What does Illinois Private Letter Ruling ST 18-0008-PLR conclude about Gross Receipts?

Plain-English summary

This Illinois private letter ruling addresses whether "vendor incentive payments" a large membership warehouse retailer receives from its suppliers count toward its taxable "gross receipts" for Retailers' Occupation Tax (ROT) purposes. The retailer described four different proposed vendor-funding arrangements, ranging from payments tied to selling a minimum number of units, to payments tied purely to how many units the retailer purchases from the vendor (a volume-based incentive), with the funds usable for promotional activities and only optionally applied to reduce the retail price.

The Department's answer: none of the four vendor incentive payment structures described are included in the retailer's gross receipts subject to ROT, because none of them are conditioned on the individual retail sale of a specific item. The Department grounded this in the Illinois Supreme Court's decision in Chet's Vending Service, Inc. v. Department of Revenue, which held that third-party subsidy or guarantee payments not tied to any individual sale are not part of the "selling price" or "gross receipts," and it's irrelevant whether the payments happen to reduce cost or increase profit. The Department also drew on its automobile-incentive examples in 86 Ill. Adm. Code 130.2125(f), reasoning by analogy that payments conditioned on units sold or units purchased (rather than on a specific sale) are non-taxable, even though those examples technically apply to auto dealers.

The ruling separately reaffirms the general rule that when a retailer gives a customer a discount via a coupon or rebate, and a third party (like a manufacturer) reimburses the retailer for that discount, the reimbursement amount IS part of the retailer's taxable gross receipts, because it's directly tied to a specific sale. The distinguishing case the Department cites is Ogden Chrysler Plymouth, Inc. v. Bower, where a manufacturer's payment tied to a specific purchase price was taxable, unlike payments merely tied to sales or purchase volume.

What this means for you

Retailers receiving vendor funding or incentive payments

If a vendor or manufacturer pays you money that is conditioned on selling (or purchasing) a minimum quantity of units, or that must be used for promotional activities rather than as a mandatory price reduction, this ruling's reasoning suggests those payments should not be included in your gross receipts subject to ROT. But if any payment or reimbursement is instead tied to the discounted price of a specific sale, that amount is part of your taxable gross receipts.

Accountants and tax professionals

The key test restated here is whether there is "any basis for relating" a third-party payment to an individual sale (from Chet's Vending). Payments conditioned on aggregate volume (units sold or units purchased) rather than on a specific transaction fall outside gross receipts, while coupon/rebate reimbursements tied to an individual sale's discounted price stay in gross receipts under 86 Ill. Adm. Code 130.2125(b).

Businesses considering relying on this ruling

Remember this is a Private Letter Ruling issued to one specific, redacted taxpayer based on the exact facts and vendor contract terms ("COMPANY") it described. It is not a General Information Letter and does not state generally applicable Department policy for all retailers — see "Common questions" below.

Common questions

Q: Are vendor incentive payments always excluded from a retailer's gross receipts in Illinois?
A: Not automatically. Under the reasoning in this ruling, they're excluded only when the payment is not conditioned on an individual retail sale of a specific item — for example, when it's tied to selling or purchasing a minimum volume of units, or restricted to promotional use. If a payment is instead conditioned on the discounted price of a specific sale, it counts as gross receipts.

Q: What's the difference between this and a coupon reimbursement that IS taxable?
A: Per 86 Ill. Adm. Code 130.2125(b) and the ruling's discussion, if a retailer gives a customer a discount via a coupon and a manufacturer or other source reimburses the retailer for that discount, the reimbursement is included in gross receipts because it's directly tied to that individual sale's selling price.

Q: Can my business rely on this ruling if we have a similar vendor incentive arrangement?
A: No, not directly. This is a Private Letter Ruling under 2 Ill. Adm. Code 1200.110, and it is binding on the Department only as to the specific taxpayer ("COMPANY") who requested it, and only to the extent the facts it described were correct and complete. Other taxpayers cannot rely on it as authority for their own situations, even if the facts seem similar — you would need to request your own PLR or GIL, or consult a tax professional.

Q: Does this ruling ever expire?
A: Yes. Per the ruling's own text, it is revoked and ceases to bind the Department 10 years after the August 16, 2018 issuance date under 2 Ill. Adm. Code 1200.110(e), or earlier if there is a pertinent change in statutory law, case law, rules, or in the facts on which it was based.

Citations and references

• 35 ILCS 120/1, 120/2, 120/2-10 (Retailers' Occupation Tax Act — imposition of tax and definitions of "selling price" and "gross receipts")
• 86 Ill. Adm. Code 130.401 (Department definition of gross receipts)
• 86 Ill. Adm. Code 130.2125 (discount coupons, rebates, and vendor/dealer incentive payments)
• Chet's Vending Service, Inc. v. Department of Revenue, 71 Ill. 2d 38 (1978)
• Ogden Chrysler Plymouth, Inc. v. Bower, 348 Ill. App. 3d 944 (2d Dist. 2004)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedures and binding effect)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2018.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2018/st-18-0008-plr.pdf

Original ruling text

ST 18-0008-PLR 08/16/2018 GROSS RECEIPTS
If a retailer receives a reimbursement or rebate for a discount given to a purchaser on a
sale, the amount of that reimbursement or rebate is considered part of the gross receipts
received by the seller and is subject to Retailers' Occupation Tax. An incentive payment
to a retailer that is not related to an individual sale is not considered part of gross receipts.
Chet’s Vending Service Inc. v. Department of Revenue, 71 Ill. 2d 38 (1978). See 86 Ill.
Adm. Code 130.2125. (This is a PLR.)

August 16, 2018

Re:

COMPANY
Private Letter Ruling Request

Dear Xxxxx:
This letter is in response to your letter dated March 26, 2018, 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:
As counsel for, and on behalf of COMPANY (“COMPANY”), we, pursuant to 2
Ill. Admin. Code §1200.110, hereby formally request a Private Letter Ruling
(“PLR”), confirming that, based upon the facts as represented below:

ST 18-0008-PLR
Page 2
(i)

(ii)

(iii)

(iv)

A retailer should not include vendor incentive payments in its
gross receipts subject to ROT where the payments are not tied to
the individual sale of a single product and are received in exchange
for agreeing to sell a minimum number of units. The vendor
incentive payments can, but are not required to, reduce the selling
price of the product. Rather, the vendor incentive payments are
used solely for promotional activities; and
A retailer should not include vendor incentive payments in its
gross receipts subject to ROT where the payments are not tied to
the individual retail sale of a single product and are received in
exchange for selling a vendor’s product. There is no requirement
to sell a minimum number of units. The vendor incentive
payments can, but are not required to, reduce the selling price of
the product. Rather, the vendor incentive payments are used solely
for promotional activities; and
A retailer should not include vendor incentive payments in its
gross receipts subject to ROT where the payments are not tied to
the individual retail sale of a single product and are received in
exchange for selling a vendor’s product. The vendor incentive
payments can, but are not required to, reduce the selling price of
the product. Further, the retailer is not restricted on its use of the
vendor incentive payments; and
A retailer should not include vendor incentive payments in its
gross receipts subject to ROT where the payments are received
based on the number of units purchased from the vendor (volume
based incentive).

COMPANY is not currently under audit by the Department regarding this issue.
In addition, COMPANY is not aware of any authority contrary to the views
expressed in this PLR request. Furthermore, we ask that our client’s name,
address, and any contracts or exhibits attached be kept confidential and deleted
from the publicly disseminated version of a PLR issued in response to this
request. A Power of Attorney authorizing us to represent COMPANY before the
Department in connection with this PLR is attached.
FACTS
COMPANY is a membership warehouse club that is dedicated to bringing a wide
selection of quality brand-name merchandise at the best possible prices.
COMPANY provides a wide selection of merchandise, plus the convenience of
specialty departments and products. COMPANY is able to deliver low prices to
its customers, in part, due to its large membership base which provides
tremendous buying power.

ST 18-0008-PLR
Page 3
COMPANY differentiates itself from other supermarkets and competitors by
carefully choosing and committing to a limited number of vendors and products
for placement in its warehouses. For example, COMPANY warehouses carry
about XXXX different products compared to the 30,000 found at most
supermarkets. COMPANY often promotes new and existing products by giving
free samples and/or informational materials and performing in-store
demonstrations. COMPANY also offers product discounts, coupons, rebates
and/or incentives to its customers (collectively referred to as “Incentive
Program”). In the past, physical coupons where provided to COMPANY
customers in monthly mailers and in in-store booklets. Customers were required
to present the physical coupon at the point of sale in order to claim the discount.
COMPANY has digressed from this method and currently provides discounts
through instant rebates which automatically reduce the purchase price of an item
at the point of sale without the requirement of a physical coupon. Outlined below
are COMPANY’s alternative Incentive Programs being contemplated
(Attachments 1-4) in further detail.
Attachment 1 –Vendor Funding Contract
Attachment 1 proposes COMPANY and the vendor agreeing that COMPANY
will sell, with a specified time period (which COMPANY may unilaterally extend
for up to 30 additional days), a minimum number of product units. The vendor
will provide funding to COMPANY on a “per unit sold” basis, but the vendor
does not require COMPANY to use the funds to reduce the selling price of the
product. Rather, COMPANY is only required to use the vendor funds “solely for
promotional activities.” To the degree COMPANY opts to use some or all of the
vendor payment for a temporary price reduction, they do so subject to a maximum
amount of price reduction per unit that is agreed to between COMPANY and the
vendor.
The vendor may also opt for a maximum coverage for each contract where it can
impose a unit and/or dollar cap on the program. The vendor payment can be
made in a variety of ways, including a deduction from the vendor payment.
Attachment 2 –Vendor Funding Contract
Attachment 2 sets forth a proposed agreement that is similar to that included in
Attachment 1, with one difference – there is no requirement to sell a minimum
number of units.
Attachment 3 –Vendor Funding Contract
Attachment 3 has terms similar to the agreements in Attachments 1 and 2, with
the exception that attachment 3 is silent on the permitted usage of vendor funds.
There is a requirement to sell a specified minimum number of units during the

ST 18-0008-PLR
Page 4
contract period. There is also a maximum temporary price reduction per unit
provision as described above. However, there is no requirement of a reduction in
the selling price.
Attachment 4 –Purchase Discount Contract
Attachment 4 contemplates COMPANY moving to a program where COMPANY
commits to purchase a certain minimum numbers of units by a certain date from
the supplier in exchange for a per unit discount. The parties agree that per unit
discount would continue on all amounts above the minimum purchased as well,
unless specifically not agreed to. The program has set beginning and end dates,
though COMPANY would retain the right to extend the end date for up to 30
additional days. As this is a minimum purchase agreement, COMPANY would
not be obligated to sell the product at a specified price during the term of the
promotion. The vendor payment to COMPANY could come in a number of
different forms, but as under the current system, the most common method
contemplated would be in the form of an offset to the payment to the vendor for
the underlying product. This situation is most akin to a purchase discount based
on volume.
ILLINOIS LAW & ANALYSIS
The Retailer’s [sic] Occupation Tax is imposed upon persons engaged in the
business of selling tangible personal property as retail. 35 ILCS 120/2. The ROT
is imposed on a retailer’s “gross receipts” from sales of tangible personal
property. 35 ILCS 120/2-10. The Act defines the term “gross receipts” from
sales of tangible personal property as the “total selling price” of such sales. 35
ILCS 120/1. The term “selling price” is defined as the “consideration for a sale
valued in money whether received in money or otherwise, … and shall be
determined without any deduction on account of the cost of the property sold, the
cost of materials used, labor or service cost or any other expense whatsoever. …”
Id. The Department defines gross receipts as “all consideration actually received
by the seller, except traded-in tangible personal property.” 86 Ill. Adm. Code
§130.401.
The Department’s regulations discuss the impact of applying a discount coupon,
rebate or incentive to the selling price of tangible personal property. See 86 Ill.
Admin. Code Section 130.2125. Where a seller receives full or partial
reimbursement for a discount coupon, it incurs ROT on the receipts received from
the purchaser plus the amount of any reimbursement from the manufacturer
received for the discount coupon. Id. However, where a seller receives payments
from a vendor or manufacturer for handling charges or administrative expenses in
processing coupons, such payments are not subject to tax is [sic] they are clearly
distinguished from coupon value reimbursement.” 86 Ill. Admin. Code Section
130.2125(b)(2)(B).

ST 18-0008-PLR
Page 5
In the context of automobile sales, the Department provides additional guidance
on the treatment of incentive payments. The regulations identify five examples of
incentive payments which are not subject to ROT. Ultimately, the taxation of an
automobile dealer incentive depends on whether the payment received from a
source other than the purchaser is conditioned upon the retail sale of an
automobile. 86 Ill. Admin Code § 13.2125(f) (emphasis added) [sic]. Thus, if a
dealer receives a payment in exchange for the purchase of an automobile from a
manufacturer, and that payment is not conditioned upon the sale of that
automobile, the amount of payment is not subject to ROT. Id at example 2.
Similarly, dealer hold-back payments are not subject to ROT. An example of a
dealer-hold back is where the manufacturer will make quarterly payments to the
dealer for a designated percentage of the invoice price of each vehicle purchased
from the manufacturer. In this example, the payment is not conditioned on the
retail sale, but rather on the quantity that the retailer purchases from the
manufacturer. 86 Ill. Admin Code § 13.2125(f)(Example 3) [sic].
Where a vehicle manufacturer agrees to pay an incentive, for each vehicle that a
dealer purchases during a specified promotional period, such payment is not
subject to ROT. 86 Ill. Admin Code § 13.2125(f)(Example 4) [sic]. This is
because the payment is conditioned on the purchase by the dealer from the
manufacturer, and not the retail purchase. Id.
If a bonus incentive payment is made by a manufacturer and the payment is
conditioned on a performance measure, such as obtaining a benchmark customer
service index score, then the incentive payment is not conditioned on the retail
sale and is not subject to ROT. See 86 Ill. Admin Code § 13.2125(f)(Examples 5,
6) [sic].
While the Department’s regulations on incentive, volume, and performance-based
payments deal exclusively with the automobile industry, the examples are
analogous to COMPANY’s proposed Incentive Programs and should be applied
here. In Chet’s Vending Service, Inc. v. The Department of Revenue, 71 Ill. 2d 38
(1978) the Illinois’ Supreme Court held subsidy and guarantee payments made by
a third party, that were in addition to the monthly receipts collected by the retailer,
were not subject to ROT. The taxpayer was engaged in the business of catering
food and beverages to employees at industrial locations. There were two types of
contracts under dispute between the taxpayer and the Department. In the first
contract, the taxpayer supplied food and beverage service to employees and paid
ROT based on all moneys received from the sales to employees. In addition to
this payment, the taxpayer received a “fixed fee” or monthly subsidy payment
from its third party employer. Under the second contract, if the taxpayer’s
receipts from sales to employees did not cover its costs, the third party employer
made up the difference by making a “guarantee payment” at month end.

ST 18-0008-PLR
Page 6
Under both contracts, the Court found there was “no basis for relating any portion
of the fixed fee or guarantee payment to any individual sale as part of the “selling
price.” Chet’s Vending Service, Inc., 71 Ill. 2d 38, 42 (1978). To hold otherwise
would have required the Court to find that the sales at each customer location
during a calendar month was one single sale between the employees purchasing
meals and the employer making the additional month end payment. The Court
noted that it was “wholly irrelevant” that the contracts may have had the purpose
of reducing the cost or increasing profit. Id. at 43.
In Ogden Chrysler Plymouth, Inc. v. Bower, 348 Ill. App. 3d 944 (2d. Distr.
2004), the court held that a manufacturer’s reimbursement payment, which was
tied to a specific purchase price, was subject to ROT. DaimerChrysler Motors
Corporation (“Chrysler”) implemented a program where active or retired Chrysler
employees could purchase or lease a vehicle at the factory invoice cost. Id. at 947.
In exchange for participation in the program, a dealer received from Chrysler 6%
of the employee purchase price plus $75. Id. When a vehicle came into the
dealer’s stock, neither the dealer nor Chrysler was able to determine whether the
vehicle would be sold under the program. Id. The purchase price is nonnegotiable and the payment made by Chrysler does not affect the purchase price.
Id.
Following an audit, the Department assessed the dealer for its failure to pay ROT
on payments received from Chrysler pursuant to the program. The department
contended that it was able to tie specific vehicle sales to the compensation
received from Chrysler and thus, the payments were subject to ROT. Id at 951.
The taxpayer argued that the consideration received from the dealer was not part
of the bargain or exchange between the purchaser dealer and that the dealer
received consideration from two independent and unrelated transactions. Id.
In relying on Chets’ Vending, the Appellate Court found no merit in taxpayer’s
argument and found that the transactions were not independent, but rather, each
purchase was tied to a specific payment from Chrysler to the dealer.
Additionally, the payment amount from Chrysler to the dealer corresponded to a
specific purchase price. Id. at 954. Accordingly, the dealer’s payments received
from Chrysler were subject to ROT. Id.
The Department’s regulations and the Chet’s Vending and Ogden decisions
establish the rule that if the payment, or consideration, that is received from a
third party is not conditioned on the individual retail sale of the subject item, then
such receipts should be excluded from ROT. (See also Cigarette buy-down
Cases, Il. GIL 04-217-GIL (11/19/2004) where the Department found that
incentive programs which require the manufacturer to reimburse the retailer for
the difference between the price charged and the retail price of an item, that
reimbursement is included in the gross receipts for the sale of that product if the
discount is provided to the customer for a specific product). Therefore, applying

ST 18-0008-PLR
Page 7
this rule to the Attachments at issue, COMPANY arrives at the following
conclusions for each of its Incentive Programs:
Attachment 1 –Vendor Funding Contract
Under this contemplated Program Incentive, COMPANY contends ROT would
not be due on any vendor payments because the payments are not conditioned on
any individual sale. The payment is conditioned on COMPANY selling a
minimum number of units. Conversely, the payment is not conditioned on any
individual retail sale. Moreover, the vendor payment is to be used “solely for
promotional activities.” While the payment may be used to reduce the price of
the retail sale, it is under no obligation to do so. Accordingly, COMPANY
believes the vendor payment is not subject to ROT under Chet’s Vending.
Similarly, this Program Incentive is analogous to examples 2 and 4 in 86 Ill.
Admin Code 130.2125(f) where a retailer’s receipt of an incentive payment was
not subject to ROT where the payment was conditioned on the number of units
sold by retailer (example 2) or purchased from the vendor (example 4).
Attachment 2- Vendor Funding Contract
COMPANY contends that ROT would not be due on any vendor payments
received based on the same analysis applicable to Attachment 1.
Attachment 3 –Vendor Funding Contract
COMPANY contends that ROT would not be due on any vendor payments
received based on the analysis applicable to Attachments 1 and 2 above.
Additionally, the incentive payment in Attachment 3 differs from the payments in
the attachments discussed, and is even more attenuated from the purchase of a
single item, because the attachment is silent on COMPANY’s permitted usage of
vendor funds. Simply, COMPANY has unlimited discretion in how it uses the
vendor incentive payments. COMPANY may, but it is not required to reduce the
retail purchase price, subject to maximum price reductions.
Attachment 4 –Purchase Discount Contract
COMPANY contends that ROT would not be due on any vendor payments
received under Attachment 4 because the vendor payment is based entirely on the
volume of items it purchases within a specified period of time. This situation is
identical to the one described in Example 4 of the Department’s regulation 86 Ill.
Admin Code § 130.2125(f). Moreover, Attachment 4 is not conditioned on any
individual sale and the payment should not be subject to ROT. See Chet’s
Vending Service, Inc., 71 Ill. 2d 38 (1978). For example, if COMPANY receives
a $500 vendor payment for purchasing 100 items from the vendor, it is irrelevant
whether COMPANY subsequently sells all 100 items or none of the items at
retail. Regardless of its final retail sale of the items, COMPANY is entitled to the

ST 18-0008-PLR
Page 8
$500 vendor payment.
individual retail sale.

Accordingly, the payment is not conditioned on any

REQUEST FOR RULING
Pursuant to 2 Ill. Admin. Code Section 1200.110, COMPANY respectfully
requests that the Department of Revenue issue a private letter ruling declaring:
(i)

(ii)

(iii)

(iv)

COMPANY should not include vendor incentive payments
in its gross receipts subject to ROT where the payment is
not conditioned on an individual retail sale; rather, the
payment is conditioned on COMPANY selling a minimum
number of product units, the payment is to be used for
promotional activities, and the payment is not required to
be used to reduce the selling price of an item;
COMPANY should not include vendor incentive payments
in its gross receipts subject to ROT where the payment is
not conditioned on the sale of a specific item or minimum
number of product units; rather, the payment is to be used
for promotional activities and it is not required to be used
to reduce the selling price of an item;
COMPANY should not include vendor incentive payments
in its gross receipts subject to ROT where the payment is
not conditioned on the sale of a specific item or minimum
number of product units; under this incentive program,
COMPANY is not restricted in how it uses the payment;
and
COMPANY should not include vendor incentive payments
in its gross receipts subject to ROT where the payments are
received based on the number of units purchased from the
vendor (volume based incentive).

If you concur, please issue your favorable ruling to the undersigned. If you do not
concur, please advise so that we may discuss your reasoning before an adverse
ruling is issued.
DEPARTMENT’S RESPONSE:
A retailer incurs Retailers' Occupation Tax on its gross receipts from sales, which is
defined as the total selling price of a sale. Under Section 1 of the Retailers' Occupation Tax,
selling price means the consideration for a sale valued in money, whether received in money or
otherwise, including cash, credits, property, other than as provided in the statutory definition, and
services. 35 ILCS 120/1. The source of the consideration received by a retailer is immaterial in

ST 18-0008-PLR
Page 9
determining the gross receipts subject to tax. See Ogden Chrysler Plymouth, Inc. v. Bower, 348
Ill.App.3d 944 (2004). Also see 86 Ill. Adm. Code 130.2125(a).
Use Tax is generally imposed on the selling price of tangible personal property purchased
at retail. The Retailers' Occupation Tax Act and the Use Tax work together in a complementary
manner. Whether discount coupons utilized by a purchaser for the purchase of tangible personal
property constitute consideration for a sale depends upon whether the retailer receives any
reimbursement for the amount of the discount. If the retailer receives full or partial
reimbursement for the amount of the discount, the amount of the discount that is reimbursed is
considered to be part of the selling price of the sale. The purchaser incurs tax on the entire
selling price, including the amount of the discount paid to the retailer by the issuer of the coupon.
If a retailer allows a purchaser a discount from the selling price on the basis of a discount
coupon for which the retailer receives no reimbursement from any source, the amount of the
discount is not subject to Retailers' Occupation Tax liability. If a retailer allows a purchaser a
discount from the selling price on the basis of a discount coupon for which the retailer will
receive full or partial reimbursement (from a manufacturer, distributor or other source), the
retailer incurs Retailers' Occupation Tax liability on the receipts received from the purchaser and
the amount of any coupon reimbursement. 86 Ill. Adm. Code 130.2125(b).
In Chet’s Vending Service Inc. v. Department of Revenue, 71 Ill. 2d 38 (1978), the court
reviewed whether the “fixed fee” monthly subsidy or the “guarantee” paid by an employer to a
caterer making food and beverage sales to the employer’s employees were subject to Retailers’
Occupation Tax. The Department argued that the payments by the employer “represent[ed] a
‘two-party split’ of the consideration for the transfer of tangible personal property between the
employer and employee and that the payments received from both must be combined in
computing the retailers’ occupation tax.” Id. at 42. The court, however, disagreed.
“The evidence shows no basis for relating any portion of the fixed fee or
guarantee payment to any individual sale as part of the “selling price.” To
construe the terms “selling price” and “gross receipts” in the manner for which
[the Department] contends would require us to hold that the manual or cafeteriatype sales at each industrial location during a calendar month were one sale to
both the employer and the employees, the “selling price” of which was the
aggregate of the sums received from the employees and the monthly payment
received from the employer. . . . We have considered the arguments of the parties
concerning the nature of the payments and conclude that whether the payments
were made for the purpose of enabling plaintiff to reduce the cost of the food and
beverages which it sells to the employees or to guarantee it a profit from its
operation is wholly irrelevant. Under the clearly defined terms employed in the
statute, the payments were not includable in plaintiff’s “gross receipts.””
Id. at 42-43. The test enunciated by the court is whether there is any basis for “relating” any
portion of the third-party payment to any individual sale.

ST 18-0008-PLR
Page 10
In 2008, the Department amended 86 Ill. Adm. Code 130.2125 to specifically address
automobile rebates and dealer incentives and provided a number of examples on the application
of the rules. Incentives provided by manufacturers that are conditioned on additional sales or
conditioned on meeting certain manufacturer required marketing standards, facility standards, or
sales and service department satisfaction goals are not subject to tax. See 86 Ill. Adm. Code
130.2125(e)-(f). Although the rules apply to automobile rebates and incentives, the rules provide
guidance when reviewing other rebate and incentive situations.
It is the Department’s decision that, based on the facts provided by the Company, the
vendor incentive payments described in your letter and Attachments 1 through 4 received by the
Company are not related to individual sales of tangible personal property and are not included in
gross receipts.
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