Does Illinois tax the transportation and delivery charges that trucking companies charge when they sell and deliver rock, sand, or gravel from a quarry to a customer?

Plain-English summary

A trade association representing trucking companies that haul rock, sand, and gravel from quarries to customers asked the Illinois Department of Revenue to treat its members as service providers (subject only to Service Occupation Tax) rather than retailers, so that their delivery charges would not be subject to sales tax. The association argued that hauling is the "primary business" and that selling the rock is merely incidental to the delivery service.

The Department declined. It reaffirmed its longstanding position that anyone who advertises, solicits, offers for sale, or holds themselves out as a seller of rock or gravel is a retailer subject to Retailers' Occupation Tax (ROT) on the selling price of the material, even if delivery is part of the deal. The Department pointed to Sprague v. Johnson, 195 Ill. App. 3d 798 (1990), where a trucker who bought rock from a quarry, paid tax on it, and resold it to a customer at cost (with delivery) was still found to be a retailer, even though he kept no inventory of his own.

On the separate question of whether the delivery charge itself is taxable, the Department applied the "inseparable link" test from Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351 (2009), as codified in 86 Ill. Adm. Code 130.415. If the delivery charge is not separately stated, or if it is separately stated but the customer has no real option to pick up the material instead (for example, at the quarry) or receive it without paying for delivery, then the delivery charge is "inseparably linked" to the sale and must be included in the taxable selling price. If the customer genuinely can pick up the rock and avoid the delivery charge, the charge is not taxable.

The letter also notes a narrow exception: if a trucking company has a contract to spread or permanently apply the rock to real estate (not just dump it), it is acting as a construction contractor and instead owes Use Tax on its own cost of the material as the end user — it cannot collect "tax" from the customer as such, though it may build the cost into its overall charge.

What this means for you

Trucking companies and haulers of quarry materials

If you buy rock, sand, or gravel from a quarry and resell it to a customer — even at cost, with no markup — you are almost certainly a retailer under Illinois law and must register, provide resale certificates to the quarry, and collect and remit ROT on your selling price. Structuring the arrangement as a "delivery service" instead of a sale will not change this result unless you can genuinely distinguish your facts from Sprague v. Johnson.

Anyone billing for delivery or transportation charges

Whether your delivery charge is taxable turns on whether the customer has a real, practical option to avoid it — for example, by picking up the material at your location or the quarry. If delivery is effectively mandatory (charge not separately stated, or no real pickup option offered), the "inseparable link" rule folds the delivery charge into the taxable selling price. Offering pickup as an option, and actually honoring it, is the way to keep delivery charges out of the tax base.

Contractors who install rather than just deliver

If you have a contract to spread or permanently apply the rock or gravel to real estate rather than simply dropping it at a location, you are treated as a construction contractor and end user, owing Use Tax on your own cost price rather than ROT on a resale. This is a fact-specific distinction from ordinary delivery.

Common questions

Q: If I don't mark up the rock at all and just pass through the quarry's price, am I still a retailer?
A: Yes. The Department cited Sprague v. Johnson for the point that a trucker who resold rock at cost, with no markup, was still a retailer subject to ROT — carrying no inventory of your own does not change the result.

Q: Can I avoid tax on my delivery charge by listing it separately on the invoice?
A: Not by itself. Under 86 Ill. Adm. Code 130.415 and the Kean "inseparable link" test, a separately stated delivery charge is still taxable unless you also give the customer a real option to receive the property without paying that charge (such as picking it up).

Q: Could my hauling business instead be taxed as a Service Occupation Tax business instead of ROT?
A: Only in limited circumstances, such as being an unregistered de minimis serviceman under 86 Ill. Adm. Code 140.108, which applies only if you make no sales subject to ROT at all. The Department found this did not fit trucking companies that sell and deliver rock as their business.

Q: Does it matter if I have a contract to spread the rock on the customer's land rather than just dump it?
A: Yes. In that situation the Department treats you as a construction contractor and end user who owes Use Tax on your own cost of the material, rather than as a retailer collecting ROT from the customer on a resale.

Citations and references

Statutes, regulations, and cases:

• 86 Ill. Adm. Code 130.415 (transportation and delivery charges; "inseparable link" test)
• 86 Ill. Adm. Code 140.108 (de minimis serviceman)
• 86 Ill. Adm. Code 140.301(b)(1)(B) (Service Occupation Tax)
• Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351, 919 N.E.2d 926 (2009)
• Sprague v. Johnson, 195 Ill. App. 3d 798 (1990)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedures)
• 2 Ill. Adm. Code 1200.120 (General Information Letters)

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/st20-0016-gil.pdf

Original ruling text

ST 20-0016-GIL 02/20/2020 GROSS RECEIPTS
This letter explains the taxation of transportation and delivery charges applied to deliveries of
rock (see 86 Ill. Adm. Code 130.415). This is a GIL.

February 20, 2020

Dear Xxxx:
This letter is in response to your letter dated October 25, 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:
We are following up on the April meeting where we suggested that the Department’s
attempt to extend sales tax to delivery charges when our members deliver sand, rock, or
gravel to customers is improper and should be reversed.
As a reminder, before Kean v Walmart truckers who delivered sand, gravel, or stone
were not taxed on delivery charges as long as tax was paid on materials and the delivery
charge was separately agreed to. With the rules change following Kean and its
“inseparable link” concept, the Department believes the delivery charges became
taxable. As we stated, we do not think that ROT can be extended to services without
action by the General Assembly.
We raise this question now because we have a member who is under audit and would
like to take advantage of the current amnesty program but believes he cannot because
the auditor will not close the audit until our issue is resolved. We are certain there are
others in the same situation who should have the opportunity to pay their taxes before the
current amnesty closes.

ST 20-0016-GIL
Page 2

At our April meeting, DEPARTMENT EMPLOYEE offered the alternative of printing on
the invoice that the product can be picked up at the quarry. We appreciate the offer.
However, many of our members who haul from quarries keep their books and records in
the front pocket of their bib overalls. We anticipate many late and incorrect returns that
will cause problems for both the department and our members.
It seems to us that the best way to deal with this situation is to treat these transactions –
for truckers who simply haul from a quarry – as Service Occupation Tax transactions.
That says that the primary business is hauling of the rock, sand or gravel and that the
sale of the gravel is incidental to the service transaction. The trucker would then pay tax
to the quarry and build it into what he charges the customer. That seems to us to arrive
at the right result under Illinois law. The transfer of tangible personal property is taxed as
ROT, while the service of delivering the tangible personal property is not taxed unless
and until the General Assembly extends sales tax to services.
For you, it means fewer returns and far fewer incorrect returns, notices and bills. For us it
means less dealing with truckers who have notices and bills from you.
We acknowledge that a trucker who keeps an inventory of product will have to register as
a retailer and that there are limitations as to what retail activities a trucker can be involved
in and maintain his status as a service provider subject to SOT. We would be prepared
to engage in an education campaign with our members over the decisions they would
have to make about how they do business. We would like to do that in consultation with
the Department.
DEPARTMENT’S RESPONSE:
Your letter requests that the Department rule that persons who sell and deliver rock, sand or
gravel be treated as servicemen. You urge us to treat the sale of the rock merely as an incident to
the performance of a service, i.e., the delivery of the rock. You assert that in these circumstances,
the serviceman could simply pay Use Tax to the quarry on the cost price of the rock or gravel, and
pass its tax costs onto its customers as part of its overall service charge. In other words, you suggest
that the person be treated as an unregistered de minimis serviceman (applicable only if the person
makes no sales subject to Retailers’ Occupation Tax). See, 86 Ill. Adm. Code 140.108. In this case,
delivery would not be taxable. See, for example, 86 Ill. Adm. Code 140.301 (b)(1)(B).
The Department is unable to issue the ruling which you request. The Department’s
longstanding determination is that persons who in any manner advertise, solicit, offer for sale or hold
themselves out to the public to be a seller of rock or gravel are considered retailers and are subject to
Retailers’ Occupation Tax. Although delivery is generally part of these transactions, the true object of
the transaction nevertheless remains a retail sale, not a delivery service. In these cases, such
persons must register with the Department as retailers, provide Certificates of Resale to the quarry,
and file returns and remit Retailers’ Occupation Tax on their selling price of the rock.
Case law has long supported this position. See, Sprague v. Johnson, 195 Ill. App. 3d 798
(1990). In that case, Sprague was determined to be a retailer of rock. Customers would telephone
the company to order the rock. Sprague would then drive to the quarry, where it purchased the rock.

ST 20-0016-GIL
Page 3

Sprague paid the quarry tax on the rock. The rock was then delivered to the customer, who was
billed by Sprague for the rock (with no markup over quarry costs). The court determined that under
these circumstances, Sprague was a retailer of rock and incurred Retailers’ Occupation Tax. It was
immaterial that Sprague did not itself maintain an inventory of rock. You have not presented the
Department with a legal or factual basis upon which to distinguish your transportation company
members from the transportation company in the Sprague case. Accordingly, we must conclude that
your transportation company members are retailers subject to Retailers’ Occupation Tax.
As you note in your letter, whether delivery charges become part of the selling price of the rock
depends upon the manner in which these transactions are structured by the taxpayer. 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 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).
When this regulation was promulgated, the Department specifically addressed the taxation of
delivery charges by a transportation company that offers to sell and deliver rock to a purchaser. In
the example, the transportation company purchases rock from a quarry and resells it to its customer.
The regulation provides that under these circumstances, the transportation company is considered a
retailer subject to Retailers’ Occupation Tax. Because the rock is sold and delivered for a single
price, there is an inseparable link between the sale and delivery of the rock and so the selling price
includes the entire charge made to the customer. As has been previously discussed with you,
delivery charges can be excluded from tax if customers have the option of picking up the rock.
In limited circumstances, we have seen instances where trucking companies not only sell and
deliver rock for a customer, but establish that they have a contract to spread or otherwise
permanently apply the rock to real estate (as opposed to simply dumping the rock at the customer’s
requested location). In these cases, they are considered construction contractors. In Illinois,
construction contractors are considered the end users of the tangible personal property they affix to
real estate and incur Use Tax on their cost price of that tangible personal property. As end users of
the tangible personal property, they have no legal authority to collect “tax” from their customers. They
can, however, incorporate their tax costs into their overall contractual charges, or can separately seek
“tax reimbursement” from their customers.

ST 20-0016-GIL
Page 4
It has been the Department’s experience that most trucking companies that deliver rock
generally are acting as retailers of rock. However, this determination must be based on the specific
facts of each case. Much the same way, taxation of transportation charges must be determined
based on the specific facts of each case according to the Kean decision.
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,

Jerilynn Troxell Gorden
Deputy General Counsel

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