Does an outdoor walking tour company owe Illinois sales/use tax when its tour price includes stops for food and drinks at third-party restaurants and bars?

Plain-English summary

An outdoor walking-tour company asked the Illinois Department of Revenue whether its tours are subject to sales/use tax, given that some tours stop at third-party restaurants and bars where participants eat and drink, sometimes bundled into the tour price and sometimes billed separately.

The Department's answer: a service by itself — like a walking tour with no food or drink included — is not subject to Retailers' Occupation (sales) Tax, Use Tax, or Service Occupation Tax, because those taxes reach tangible personal property, not services alone. But once tangible personal property (here, food and alcoholic beverages) is transferred to customers as part of the sale of the service, the company becomes a "serviceman" under the Service Occupation Tax Act and owes tax on that property, computed under one of four methods set out in 86 Ill. Adm. Code 140.101. The Department also confirmed the company can buy that food and drink from the restaurants/bars tax-free by giving them a valid Certificate of Resale, since the company in turn "resells" it (as property transferred incident to a taxable service) to its tour customers.

What this means for you

Tour, event, and experience operators

If your package is purely a service — no food, drinks, or other tangible goods included — it is not subject to Illinois sales, use, or Service Occupation Tax. The moment you bundle in food or beverages consumed by customers (even as a lump-sum price with a third-party vendor), that transfer of tangible personal property becomes taxable under the Service Occupation Tax Act, separately from the service itself.

Businesses buying from third-party restaurants/bars to resell as part of a package

You can purchase the food and beverages from the restaurant or bar without paying sales tax on that purchase, by providing a properly completed Certificate of Resale under 86 Ill. Adm. Code 130.1405, because you are treated as reselling that property (incident to your taxable service) to your own customers. You then owe Service Occupation Tax (and must collect the related Service Use Tax from customers) on that property using one of the four calculation methods in 86 Ill. Adm. Code 140.101.

Accountants and tax professionals

The four ways a serviceman may compute Service Occupation Tax liability under 86 Ill. Adm. Code 140.101 are: (1) tax on the separately stated selling price of the property transferred; (2) tax on 50% of the entire bill to the customer if the price isn't separately stated; (3) tax on cost price for a registered "de minimis" serviceman (property costs under 35% of gross receipts from service, 75% for pharmacists/graphic arts); or (4) Use Tax on cost price for a de minimis serviceman not otherwise required to register under Section 2a of the Retailers' Occupation Tax Act. Whichever method applies, the tax base can never be less than the property's cost price.

Common questions

Q: Is a walking tour by itself subject to Illinois sales tax?
A: No. A service that does not include the transfer of any tangible personal property — such as a walking tour with no food or drink provided — does not create Service Occupation Tax or Use Tax liability.

Q: What if the tour price includes food and drinks consumed at a stop, billed as one lump sum?
A: The transfer of that food and drink to customers is taxable under the Service Occupation Tax Act, even if it's bundled into a single tour price, because tangible personal property (the food/beverages) is being transferred incident to the sale of the service.

Q: Can the tour operator buy the food and alcohol from the restaurants/bars tax-free?
A: Yes, by furnishing the restaurant or bar with a valid Certificate of Resale meeting the requirements of 86 Ill. Adm. Code 130.1405 (seller's and purchaser's name/address, description of items, signature and date, and a registration/resale number). The operator then owes Service Occupation Tax on that property directly.

Q: How is the Service Occupation Tax actually calculated?
A: One of four ways: tax on the separately stated selling price of the transferred property; tax on 50% of the entire bill if the price isn't separately stated; tax on cost price for a registered de minimis serviceman (under the 35%/75% cost-to-receipts thresholds); or Use Tax on cost price for a de minimis serviceman not required to register.

Q: Does billing the alcohol as a separate "add-on" change the answer?
A: Not in terms of whether tax applies — either way the alcohol is tangible personal property transferred incident to the service and is taxable. Separately stating the price does, however, let the operator use the "separately stated selling price" method (method 1) rather than the 50%-of-bill method (method 2).

Q: Is this letter binding on the Department?
A: No. It is a General Information Letter, which only directs taxpayers to relevant regulations and sources of information. It is not a statement of Department policy and is not binding, unlike a Private Letter Ruling issued under 2 Ill. Adm. Code 1200.110.

Citations and references

• 86 Ill. Adm. Code 140.101 (Service Occupation Tax on tangible personal property transferred incident to service)
• 86 Ill. Adm. Code 140.101(f) (de minimis serviceman threshold: 35% of gross receipts, 75% for pharmacists/graphic arts)
• 86 Ill. Adm. Code 140.108 (Use Tax liability for unregistered de minimis servicemen)
• 35 ILCS 120/2; 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax)
• 35 ILCS 105/3; 86 Ill. Adm. Code 150.101 (Use Tax)
• 86 Ill. Adm. Code 130.1405 (Certificates of Resale)
• 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/2022.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2022/st22-0007-gil.pdf

Original ruling text

ST-22-0007 05/17/2022 SERVICE OCCUPATION TAX
Under the Service Occupation Tax Act, servicemen are taxed on tangible
personal property transferred incident to sales of service. See 86 Ill. Adm. Code
140.101 et seq. (This is a GIL.)
May 17, 2022
NAME
ADDRESS
Dear NAME:
This letter is in response to your letter dated July 7, 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:
REQUEST FOR GENERAL INFORMATION LETTER (GIL) REGARDING
TAXABILITY OF BUSINESS
The company provides walking outdoor BUSINESS. The TRIPS do not
provide access to any areas requiring an admission charge and do not
provide access to any areas that are not otherwise open to the public.
Aside from the TRIP itself, no other amusements, sports, or
entertainment are part of the walking TRIP.
The TRIPS regularly make stops at various 3rd party unrelated
restaurants and bars ("establishments") that serve food and/or alcoholic
beverages. In some instances, the TRIP price does not cover any food
or drink consumed by TRIP participants in these establishments
during the TRIP stop. However, in other cases, the sales price of the
TRIP covers food and beverages (including alcoholic beverages)
consumed on the premises of the 3rd party establishment during the
TRIP stop.

COMPANY/NAME
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May 17, 2022
The sales price for the TRIP, food, and beverages are typically billed
as a lump sum. However, there will be instances where the charge for
alcoholic beverages consumed on the premises of the 3 rd party
establishment during the TRIP stop will be billed separately as an "
add-on." The company providing the TRIP will pay each 3rd party
establishment for all food and beverages (including alcoholic
beverages) consumed by TRIP participants during a TRIP stop. All
food and drinks (including alcoholic beverages) are consumed on the
premises of each 3rd party establishment visited during a TRIP stop.
Questions:

1. Are these outdoor walking BUSINESS subject to sales/use tax or
   any other state/local tax when the sales price DOES NOT include
   food and beverages consumed during a TRIP stop?
2. Are these walking BUSINESS subject to sales/use tax or any other
   state/local tax when the sales price INCLUDES food and beverages
   consumed during a TRIP stop?
3. If the TRIPS that includes food and beverages consumed during
   TRIP stops are subject to state/local tax, can the TRIP operator
   purchase all food and beverages from the restaurants and bars taxfree by issuing a valid resale certificate?
   Please reach out to NAME at the number below if you need to
   discuss, or you may email NAME at E-MAIL
   Thank you in advance for your assistance.
   DEPARTMENT’S RESPONSE:
   Retailers’ Occupation Tax and Use Tax
   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 35 ILCS 120/2; 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 35 ILCS 105/3; 86 Ill. Adm.
   Code 150.101. These taxes comprise what is commonly known as "sales” tax in Illinois.
   Service Occupation Tax
   Illinois also imposes a tax upon persons engaged in this State in the business of
   making sales of a service, based on tangible personal property transferred incident to
   sales of service. See 86 Ill. Adm. Code 140.101. The transfer of tangible personal
   property to service customers may result in either Service Occupation Tax liability or

COMPANY/NAME
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May 17, 2022
Use Tax liability for servicemen, depending upon which tax base they choose to
calculate their liability.
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. See
86 Ill. Adm. Code 140.101. The purchase of tangible personal property that is
transferred to the service customer may result in either Service Occupation Tax liability
or Use Tax liability for the servicemen depending upon his activities. The serviceman’s
liability may be calculated in one of four ways:
1) Service Occupation Tax on the separately stated selling price of tangible
personal property transferred incident to service;
2) Service Occupation Tax on 50% of the serviceman's entire bill;
3) Service Occupation Tax on the serviceman's cost price if the serviceman is a
registered de minimis serviceman; or
4) Use Tax on the serviceman's cost price if the serviceman is de minimis and is
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. Under both methods, the tax base
cannot be less than the cost price of the tangible personal property transferred.
Servicemen using either of these methods must provide their suppliers with Certificates
of Resale when purchasing the tangible personal property to be transferred as a part of
sales of service. These servicemen are also 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
(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 must pay
Service Occupation Tax (including local taxes) on the cost price of tangible personal
property transferred incident to sales of service. De minimis servicemen incurring

COMPANY/NAME
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May 17, 2022
Service Occupation Tax on their cost price must provide suppliers with Certificates of
Resale for the tangible personal property transferred to service customers. These
servicemen must also collect the Service Use Tax from their 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. 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. These servicemen are the end users of the tangible personal property
transferred incident to service. Consequently, they are not authorized to collect a "tax"
from their service customers. See 86 Ill. Adm. Code 140.108.
The provision of services such as, for example, a walking tour, that does not
include the transfer of tangible personal property with the provision of such services
does not result in Service Occupation Tax or Use Tax liability. The transfer of any
tangible personal property such as, for example, food for immediate consumption and
alcoholic beverages, incident to a sale of service would be subject to liability under one
of the four methods described above.
Resale
When an Illinois retailer sells tangible personal property and delivers it in Illinois,
sales tax is due unless an exemption can be documented. The resale exemption is
applicable when making sales to a purchaser who will in turn sell the tangible personal
property (or transfer the tangible personal property incident to a sale of service that is
taxable under the Service Occupation Tax Act). For general information regarding
resale certificates, see the Department’s regulation for resale certificates, “Seller's
Responsibility to Obtain Certificates of Resale and Requirements for Certificates of
Resale,” at 86 Ill. Adm. Code 130.1405. If an electronic resale certificate is kept, it
should contain all the information required under 86 Ill. Adm. Code 130.1405.
A Certificate of Resale is a statement signed by the purchaser that the property
purchased by him is purchased for purposes of resale. Provided that this statement is
correct, the Department will accept Certificates of Resale as prima facie proof that sales
covered thereby were made for resale. In addition to the statement, a Certificate of
Resale must contain:
1)

The seller's name and address;

2)

the purchaser's name and address;

3)

a description of the items being purchased for resale;

COMPANY/NAME
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May 17, 2022
4)

purchaser's signature, or the signature of an authorized employee or
agent of the purchaser, and date of signing; and

5)

Registration Number, Resale Number, or Certification of Resale to out-ofState Purchaser.

Failure to present an active registration number or resale number and a
certification to the seller that a sale is for resale creates a presumption that a sale is not
for resale. This presumption may be rebutted by other evidence that all the seller’s
sales are sales for resale, or that a particular sale is a sale for resale. For example,
other evidence that might be used to document a sale for resale, when a registration
number or resale number and certification to the seller are not provided, could include
an invoice from the purchaser to his customer showing that the item was resold, along
with a statement from the purchaser explaining why it had not obtained a resale number
and certifying that the purchase was a purchase for resale in Illinois. The risk run by
companies accepting such a certification and purchasers providing such a certification
is that an Illinois auditor is more likely to go behind a certificate of resale that does not
contain a signature and require more information be provided as evidence the sale was,
in fact, a sale for resale.
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,
Thomas Grudichak
Associate Counsel
TG:rkn