If my company still offers a pickup option (even a shrinking one), are our delivery charges tax-exempt, and would eliminating pickup entirely make delivery charges taxable?

Plain-English summary

This is a follow-up General Information Letter to a company that had already received a Private Letter Ruling from the Illinois Department of Revenue about the taxability of its delivery fees. The company still offers customers a pickup option, but pickup usage has been declining and the company asked whether (1) its delivery charges stay tax-exempt as pickup usage shrinks, and (2) what happens if it eventually eliminates pickup entirely.

The Department's answer turns on the "inseparable link" test from Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351 (2009), which is codified at 86 Ill. Adm. Code 130.415(b)(1)(B). If a customer can obtain the product without paying a delivery charge — because a real pickup option exists — there is no inseparable link between the sale and the delivery, and the delivery charge is not part of the taxable selling price. But if the only way to get the product is to pay a transportation or delivery charge, an inseparable link exists and the delivery charge is taxable, as part of the gross receipts subject to the Retailers' Occupation Tax.

Applying that rule here: as long as the company's customers can still actually choose pickup and avoid the delivery charge, the tax treatment doesn't change just because fewer customers use that option — delivery charges remain non-taxable. But if the company ever eliminates the pickup option so that delivery is the only way to get the merchandise, the delivery charges would then become taxable.

What this means for you

Retailers who offer both pickup and delivery

The key fact is whether the option to pick up still genuinely exists — not how many customers actually use it. A shrinking pickup rate, by itself, does not change the tax treatment of your delivery charges. What matters is whether a customer can walk away with the product without being forced to pay a delivery fee.

Retailers considering dropping pickup entirely

If you eliminate pickup (or any other way to get the item without paying delivery/transportation charges), your delivery charges become taxable going forward, because delivery is then the only avenue to the sale and an "inseparable link" is created under 86 Ill. Adm. Code 130.415(b)(1)(B)(i)-(ii).

Accountants and tax professionals

This letter is a good illustration of applying the Kean inseparable-link test to a changing fact pattern rather than a static one. It confirms that the test is evaluated on the availability of a no-charge pickup option, not on customer election rates, and that the same taxpayer's treatment can flip going forward if the underlying facts (availability of pickup) change — even though a prior ruling addressed the same taxpayer's original setup.

Anyone relying on this letter

Remember this is a GIL, not a PLR. It is not binding on the Department and does not carry the taxpayer-specific protection that a Private Letter Ruling gives. It only points the taxpayer to the relevant rule (86 Ill. Adm. Code 130.415) and explains how that rule would apply to the two hypotheticals described.

Common questions

Q: We still offer pickup, but fewer customers use it every year. Does that change whether our delivery charges are taxable?
A: No. According to this letter, as long as customers have the genuine option to pick up the item without paying a delivery charge, the delivery charges are not taxable — regardless of how popular that option is.

Q: What if we eventually stop offering pickup altogether?
A: Then, per this letter, an "inseparable link" would exist because delivery becomes the only way to obtain the product, and the delivery/transportation charges would become part of the taxable selling price under 86 Ill. Adm. Code 130.415(b)(1)(B)(i).

Q: Does it matter whether the delivery charge is separately stated on the invoice?
A: The letter reiterates the general rule (from 86 Ill. Adm. Code 130.415(b)(1)(B)(ii)) that even a separately stated delivery charge can still be part of the taxable selling price if the seller doesn't actually offer the purchaser a way to get the property without paying that charge (e.g., no pickup option or no qualifying free-delivery alternative).

Q: Is this letter binding on the Department?
A: No. This is a General Information Letter (GIL), not a Private Letter Ruling. The letter itself states a GIL "is not a statement of Department policy and is not binding on the Department" (2 Ill. Adm. Code 1200.120) — it simply points the taxpayer to the applicable regulation and case law.

Q: This company already had a Private Letter Ruling — why did it get a GIL this time?
A: The letter explains that a PLR is binding only as to the specific taxpayer and only to the extent the facts recited are correct and complete, and must follow the PLR request procedure (2 Ill. Adm. Code 1200.110). Because this follow-up inquiry raised general "what if" questions about changing facts rather than a new complete PLR request, the Department responded with a GIL instead.

Citations and references

• 86 Ill. Adm. Code 130.101 (imposition of Retailers' Occupation Tax on retail sales of tangible personal property)
• 86 Ill. Adm. Code 150.101 (imposition of Use Tax)
• 86 Ill. Adm. Code 130.415 (transportation and delivery charges; inseparable link test)
• 2 Ill. Adm. Code 1200.110 (procedure for Private Letter Rulings)
• 2 Ill. Adm. Code 1200.120 (General Information Letters are not binding Department policy)

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-17-0026-gil.pdf

Original ruling text

ST 17-0026-GIL 06/28/2017 DELIVERY CHARGES

This letter discusses transportation and delivery charges. See 86 Ill. Adm. Code 130.415.
(This is a GIL.)

June 28, 2017

Dear Xxxxx:
This letter is in response to your letter dated May 3, 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.
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:
COMPANY received a Private Letter Ruling (attached) concerning delivery fees within
your state. At the end of your response you indicated that you could be contacted with
any questions. I would like to have some clarification to a couple of questions.
The pickup option listed in our ruling has diminished from when we requested the ruling.
This pickup option is still used by will only decrease over time and at some point this
option could very well be eliminated.

1. Since the pickup option has changed (decreased) since the ruling
   request will the sales tax treatment still be the same for the pickup
   option – taxable?
2. If the pickup option is eliminated and delivery only is the only option
   available to a customer would Illinois than require sales tax to be
   collected on the taxable products purchased using the delivery only
   option?
   Thank you for your response. I appreciate your help because I want to be in
   compliance with Illinois State Laws.

ST 17-0026-GIL
Page 2
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.
As we mentioned in pervious correspondence, the Court found in Kean v. Wal-Mart Stores,
Inc., 235 Ill. 2d 351, 919 N.E.2d 926 (2009), 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). Kean, 235 Ill. 2d at 375.
Your letter states that though COMPANY continues to offer its customers a pickup option, the
pickup option activity has decreased over time. However, if COMPANY’s customers have the option
to obtain the property without having a delivery charge added to the price of the item, then there is no
inseparable link, and the delivery charges are not taxable. If property can only be obtained by paying
transportation or delivery charges, then an inseparable link exists, and the delivery charges are
taxable.
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
Associate Counsel
RSW:bkl