Does a sandwich-shop chain owe Retailers' Occupation Tax on a separately stated delivery charge when customers can also pick up the same food in-store at the same price?

Plain-English summary

A franchise operator running about 50 sandwich shops asked the Illinois Department of Revenue whether it needed to keep charging Retailers' Occupation Tax (ROT, Illinois's version of sales tax) on the delivery fee it lists as a separate line item on customer receipts. The stores sell sandwiches, chips, and drinks that customers can either pick up in person or have delivered for a nominal, separately stated delivery charge. The taxpayer had been treating that delivery charge as taxable and remitting tax on it, but noticed that rulings applying 86 Ill. Adm. Code 130.415 (the Department's transportation-and-delivery-charge rule) tended to involve large internet or big-box retailers rather than a local fast-food delivery model, and it wanted clarity for its own situation going forward.

The Department's answer turned on the "inseparable link" test set out in Section 130.415(b)(1)(B), which the regulation adopted after the Illinois Supreme Court's decision in Kean v. Wal-Mart Stores, Inc. Under that test, a delivery charge is folded into taxable gross receipts only if the customer has no real way to get the property without paying to have it delivered — either because the charge isn't separately identified, or because it is separately identified but the seller doesn't also offer a pickup or free-delivery alternative. If the customer can buy the same item at the same price without a delivery charge, no inseparable link exists, and the delivery charge is treated as a distinct, nontaxable service charge.

Applying that test, the Department found that the taxpayer's stores itemize the delivery charge separately on the receipt and that customers always have the option to pick up their sandwiches, chips, and drinks in-store without paying it, with no change in the price of the food itself. Because there was no inseparable link, the Department concluded that the delivery charges are not included in gross receipts and are not subject to Retailers' Occupation Tax — meaning the taxpayer had actually been over-collecting tax on that portion of its sales going forward.

Like all Private Letter Rulings, this conclusion is binding only on the Department and only as to this specific taxpayer, and only for tax periods beginning after the ruling issued (the Department explicitly declined to revisit periods before the ruling). It expires ten years from the date of the letter, or sooner if the underlying law or facts change, under 2 Ill. Adm. Code 1200.110(e).

What this means for you

If you run a restaurant or food-delivery business

If your business offers both pickup and delivery for the same item at the same price, and you list any delivery fee as its own separate line on the receipt, this ruling supports treating that delivery fee as a nontaxable service charge rather than part of the taxable sale — because no "inseparable link" exists under 86 Ill. Adm. Code 130.415(b)(1)(B). If, instead, delivery is the only way to get the product, or the price changes depending on whether the customer picks up or has it delivered, the charge is much more likely to be fully taxable.

If you currently charge tax on delivery fees

Because this is a PLR, it legally binds the Department only as to this one taxpayer's facts. Other businesses with a materially similar fact pattern (separately stated delivery charge, genuine no-extra-cost pickup option, no price differential) can look to this ruling as informal guidance on how the Department reads Section 130.415, but should still confirm their own facts match closely, and ideally request their own PLR or consult a licensed Illinois tax professional before changing how they collect or remit tax.

If you're auditing past filings

The Department noted that any change in tax treatment applies only to periods beginning the month after the ruling was issued — it does not retroactively modify tax already collected and remitted on delivery charges for earlier periods.

Common questions

Does a restaurant have to itemize a delivery charge separately for it to be nontaxable?
Based on this ruling's reasoning, yes — the delivery charge must be separately identified on the receipt, and the customer must still be able to obtain the item without paying it (e.g., by picking it up in-store at the same price), for the "inseparable link" under 86 Ill. Adm. Code 130.415(b)(1)(B)(ii)-(iii) not to apply.

What is the "inseparable link" test?
It comes from 86 Ill. Adm. Code 130.415(b)(1)(B), adopted after Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351 (2009). An inseparable link exists — making the delivery charge taxable — when either the charge isn't separately stated, or it is separately stated but the seller doesn't give the customer any way to get the property without paying it (no pickup option and no free/qualifying delivery option).

Can other sandwich shops or food-delivery businesses rely on this specific ruling?
No. A Private Letter Ruling under 2 Ill. Adm. Code 1200.110 binds the Department only with respect to the taxpayer who requested it, and only to the extent the facts given were correct and complete. Other businesses can use it as informal guidance but cannot cite it as binding authority for their own returns.

Does this ruling change tax already paid on past delivery charges?
No. The Department's ruling applies only to periods beginning the month after the ruling was issued; it does not modify or refund tax collected on delivery charges for periods before that.

Citations and references

• 86 Ill. Adm. Code 130.415 — Transportation and Delivery Charges (the "inseparable link" test)
• 86 Ill. Adm. Code 130.415(b)(1)(B), (b)(1)(B)(ii)-(iii), (b)(1)(C) — specific subsections applied to the facts
• 86 Ill. Adm. Code 130.101 — Retailers' Occupation Tax Act imposition of tax on retail sales of tangible personal property
• 86 Ill. Adm. Code 150.101 — Use Tax imposition
• 2 Ill. Adm. Code 1200.110 — Private Letter Ruling procedures and binding effect (including expiration under subsection (e))
• 2 Ill. Adm. Code 1200.120 — General Information Letter procedures (distinguished from PLRs in this letter)
• Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351, 919 N.E.2d 926 (2009) — Illinois Supreme Court decision that prompted the Department's "inseparable link" amendment to Section 130.415

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-17-0011-plr.pdf

Original ruling text

ST 17-0011 PLR 12/27/2017 DELIVERY CHARGES
This letter discusses transportation and delivery charges. 86 Ill. Adm. Code 130.415. (This is a
PLR.)

December 27, 2017
Re: COMPANY
Dear Xxxxx:
This letter is in response to your letter dated September 8, 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:
This is a request for a private letter ruling regarding the collection of the Retailers’
Occupation Tax on delivery charges for the delivery of sandwiches and other food items
pursuant to Illinois Department of Revenue Regulations Title 86 Part 130 Section 415
Transportation and Delivery Charges. (86 Ill. Adm. Code 130.415).
Taxpayer:
COMPANY
ADDRESS
EIN: XX-XXXXXXX
IBT: ####-####
Form ST-1, Sales and Use Tax Return
Contact: NAME, TITLE
Phone No. ###-###-####
Statement of Facts:

ST 17-0011-PLR
Page 2
December 27, 2017

1. Taxpayer operates approximately 50 stores under the FRANCHISE NAME as an
   independent operator. Sandwiches, chips and drinks are sold in the store and also
   available via delivery for a nominal charge. The store itemizes its sales receipt and
   list the delivery charge as a separate line item on the receipt. See the attached
   sample receipt. The Taxpayer has collected Illinois sales tax based on each store
   location and has remitted the tax on a regular basis on its monthly returns. The
   Taxpayer has included the delivery charge as being subject to the state sales tax
   when calculating and filing Form ST-1 Sales and Use Tax Return.
2. The periods at issue for this request will be those beginning the month after
   response to this Private Letter Ruling is issued. Should the Taxpayer continue to
   assess tax on the delivery charge or should the delivery charge continue to be
   itemized separately but not subject to the Retailers’ Occupation Tax? Any periods
   prior to this request will not be modified. Taxpayer is not currently under audit and is
   not aware of any pending litigation as to itself and this particular issue. The reason
   for the request at this time is that there appears to be inconsistency in the food
   delivery industry on the issue and all cases cited in prior rulings on the Illinois
   Department of Revenue relate to the typical big box retailer and not to the typical
   fast food delivery store. Taxpayer is requesting a ruling to ensure that it is correctly
   reporting on delivery charges.
   Statement of Law/Authority:
   The state statue [sic] governing this transaction is 86 Ill. Adm. Code 130.415 Transportation
   and Delivery Charges. This states that delivery charges are part of the gross receipts and
   subject to the Retailers’ Occupation Tax when there is an inseparable link between the sale of
   tangible personal property and the outgoing delivery of the property. Section 130.415
   (b)(1)(B) Taxability of Outgoing Transportation and Delivery.
   This section states further in subsection (b)(1)(B)(ii) there is an inseparable link meaning the
   seller does not separately identify the delivery charge or if separately identified the seller does
   not offer the purchaser the option to receive the property in any manner other than via the
   delivery charge. This inseparable link subjects the delivery charge to the Retailers’ Occupation
   Tax. This is not the case with a retail sandwich store that allows for pick up in the store.
   However, the Taxpayer will not deliver without the additional delivery charge.
   Subsection (iii) state as follows:
   “Except for cases in which an inseparable link exists as provided in Section (b)(1)(B)(ii),
   outgoing transportation and delivery is considered a service separate and distinct from the sale
   of tangible personal property that is being transported or delivered and is excluded from the
   gross receipts subject to the Retailers’ Occupation Tax.
   Ruling Requested:

ST 17-0011-PLR
Page 3
December 27, 2017

The taxpayer respectfully requests the Illinois Department of Revenue to rule on whether the
delivery charges as separately stated on the Taxpayer’s receipts should continue to be subject
to the Retailers’ Occupation Tax or are exempt from such tax as a delivery charge as the
consumer is able to up their order in store for no added delivery charge. In such a ruling no
inseparable link exists or Taxpayer falls under the Safe Harbor in subsection C.
If you need further information or clarification of any facts and circumstances please contact
the undersigned. I have enclosed a copy of the Power of Attorney that has my contact
information.
DEPARTMENT’S RESPONSE:
The Retailers' Occupation Tax Act imposes a tax upon persons engaged in this State in the
business of selling tangible personal property at retail to purchasers for use or consumption. See 86
Ill. Adm. Code 130.101. 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.
The Department’s regulation regarding transportation and delivery charges, 86 Ill. Adm. Code
130.415, was amended in light of the decision in Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351, 919
N.E.2d 926 (2009). At issue in Kean was whether shipping charges for certain Internet purchases of
tangible personal property were subject to Illinois sales tax. The court found that an “inseparable link”
existed between the sale and delivery of the merchandise plaintiffs purchased from Wal-Mart’s
Internet store. Thus, the court in Kean concluded that the outgoing transportation and delivery
charges were part of the gross receipts subject to the Retailers’ Occupation Tax. 86 Ill. Adm. Code
130.415(b)(1)(B)(i). An inseparable link exists when (a) the transportation and delivery charges are
not separately identified to the purchaser on the contract or invoice or (b) the transportation and
delivery charges are separately identified to the purchaser on the contract or invoice, but the seller
does not offer the purchaser the option to receive the property in any manner except by the payment
of transportation and delivery charges added to the selling price of an item (e.g., the seller does not
offer the purchaser the option to pick up the tangible personal property or the seller does not offer, or
the purchaser does not qualify for, a free transportation and delivery option). 86 Ill. Adm. Code
130.415(b)(1)(B)(ii). In contrast, if the tangible personal property that the customer agreed to buy can
be sold to the customer without adding a transportation or delivery charge to the selling price of the
item, then an inseparable link does not exist and the delivery charges should not be included in the
selling price of the tangible personal property. 86 Ill. Adm. Code 130.415(b)(1)(B)(ii)-(iii).
If a seller of tangible personal property offers the purchaser free transportation and delivery of
the property, qualified transportation and delivery of the property for which the purchaser qualifies
(e.g., purchases over $25 qualify for free shipping, and the purchaser spends more than $25), or the
option to pick up the property, any separately identified transportation and delivery charges chosen by
the purchaser (e.g., amounts paid for expedited transportation and delivery) will be nontaxable, as
long as the selling price of the tangible personal property neither increases nor decreases depending

ST 17-0011-PLR
Page 4
December 27, 2017

on the method chosen by the purchaser to obtain the merchandise. If the selling price of the tangible
personal property increases or decreases depending on the method chosen by the purchaser to
obtain the merchandise, any transportation and delivery charges imposed will be subject to Retailers'
Occupation Tax to the extent those charges exceed the actual cost of outgoing transportation and
delivery. 86 Ill. Adm. Code 130.415(b)(1)(C).
In your letter you state that sandwiches, chips and drinks sold in your stores are also available
via delivery for a nominal charge. The stores list the items purchased on the sales receipt and list the
delivery charge as a separate line item on the receipt. It is our understanding the purchaser always
has the option to pick up these items at the stores without incurring delivery charges and without any
increase or decrease in the prices of the items purchased. It is the Department’s opinion that the
delivery charges are not included in gross receipts and are not subject to Retailers’ Occupation Tax
liability.
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 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:bkl