My company charged Illinois sales tax on a separately-invoiced, no-markup freight charge for delivering glass by common carrier -- the customer could have picked it up in person but we always deliver instead. Is that freight charge taxable, and can the customer get a refund?

Plain-English summary

A multistate architectural glass and metal fabrication company shipped glass product from an out-of-state facility to an Illinois customer via common carrier, and charged Illinois Retailers' Occupation Tax (ROT/sales tax) on both the glass and the freight. The freight was billed on a separate invoice once the carrier's bill arrived, with no markup added. The Illinois customer disputed the tax on the freight, arguing it should not be taxable. Although the customer could have picked up the glass in person, given the volume and size of the order this normally wasn't a feasible option, and the company always delivered by common carrier in this instance.

Conflicting guidance before this letter. The company had already gotten an informal answer from an Illinois Department of Revenue "Revenue Tax Specialist" through a website inquiry. That informal reply said delivery charges are nontaxable only if they are BOTH (1) separately contracted for AND (2) actually reflective of the shipping cost -- with any amount charged above actual cost being taxable. The company doubted that guidance, believing it conflicted with the Illinois Supreme Court's decision in Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351 (2009), and asked the Department to formally confirm whether the freight was taxable or a refund was owed.

The Department's formal response superseded the informal website answer. The controlling rule is 86 Ill. Adm. Code 130.415, which incorporates Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351, 919 N.E.2d 926 (2009). In Kean, the Illinois Supreme Court found an "inseparable link" between the sale and delivery of merchandise purchased from Wal-Mart's internet store, making the delivery charges part of the taxable gross receipts.

Under 130.415(b)(1)(B), that "inseparable link" (which makes delivery charges taxable) exists when EITHER:

• the transportation/delivery charges are not separately identified to the purchaser on the invoice or contract, OR
• they are separately identified, but the seller does not give the purchaser any option to receive the property without paying those charges (for example, no pickup option is offered, and no free-delivery option is available or qualified for).

Conversely, if the customer can obtain the property without paying delivery charges -- for example, by picking it up -- then no inseparable link exists, and the delivery charges are NOT part of the taxable selling price. Critically, whether the seller marked up the freight cost above its actual shipping expense is not the controlling test; the "inseparable link" / no-pickup-option test from Kean and 130.415 governs instead.

Applying this to the facts: because the taxpayer's letter stated that the customer could have picked up the glass, the delivery charges here are not taxable -- even though they were separately invoiced with no markup.

What this means for you

Sellers of tangible personal property in Illinois

Whether your delivery/freight charges are taxable does not turn on whether you marked up the shipping cost. It turns on whether the customer had a real option to obtain the goods without paying for delivery (such as an available pickup option). If no pickup or free-delivery option exists, the delivery charge is swept into the taxable selling price regardless of whether it's separately invoiced or billed at exact cost.

Businesses that received informal guidance from the Department's website inquiry line

This letter is a reminder that informal responses from Department staff (such as a website inquiry reply) are not binding and can be superseded by a formal GIL or PLR analysis. If informal guidance seems to conflict with a governing regulation or case law, it's worth requesting a formal letter ruling to get a citable answer.

Customers disputing sales tax on freight charges

If you were charged tax on a delivery charge but you could have picked up the item yourself instead of paying for delivery, that delivery charge may not have been taxable -- regardless of whether the seller added any markup to the shipping cost.

Common questions

Q: Does adding no markup to a freight charge make it automatically nontaxable?
A: No. The Department rejected that framing. The controlling test under 86 Ill. Adm. Code 130.415(b)(1)(B) and Kean v. Wal-Mart is whether an "inseparable link" exists between the sale and the delivery -- not whether the delivery charge exceeds the seller's actual shipping cost.

Q: What made the delivery charges nontaxable in this specific ruling?
A: The taxpayer's own letter stated that the customer could have picked up the glass in person. Because the customer had that option, no inseparable link existed between the sale and the delivery, so the freight charges were not part of the taxable selling price.

Q: Does it matter that picking up the glass "normally wasn't feasible" given its size and volume?
A: The letter states that pickup was possible even though not normally feasible, and the Department's response turned on the fact that pickup could have occurred -- not on how convenient that option was in practice.

Q: Did this letter overrule the earlier informal answer from the Department's website inquiry line?
A: Yes, in effect. The informal website reply (from a Revenue Tax Specialist) had said nontaxability depended on charges being separately contracted for and reflecting actual shipping cost. This formal GIL response instead applied the "inseparable link" / pickup-option test from 130.415 and Kean, reaching a different rationale (though the same practical result here, since the charges turned out to be nontaxable).

Q: Is this letter binding on the Department for other taxpayers?
A: No. As a General Information Letter (GIL), it is not a statement of Department policy and is not binding on the Department; it merely directs the taxpayer to the relevant regulations and case law.

Citations and references

Statutes and cases cited:

• 86 Ill. Adm. Code 130.415 (governs when transportation and delivery charges are part of the taxable selling price)
• 86 Ill. Adm. Code 130.415(b)(1)(B) (defines the "inseparable link" test: charges not separately identified, or separately identified but no option to receive the property without paying them)
• 86 Ill. Adm. Code 130.101 (imposes Retailers' Occupation Tax on retail sales of tangible personal property)
• 86 Ill. Adm. Code 150.101 (imposes Use Tax on tangible personal property purchased at retail)
• Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351, 919 N.E.2d 926 (2009) (Illinois Supreme Court case finding an inseparable link between sale and delivery of Wal-Mart internet-store merchandise, making shipping charges taxable)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2019.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2019/st19-0022-gil.pdf

Original ruling text

ST 19-0022-GIL 12/04/2019 DELIVERY CHARGES
This letter discusses transportation and delivery charges. See 86 Ill. Adm. Code 130.415. (This
is a GIL.)
December 4, 2019
Dear XXX:
This letter is in response to your letter dated May 21, 2019, 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 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 is a multistate architectural glass and metal fabrication company that
is part of the GROUP group of companies. A situation arose out of one of its
STATE locations. I had requested advice through the IL DOR website on the
subject that did not jive with what I was reading, so it was suggested that I inquire
of Legal Services.
Scenario: The STATE facility sent product to a Customer in IL via common
carrier and charged the applicable ROT on the material and the freight. The
freight is invoiced on a separate invoice once the bill is received from the
common carrier. No mark up is applied to this charge.
The customer could pick up the glass; however, based on the volume of the
order as well as the size of the glass, it is normally not a feasible option.
COMPANY charged the ROT tax on an invoice to its IL customer for both the
glass and the freight. The customer is arguing about the tax on the freight saying
this should be not taxable.
Based on the research conducted I believe the tax on the freight charge is
warranted as no inseparable link exists between the delivery of the product and
the freight charges.
Below is the response received from the IL DOR website inquiry:
From: REV.TA-Sales [email protected]
Sent: Thursday, May 16, 2019 12:04 PM
TO: TaxDept_EMAIL

ST 19-0022-GIL
Page 2
Subject: FW: Shipping Charges – kn
Shipping can be taxable in Illinois. Here is the regulation that covers it:
https://www.ilga.gov/commission/jcar/admincode/086/086001300d04150R.HTML
Charges designated as “shipping and handling,” as well as delivery or transportation
charges in general, are not taxable if it can be shown that they are both separately
contracted for and that such charges are actually reflective of the costs of shipping” per
legal letter:
ST 19-0022-GIL 12/04/2019 DELIVERY CHARGES
So, if your item is $10 and that includes the shipping, the whole $10 is taxable. If you
separate out the shipping charges on the invoice, only the excess amount is taxable.
For instance, your item is selling for $10 and you charge $5 for shipping/handling. Your
actual cost to ship is $2. The $3 excess you are charging would be taxable.
Kathy
Revenue Tax Specialist
Illinois Dept of Revenue
I questioned this answer as the research did not jive with what I had read prior to
the inquiry or the decision in Kean vs Walmart decision (2009).
My question is whether the freight charge is taxable or whether the customer is
due a refund of the tax on freight.
Thank you for your assistance with this matter and I look forward to your response.

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 at retail to purchasers for use or consumption. See
86 Ill. Adm. Code 130.101. In Illinois, 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 can be found at 86
Ill. Adm. Code 130.415 and incorporates the decision rendered 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 in Kean
that an “inseparable link” existed between the sale and delivery of the merchandise plaintiffs
purchased from Wal-Mart’s Internet store. Thus, the court 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

ST 19-0022-GIL
Page 3
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 customer can purchase the tangible personal
property without payment of transportation or delivery charges to the retailer (e.g., can pick up the
tangible personal rather than have it delivered), 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). In your letter, you indicate that the “customer could pick up the
glass.” Based on that fact, the delivery charges are not taxable.
I hope this information is helpful. If you require additional information, please visit our website
at tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.
Very truly yours,

DMB:rkn

Debra M Boggess
Associate Counsel