What does Illinois General Information Letter ST 20-0005-GIL conclude about Sale At Retail?

Subject

Sale At Retail

Plain-English summary

An out-of-state manufacturer of HUD-code manufactured homes and modular homes asked the Illinois Department of Revenue how sales tax applies when its homes are shipped into Illinois. The company was unsure whether it should collect sales tax, what rate would apply, and whether the homes should be reported as ordinary retail sales (Form ST-1) or as titled items (Forms ST-556/ST-556-LSE). The company had also received conflicting guidance from the Department's own Taxpayer Assistance Line.

The Department's answer turns on one key fact: whether the seller has a contract to permanently affix the home to the customer's real estate. If the seller (or its dealer) is contractually obligated to permanently install the home into real estate, Illinois treats that seller as a construction contractor, not a retailer. Construction contractors are considered end users of the building materials they incorporate into real estate, so they owe Use Tax on their own cost price of the home — the price they paid their supplier — rather than collecting sales tax from the customer. The customer in that scenario has no tax liability, and the contractor has no authority to collect tax from them.

If, on the other hand, the seller has no contract to permanently affix the home (for example, it simply sells and ships the home without an installation obligation), the seller acts as an ordinary retailer. In that case the seller incurs Retailers' Occupation Tax and must collect the corresponding Use Tax from the purchaser, unless an exemption applies, such as a valid resale certificate from a customer who is a contractor buying for resale. Out-of-state sellers who deliver homes themselves into Illinois and act as retailers must collect and remit Illinois Use Tax on those sales.

The GIL also addresses delivery charges and titling. Delivery and transportation charges are generally part of the taxable selling price under the "inseparable link" test from Kean v. Wal-Mart Stores, Inc., unless the customer can buy the property without paying for delivery. Finally, if the modular homes are designed to be permanently affixed to real estate and lack their own wheels for highway transport, the related tax should be reported on the standard Form ST-1, not on the titled-item forms (ST-556/ST-556-LSE).

What this means for you

Manufacturers and out-of-state sellers of modular or manufactured homes

Whether you owe Illinois Use Tax as a contractor or must collect sales tax as a retailer depends entirely on your contract terms with the customer — specifically, whether you (or your dealer) are contractually responsible for permanently affixing the home to real estate. If you are, you self-assess and remit Use Tax on your own cost price; you do not collect tax from the customer. If you are not under such a contract, you're a retailer and must collect Retailers' Occupation/Use Tax from the buyer unless a valid exemption certificate is on file.

Dealers and installers of HUD-code homes

If you take homes off the market and permanently install them into real estate under a construction contract, you're the party responsible for self-assessing and remitting Use Tax to Illinois — not your customer. If you're not registered with an Illinois-registered supplier that already collects the tax, you must register with the Department and remit the Use Tax yourself.

Accountants and tax professionals advising these sellers

Watch for two separate traps highlighted in this GIL: (1) delivery charges can be pulled into the taxable selling price under the inseparable-link rule of 86 Ill. Adm. Code 130.415 and Kean, unless the customer has a genuine no-charge pickup or delivery option; and (2) out-of-state sellers who already paid tax to another state on the same property may claim a credit against their Illinois Use Tax liability under 86 Ill. Adm. Code 150.310. Also confirm the correct return: ST-1 for homes permanently affixed to real estate without their own road wheels, versus ST-556/ST-556-LSE for titled mobile homes.

Common questions

Q: Does our company collect sales tax on HUD/manufactured home sales shipped into Illinois?
A: Only if you're acting as a retailer — meaning you have no contract to permanently affix the home to the customer's real estate. If you do have such a contract, you're a construction contractor and instead owe Use Tax on your own cost price; you don't collect anything from the customer.

Q: What if we deliver the home ourselves but don't install or set it up?
A: The GIL indicates that responsibility for delivery alone does not make you a construction contractor — the deciding factor is whether you have a contract to permanently affix the home to real estate. Absent that, you act as a retailer and, since you deliver into Illinois yourself, you must collect and remit Illinois Use Tax from the purchaser unless an exemption (like a valid resale certificate) applies.

Q: Are these homes "titled items" reported on Form ST-556/ST-556-LSE instead of ST-1?
A: The GIL states that if the modular homes are designed to be permanently affixed to real estate and do not have their own wheels for highway transportation, the related tax should be reported on Form ST-1, not the titled-item forms.

Q: If we already paid tax to another state on these homes, do we still owe the full Illinois Use Tax?
A: No. Out-of-state sellers who properly paid tax to another state on the purchase or use of the property are entitled to a credit against their Illinois Use Tax liability under 86 Ill. Adm. Code 150.310, to the extent that tax was properly due to the other state.

Q: Are delivery and transportation charges taxed along with the home?
A: Generally yes, under the "inseparable link" test in 86 Ill. Adm. Code 130.415 and the Kean v. Wal-Mart decision — unless the delivery charge is separately identified and the customer genuinely has the option to receive the property without paying it (for example, a free-delivery or pickup option).

Q: Is this GIL binding on the Department for other taxpayers?
A: No. As stated in the letter itself, a General Information Letter is not a statement of Department policy and is not binding on the Department; it merely directs the requester to relevant regulations and general principles. See 2 Ill. Adm. Code 1200.120.

Citations and references

• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax imposed on sellers of tangible personal property)
• 86 Ill. Adm. Code 150.101 (Use Tax imposed on the privilege of using property purchased at retail)
• 86 Ill. Adm. Code 150.130 (retailer's credit against Use Tax for Retailers' Occupation Tax paid to the Department)
• 86 Ill. Adm. Code 130.2075 (Department's regulation on taxation of construction contractors)
• 86 Ill. Adm. Code 150.310 (credit for tax properly paid to another state)
• 86 Ill. Adm. Code 130.415 (transportation and delivery charges)
• 86 Ill. Adm. Code 130.415(b)(1)(B)(i)-(iii) (inseparable-link test for whether delivery charges are part of gross receipts)
• Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351, 919 N.E.2d 926 (2009) (delivery charges as part of gross receipts subject to Retailers' Occupation Tax)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedures)
• 2 Ill. Adm. Code 1200.120 (General Information Letters — not binding on the Department)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2020.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2020/st20-0005-gil.pdf

Original ruling text

ST 20-0005-GIL 02/06/ 2020 SALE AT RETAIL
Persons who permanently affix modular homes to real estate act as construction contractors
and incur Use Tax liability on their cost price of the tangible personal property they physically
incorporate into real estate. See 86 Ill. Adm. Code 130.2075. (This is a GIL).

February 6, 2020

Dear Xxxx:
This letter is in response to your letter dated November 1, 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
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 [FEIN#] is requesting a legal department ruling on sales of HUD/manufactured
homes into the state of Illinois. COMPANY would like sales tax clarification on the sales tax
consequences of HUD/manufactured homes shipped into Illinois from outside the state.
Facts:
• COMPANY is a manufacturer of manufactured (HUD Code ~ Defined next) and modular
homes.
• COMPANY defines manufactured homes as HUD homes built to the U.S. Department of
Housing and Urban Development standards, labeled as HUD, built on a permanent
chassis, and are sized to be at least 400 square feet.
• COMPANY is not a registered dealer in the state of Illinois.
• COMPANY may or may not be responsible/paid for the installation of the homes.
• COMPANY may or may not be responsible/paid for the delivery of the homes.
• COMPANY has no manufacturing plant within the state of Illinois.
• COMPANY currently files the ST-1 sales tax return on a monthly basis.
COMPANYreports all sales of HUD and Modular homes on their monthly sales tax
returns.
• COMPANY policy is to charge sales tax on HUD homes sold to Illinois customers unless
the customer provides a resale/tax exemption certificate that contains a valid Illinois sales
tax account.

ST 20-0005-GIL
Page 2

Questions:

1. Should COMPANY collect sales tax on HUD home sales being shipped into Illinois when
   COMPANY is responsible for the delivery but not installation/set and no resale/exemption
   certificate is provided? While consulting the Illinois Taxpayer Assistance Line on the correct
   sales tax rate on sales into COUNTY 1, COMPANY was informed that sales tax should not
   be collected on these HUD homes. This guidance contradicted previous guidance from
   Illinois Taxpayer Assistance. The previous guidance indicated COMPANY could collect
   sales tax on HUD home sales into Illinois and the only local taxes COMPANY should collect
   were for COUNTY 1, COUNTY 2, COUNTY 3, COUNTY 4, COUNTY 5. and COUNTY 6.
2. If COMPANY is required to collect sales tax on these HUD sales because no resale
   certificate was received from our customer, what sales tax rate(s) should be charged on
   these sales aside from the 6.25% state rate? What local tax rates are applicable? Home
   Rule? RTA?
3. Are COMPANY’s HUD homes considered “Mobile Homes” as defined by Illinois and therefor
   taxed as “Titled items” that are not reported on the normal sales tax return [ST-1] but should
   be reported on Forms ST-556 or ST-556-LSE? Is COMPANY or our customer required to
   register to file the ST-556/ST556-LSE returns if the tax must be submitted via these forms?
   The answer to this question may change the applicable sales tax rate as well since the sales
   tax rate based upon research would be different for “Titled items.” Therefore, please verify
   the sales tax rates that would be applicable as requested in question #2 if the HUD homes
   are considered “Titled items”
4. If COMPANY is not required to charge sales tax on HUD home sales since they are
   categorized as “Mobile homes” and therefore “Titled items”, is COMPANY still required to
   collect a resale certificate from our customers if no sales or sales tax is to be reported on
   COMPANY’s [ST-1] sales tax return?
   Attachments that were reviewed by COMPANY:
   • Sales tax information from www2.illinois.gov defines “Titled items’ tax treatment.
   • STS-76 Information Guide
   • For ST-556 Instructions
   • Two “Tax Rate Finder” example pages showing different tax rates
   If you have any questions about COMPANY’s request, please contact me.
   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 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. If the purchases
   occur in Illinois, the purchasers must pay the Use Tax to the retailer at the time of purchase. The
   retailers are then allowed to reduce the amount of Use Tax they must remit by the amount of Retailers'
   Occupation Tax liability which they are required to and do pay to the Department with respect to the
   same sales. See 86 Ill. Adm. Code 150.130.

ST 20-0005-GIL
Page 3

In Illinois, construction contractors are deemed to be end users of building materials (including
modular homes) that they take off the market and permanently affix to real estate. Contractors incur a
Use Tax liability on their cost price of the materials permanently affixed to real estate. Illinois retailers
making such sales also incur Retailers’ Occupation Tax on the gross receipts from the sales of these
building materials to the contractor. Thus, contractors having contracts with customers to sell and
permanently affix modular homes incur a Use Tax liability on their cost price of materials permanently
affixed to real estate. In these situations, the contractors’ customers incur no tax liability, and the
contractors have no authority to collect tax from them. If the contractors do not remit this tax to Illinois
registered suppliers, the contractors must register, self-assess and remit the Use Tax to the
Department. 86 Ill. Adm. Code 130.2075 is the Department’s regulation concerning the taxation of
construction contractors.
In contrast, if Illinois sellers of modular homes do not have contracts with the purchasers to
permanently affix the home to real estate, they do not act as construction contractors and do not incur
a Use Tax liability. Rather, they act as retailers in retail transactions and incur a Retailers’ Occupation
Tax liability and must collect the corresponding Use Tax from their purchasers unless an exemption
applies (e.g., a sale for resale occurs if the purchaser buys the home for resale to a contractor).
Out of state sellers of modular homes who bring modular homes into Illinois and permanently
affix them to real property are viewed as construction contractors. As a result, the sellers owe Illinois
Use Tax on the modular homes that they permanently affix to real estate. The Use Tax liability is based
upon the cost price of the items which they permanently affix to real estate. If sellers construct the
modular homes, their cost price is the amount paid to their suppliers on the purchase of the modular
homes. If the out of state sellers have already paid a tax in another state regarding the purchase or
use of such property, they will be entitled to a credit against their Illinois Use Tax liability to the extent
that they have paid tax which was properly due to another state. See 86 Ill. Adm. Code 150.310.
When out of state sellers of modular homes sell to purchasers or contractors without a contract
to permanently affix the modular home to real estate they act as retailers, not construction contractors,
and the purchasers incur a Use Tax liability. When the out of state seller itself delivers the modular
home from out of state to its customer in Illinois, the seller is obligated to collect Illinois Use Tax from
the purchaser and remit the tax to the Department.
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 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, then an

ST 20-0005-GIL
Page 4

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 the modular homes are designed to be permanently affixed to the real estate and do not have their
own wheels for transportation on the highway, taxes should be reported on an ST-1.

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

RSW:ter