When a company sells custom signs into Illinois and has them installed by an independent contractor, does it charge sales tax, or does the customer owe use tax -- and what about the freight and installation charges?

Plain-English summary

A company that manufactures custom signage and sells it into Illinois (where it's registered as a retailer) wrote in with a long list of sales-and-use-tax questions. Its signs are either bolted to a building or mounted on a pole that's concreted into the ground; an independent contractor installs them, and an independent freight carrier delivers them; both the installation and freight charges are separately stated on the customer's bill and marked up over the company's own cost. The company asked whether it should charge sales tax or whether the transaction is really a use-tax situation, whether freight and installation are taxable, whether it must collect local taxes, whether any exemptions apply to new construction or remodeling, and several administrative questions.

Because this is a General Information Letter (GIL), not a Private Letter Ruling, the Department did not apply the law to this company's specific transactions. Instead it laid out the general framework and pointed the company to the relevant regulations -- a GIL is explicitly "not a statement of Department policy and is not binding on the Department."

The framework the Department described has three branches:

1. Signs with "commercial value" to someone other than the buyer (the regulation's examples: signs that just say "real estate," "insurance," or "hamburgers," without the customer's own name or brand) are taxable retail sales under the Retailers' Occupation Tax, even if custom-made to order. If such a sign is installed, the installation charge is also taxable unless there's a separate agreement for the installation.
2. Signs made to special order that have no commercial value to anyone but that particular customer are not retail sales at all -- instead the sign vendor is treated as a "serviceman" under the Service Occupation Tax.
3. If the sign becomes permanently affixed to real estate (rather than remaining tangible personal property), the analysis flips: the person who converts the property into real estate -- typically the installing contractor -- is treated as a construction contractor and the legal end-user of the material. That contractor owes Illinois Use Tax (and local Retailers' Occupation Tax reimbursement) on what it paid to acquire the sign, and must self-assess and remit Use Tax directly if its own supplier didn't collect the tax.

On freight, the Department gave only a citation to 86 Ill. Adm. Code 130.410 and a general note that "the rules on shipping and handling charges have been updated to reflect recent legal developments" -- it did not say how much tax, if any, applies to this company's separately stated freight charges.

Most of the company's other specific questions -- how to calculate use tax, whether to tax on the full charge or just the profit margin, whether local taxes must be collected and where they're remitted, whether new-construction/remodeling exemptions apply, and requests for specific tax codes or a mailing list -- were not individually answered in the letter as extracted here. The response addresses the general legal framework rather than walking through each bullet point.

What this means for you

Sign vendors and manufacturers

Whether you charge sales tax at the point of sale turns on whether your sign has "commercial value" independent of the specific buyer. A generic sign that could be resold to anyone with the same message (like a plain "insurance" sign) is a taxable retail sale under 86 Ill. Adm. Code 130.2155, and if you install it, tax generally also applies to the installation charge unless installation is covered by a truly separate agreement (86 Ill. Adm. Code 130.450). A sign custom-built so it has no value to anyone but that one customer is instead subject to the Service Occupation Tax as a service transaction (86 Ill. Adm. Code 140.101). Note the letter does not resolve whether tax applies to the full marked-up freight/installation charge or only to your profit margin on those charges -- that specific question was left unanswered.

Construction contractors and real estate developers

If a sign (or other tangible personal property) is permanently affixed so that it becomes part of the real estate, the tax picture changes: the contractor who does the converting is treated as the end user of the property and owes Use Tax, plus local Retailers' Occupation Tax reimbursement, based on what it paid to acquire the item -- not on what it later charges its own customer. If the contractor bought from a supplier that didn't collect Illinois tax, the contractor must self-assess and remit Use Tax on its own cost. See 86 Ill. Adm. Code 130.1940 and 130.2075 for the fuller rules on construction contractors and real estate developers.

Accountants and tax professionals advising sign companies

This GIL is useful mainly as a map of which regulations to consult, not as a resolved answer for any particular client. Before advising a client with facts like these, you'd need to separately research: (1) how 130.410 currently treats separately stated, marked-up freight charges; (2) local Retailers' Occupation Tax collection and remittance obligations for an out-of-state, Illinois-registered seller; and (3) whether any new-construction or remodeling exemption applies to the client's customers. None of those were addressed with specifics in this letter -- and because it's a GIL, even a fully on-point answer here would not bind the Department for your client's actual return.

Common questions

Q: Is this ruling binding on the Illinois Department of Revenue?
A: No. This is a General Information Letter (GIL), issued under 2 Ill. Adm. Code 1200.120. The Department states plainly that a GIL "is not a statement of Department policy and is not binding on the Department" -- it only points taxpayers to the relevant regulations. That's different from a Private Letter Ruling (PLR), which is binding as to the specific requesting taxpayer if the facts given are correct and complete.

Q: Does selling a custom-made sign automatically avoid sales tax?
A: No. Being custom-made doesn't matter by itself -- what matters is whether the sign has "commercial value" to someone other than the buyer. A custom sign that could still function as a generic sign for another business (the letter's examples are ones spelling out "real estate," "insurance," or "hamburgers" without the customer's name or brand) is still a taxable retail sale. Only a sign so specialized that it has no value to anyone but that customer shifts the transaction to the Service Occupation Tax instead.

Q: If the sign gets permanently attached to a building or concreted into the ground, who owes the tax?
A: The letter says that once tangible personal property is converted into real estate, the person doing the converting -- generally the installing contractor -- is treated as a construction contractor and the legal end-user of the property. That contractor then owes Illinois Use Tax (and local Retailers' Occupation Tax reimbursement) based on its own cost to acquire the sign, self-assessing and remitting the tax directly if its supplier didn't already collect it.

Q: Is the installation charge taxable?
A: When a sign with commercial value is sold and installed, the Department says the installation charge is subject to Retailers' Occupation Tax too, unless there is a separate agreement for the installation. The letter cites 86 Ill. Adm. Code 130.450 for this rule but doesn't specify what would qualify as a sufficiently "separate" installation agreement on this company's facts.

Q: Did the Department answer the company's questions about freight charges, local tax remittance, and available exemptions?
A: Only partially. On freight, the Department cited 86 Ill. Adm. Code 130.410 and noted that shipping-and-handling rules "have been updated to reflect recent legal developments," without stating a specific outcome. The company's other questions -- on calculating use tax, taxing gross charges versus profit margin, local tax collection and remittance, new-construction/remodeling exemptions, specific tax codes, and a mailing-list signup -- are not individually resolved in the Department's response as it appears in this letter.

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-18-0035-gil.pdf

Original ruling text

ST 18-0035-GIL 12/05/2018 CONSTRUCTION CONTRACTORS
Persons who sell signs may incur a Retailers’ Occupation Tax, Service Occupation Tax or Use
Tax liability, depending upon the circumstances of the particular sale. See 86 Ill. Adm. Code
130.2155 (Tax Liability of Sign Vendors); 86 Ill. Adm. Code 140.101 (Basis and Rate of the
Service Occupation Tax); 86 Ill. Adm. Code 130.1940 (Construction Contractors and Real
Estate Developers) and 86 Ill. Adm. Code 130.2075 (Sales To Construction Contractors, Real
Estate Developers and Speculative Builders). (This is a GIL.)
December 5, 2018
Dear Xxxx:
This letter is in response to your letter received October 10, 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.
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:
We are doing our annual update of our tax files to be sure that we are aware of any new
sales/use tax issues in your state that would affect our company. Our company,
COMPANY, sells custom made signage into your state where we are currently
registered. The signage is either attached to a building or a pole that is concreted into
the ground. We contract with an independent contractor to install the signs. The
installation charges are separately stated on the billing and include charges for surveys,
permits, engineering and repairs. We also contract with an independent freight carrier
to deliver the sign to the site for installation. All freight charges are separately stated on
the billing. Both the installation and the freight are charged to the customer at a rate
higher than our companies cost.
Our questions based on the above circumstances are as follows:
•
•
•
•

At the point of sale should we as the seller be charging the customer sales tax or is this
a case where we would pay use tax?
If this is a case of use tax, how is the use tax calculated?
Should tax be charged on the freight?
Should tax be charged on all components of the installation?

ST 18-0035-GIL
Page 2
•
•
•
•
•
•
•
•

If tax is charged on the freight and installation, do we charge on the selling price or only
on the element of profit?
Should tax be charged on all components of service and repair work?
Are we obligated to collect local taxes in your state?
If we are obligated to collect the local tax should those taxes be remitted to the state or
the locality?
Do you have any special rules or exemptions that apply to your state relating to our
situation?
Are there any special circumstances for new construction or remodeling that would
cause our customers to be exempt in this situation?
Please provide any applicable code selections that would apply to signage, installation
and freight for our future reference.
Does your state have a mass mailing list to provide us with updates when they become
available? If so, will you please add us to your list or provide us with information to
register for this.

We look forward to your response to our inquiries. Thank you for your time.
DEPARTMENT’S RESPONSE:
A person who sells signs that have commercial value (i.e., value to persons other than the
purchasers) incurs Retailers’ Occupation Tax (sales tax) liability when making such sales, even if
such signs are produced on special order for the purchaser. Examples of signs having such
commercial value would be ones that spell out “real estate”, “insurance,” or “hamburgers,” and which
do not spell out the name of the purchaser nor the brand name of the purchaser’s product and which
are not otherwise similarly individualized. See 86 Ill. Adm. Code 130.2155 regarding vendors of
signs. When a sign that has commercial value is sold and installed, the installation charge is also
subject to Retailers’ Occupation Tax unless there is a separate agreement for the installation charge.
See 86 Ill. Adm. Code 130.450.
If the sign vendor produces a sign on special order of the customer and the sign is so
specialized that it would have no commercial value to anyone other than that particular customer who
placed the order, the sign vendor would not incur Retailers’ Occupation Tax liability. These
transactions would be subject to liability under the Service Occupation Tax Act, and the sign vendor
would be considered a serviceman. See generally, 86 Ill. Adm. Code 140.101.
The above assumes that the signs remain tangible personal property after installation. If the
signs were permanently affixed structurally as real estate, then there would be different tax
consequences. Under Illinois law, a person who takes tangible personal property off the market and
converts it into real estate is deemed a construction contractor and is the legal end-user of the
tangible personal property. The construction contractor, as the user, incurs Illinois Use Tax and local
Retailers’ Occupation Tax reimbursement liabilities when the tangible personal property that will be
converted into real estate is purchased from registered Illinois suppliers. If such items were
purchased from suppliers that did not collect the tax, the person who converts the tangible personal
property into real estate is required to self-assess and remit the Use Tax to the Department based

ST 18-0035-GIL
Page 3
upon the cost price of the property. For information on construction contractors, see 86 Ill. Adm. Code
130.1940 and 130.2075.
In regards to your question concerning freight, see, 86 Ill. Adm. Code 130.410. The rules on
shipping and handling charges have been updated to reflect recent legal developments.
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,

Richard S. Wolters
Associate Counsel

RSWbkl