard S. Wolters
Chairman, Private Letter Ruling Committee
RSW:DMB:bkl