Does an Illinois business have to pay tax on the training manuals it hands out at a paid customer seminar, and how is that tax calculated?

Plain-English summary

A company asked the Illinois Department of Revenue whether its customer training classes were taxable. The company holds classes at its own location for customers coming in from multiple states, charges a per-student fee, and gives each attendee a training manual that is bundled into the price (not billed as a separate line item).

The Department confirmed that labor itself is not taxable, but running a paid seminar makes the company a "serviceman" for Illinois tax purposes, and the training manuals it transfers to attendees are tangible personal property that must be taxed — either under the Service Occupation Tax or the Use Tax, depending on the company's registration status.

The Department explained that servicemen have up to four ways to calculate their tax base on materials transferred incident to a service, including a separately-stated price, 50% of the entire bill, or (for smaller "de minimis" servicemen) tax on the cost price of the materials. Because the Department's records show the company is already registered with the Department under Section 2a of the Retailers' Occupation Tax Act (it also makes retail sales), the ruling walks through how a registered de minimis serviceman versus a registered non-de minimis serviceman would each tax the manuals, paper, ink, and any photocopying done through a print shop.

What this means for you

Businesses that run paid training, seminars, or classes

If you charge for training or seminars and hand out course materials — manuals, workbooks, handouts — the materials are taxable tangible personal property even though your labor/instruction is not. You cannot treat the whole seminar fee as untaxed "service" just because the price is bundled. You need to determine your tax base using one of the Department's approved methods: a separately stated price for the materials, 50% of the total bill, or (if you qualify as de minimis) tax on your own cost price for the materials.

Servicemen who also sell retail goods (registered under Section 2a)

If you're registered under Section 2a of the Retailers' Occupation Tax Act because you also make retail sales, that registration matters for how you tax materials transferred as part of services. A registered de minimis serviceman pays Service Occupation Tax and applicable local taxes on the cost price of materials (manuals, paper, ink, and even print-shop photocopying, calculated on 50% of a lump-sum print shop invoice). A registered serviceman that is not de minimis and doesn't separately state a materials charge instead owes tax on 50% of the total invoice to attendees, with a floor equal to actual cost price.

Accountants and tax professionals

The "de minimis" threshold turns on whether the annual aggregate cost price of tangible personal property transferred incident to service is less than 35% of the business's annual gross receipts from service transactions (75% for pharmacists and graphic arts production, per 86 Ill. Adm. Code 140.101(f)). Getting this classification right determines which of the four tax-base methods applies, whether the business issues Certificates of Resale to its suppliers, and whether it collects Service Use Tax or self-assesses Use Tax as an end user.

Common questions

Q: Is the fee I charge for teaching a class taxable in Illinois?
A: No — labor and instruction are not taxable. But if you give attendees any tangible items (manuals, handouts, materials), those items are taxable, generally under the Service Occupation Tax.

Q: What if the price of the manual isn't broken out separately on the invoice?
A: Then you can't use the "separately stated selling price" method. A registered non-de minimis serviceman in that situation owes Service Occupation Tax on 50% of the entire invoice to the seminar attendees, though never less than the actual cost price of the materials.

Q: What does "de minimis serviceman" mean?
A: It's a serviceman whose annual aggregate cost price of tangible personal property transferred with services is less than 35% of annual gross receipts from service transactions (75% for pharmacists and graphic arts production). Registered de minimis servicemen pay Service Occupation Tax on the cost price of materials rather than on the invoice price.

Q: Do I need to give my suppliers a resale certificate for the manuals and paper I buy?
A: Yes, in the scenarios discussed here. Registered servicemen (de minimis or not) provide Certificates of Resale to suppliers — including a print shop that photocopies materials — instead of paying tax to those suppliers, and then remit the applicable Service Occupation Tax themselves.

Q: Is this letter binding on the Department?
A: No. This is a General Information Letter (GIL), not a Private Letter Ruling. It only points to the relevant regulations and is not a statement of Department policy or binding in any specific case.

Citations and references

Statutes and rules:

• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax)
• 86 Ill. Adm. Code 150.101, 150.130 (Use Tax; credit for Retailers' Occupation Tax paid)
• 86 Ill. Adm. Code 140.101, 140.101(f) (Service Occupation Tax; de minimis serviceman test)
• 86 Ill. Adm. Code 140.106 (tax base floor at cost price)
• 86 Ill. Adm. Code 140.108 (Use Tax for non-registered de minimis servicemen)
• 86 Ill. Adm. Code 140.129(b)(3)(B)-(C) (tax base for materials transferred at seminars)
• Section 2a, Retailers' Occupation Tax Act (serviceman registration)
• 2 Ill. Adm. Code 1200.120 (GILs are non-binding)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2021.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2021/st21-0039-gil.pdf

Original ruling text

ST-21-0039 09/13/2021 SERVICE OCCUPATIO TAX
This letter discusses the taxation of seminar materials provided by a serviceman
registered pursuant to Section 2a of the Retailers’ Occupation Tax. 86 Ill.
140.129. (This is a GIL.)
September 13, 2021
Dear NAME:
This letter is in response to your letter dated September 1, 2021, 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:
Our company has scheduled a customer training class from DATE, at
our CITY, STATE location. The attendees will be coming from various
states, not just Illinois, to be instructed on the best way to maintain
their PRODUCT that we recently worked on.
We understand labor is not taxable in Illinois but need clarification on
taxability of customer training classes is this a taxable service.
If additional information is needed, please contact me or E-MAIL
BUSINESS.
Thank you for your assistance to clarify our concerns about taxability
of customer training classes.
In a separate email dated DATE, in response to an inquiry from the Department,
you stated that “there is a per-student charge to attend the class. A training manual is
provided to each student, which is included in the price of the class. The training manual
is not a separate line item on the invoice.”
DEPARTMENT’S RESPONSE:
Retailers’ Occupation Tax

NAME
Page 2
September 13, 2021
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. 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.
Service Occupation Tax
Retailers' Occupation Tax and Use Tax do not apply to sales of service. Under
the Service Occupation Tax Act, businesses providing services (i.e., servicemen) are
taxed on tangible personal property transferred as an incident to sales of service. 86 Ill.
Adm. Code 140.101. The transfer of tangible personal property to service customers
may result in either Service Occupation Tax liability or Use Tax liability for servicemen,
depending upon which tax base they choose to calculate their liability.
Servicemen may calculate their tax base in one of four ways: (1) separately
stated selling price; (2) 50% of the entire bill; (3) Service Occupation Tax on cost price if
they are registered de minimis servicemen; or (4) Use Tax on cost price if the
servicemen are de minimis and are not otherwise required to be registered under
Section 2a of the Retailers’ Occupation Tax Act.
Using the first method, servicemen may separately state the selling price of each
item transferred as a result of sales of service. The tax is based on the separately
stated selling price of the tangible personal property transferred. If servicemen do not
wish to separately state the selling price of the tangible personal property transferred,
those servicemen must use the second method where they will use 50% of the entire
bill to their service customers as the tax base. Both of the above methods provide that
in no event may the tax base be less than the cost price of the tangible personal
property transferred. Under these methods, servicemen are required to provide their
suppliers with Certificates of Resale when purchasing the tangible personal property to
be transferred as a part of sales of service. They are required to collect the
corresponding Service Use Tax from their customers.
The third way servicemen may account for their tax liability only applies to de
minimis servicemen who have either chosen to be registered or are required to be
registered because they incur Retailers’ Occupation Tax liability with respect to a
portion of their business. Servicemen may qualify as de minimis if they determine that
their annual aggregate cost price of tangible personal property transferred incident to
sales of service is less than 35% of their annual gross receipts from service transactions

NAME
Page 3
September 13, 2021
(75% in the case of pharmacists and persons engaged in graphic arts production). See
86 Ill. Adm. Code 140.101(f). This class of registered de minimis servicemen is
authorized to pay Service Occupation Tax (which includes local taxes) based upon the
cost price of tangible personal property transferred incident to sales of service.
Servicemen that incur Service Occupation Tax collect the Service Use Tax from their
customers. They remit tax to the Department by filing returns and do not pay tax to their
suppliers. They provide suppliers with Certificates of Resale for the tangible personal
property transferred to service customers.
The final method of determining tax liability may be used by de minimis
servicemen that are not otherwise required to be registered under Section 2a of the
Retailers' Occupation Tax Act. Servicemen may qualify as de minimis if they determine
that the annual aggregate cost price of tangible personal property transferred as an
incident of sales of service is less than 35% of the servicemen's annual gross receipts
from service transactions (75% in the case of pharmacists and persons engaged in
graphic arts production). Such de minimis servicemen handle their tax liability by
paying Use Tax to their suppliers. If their suppliers are not registered to collect and
remit tax, the servicemen must register, self-assess, and remit Use Tax to the
Department. The servicemen are considered to be the end-users of the tangible
personal property transferred incident to service. Consequently, they are not authorized
to collect a "tax" from the service customers. See 86 Ill. Adm. Code 140.108.
Seminar Materials
According to the Department’s records, the Company makes retail sales of
tangible personal property and is registered with the Department under Section 2a of
the Retailers’ Occupation Tax Act. However, when a company provides training classes
or seminars it is acting as a serviceman. Its tax obligation is determined in part based
on whether the Company is registered and whether it is a de minimis serviceman or not.
A registered de minimis serviceman that presents a seminar in Illinois, and as
part of the seminar provides the attendees with a seminar materials may remit Service
Occupation Tax and any applicable local taxes to the Department on his or her cost
price of the materials transferred as part of the seminar. A registered de minimis
seminar provider is not authorized to pay tax to his or her suppliers. He or she must
instead provide the suppliers (the bookseller and the office supply store) with a
Certificate of Resale for the purchase of materials transferred as part of the seminar.
The seminar provider must remit Service Occupation Tax to the Department on his or
her cost price of the manuals, the paper and the ink. If the seminar provider contracts
with a print shop to photocopy the chart and graphs, the seminar provider would provide
a Certificate of Resale to the print shop and then remit Service Occupation Tax to the
Department on his or her cost price of the materials (i.e., on a lump sum invoice from
the print shop, tax would be calculated on 50% of the total print shop bill). 86 Ill. Adm.
Code 140.129(b)(3)(B).

NAME
Page 4
September 13, 2021
A registered serviceman who is not de minimis who does not separately state a
charge for the seminar materials on the invoice to the seminar attendees incurs Service
Occupation Tax and any applicable local taxes on 50% of the total invoice charged to
the seminar attendees. However, the tax base cannot be less than the serviceman's
cost price. See 86 Ill. Adm. Code 140.106. In this situation, the seminar provider is not
authorized to pay tax to his or her suppliers. He or she must instead provide the
suppliers with a Certificate of Resale for the purchase of the materials that are
transferred as part of the seminar. 86 Ill. Adm. Code 140.129(b)(3)(C).
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
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