Is a bundled all-inclusive sporting-event ticket (admission plus food and drink for one price) subject to Illinois Retailers' Occupation Tax, or only to local amusement tax?

Plain-English summary

A representative for a business that holds sporting events asked the Illinois Department of Revenue whether bundled, all-inclusive tickets (admission plus food and drink for one price) trigger Illinois Retailers' Occupation Tax (ROT), or whether the business could instead just collect the local amusement taxes that similar venues in the area were already collecting.

The Department did not give binding guidance (this is a GIL, not a PLR), but it laid out the analytical framework. Illinois sales tax law distinguishes a sale of tangible personal property (subject to ROT) from a sale of service where property changes hands only incidentally (subject to Service Occupation Tax instead). The dividing line, from Dinner Theatre Assoc. v. Ill. Dept. of Rev., is one of proportion: if the "real" business is selling food and any entertainment is just there to induce customers to dine, ROT applies; if the real business is a service (like transportation, or here, staging a sporting event) and the tangible property transferred is relatively insignificant or incidental, Service Occupation Tax applies instead.

The Department suggested that a bundled ticket where food/drink are not separately stated could plausibly be a sale of the sporting-event service with only incidental food, meaning Service Occupation Tax (not ROT) would apply, and the true-object/minimum-charges test at 86 Ill. Adm. Code 130.2145 would be irrelevant because that regulation only matters once you've already concluded ROT liability exists. If the transaction is instead a service sale, the next analytical step is a cost ratio test: comparing the annual aggregate cost of tangible personal property transferred incident to the service against annual gross receipts from all service sales, which determines how the serviceman's Service Occupation Tax (or Use Tax) liability is calculated.

What this means for you

Venues and event operators selling bundled tickets

Whether your all-inclusive ticket triggers ROT or Service Occupation Tax turns on facts, not on industry custom. The Department noted that other businesses in the area were only collecting local amusement taxes, but that alone doesn't establish the correct tax treatment — you need to apply the proportion test from Dinner Theatre and American Airlines: is food/drink incidental to the entertainment, or is entertainment merely an inducement to sell food?

Servicemen determining their tax base

If your business is properly classified as a sale of service with incidental transfers of tangible personal property, the ruling walks through the four ways a "serviceman" can compute Service Occupation Tax or Use Tax liability: (1) tax on the separately stated selling price of property transferred; (2) tax on 50% of the entire bill if the price isn't separately stated; (3) tax on cost price if registered as a de minimis serviceman; or (4) Use Tax on cost price if a de minimis serviceman not required to register. Whether you qualify as "de minimis" depends on whether the annual cost of property transferred is under 35% of gross receipts from service (75% for pharmacists and graphic arts producers).

Accountants and tax professionals

This GIL is a useful roadmap for the analytical order of operations: first determine whether the transaction is a sale of goods or of service using the proportion test; only if it's a sale of goods does 86 Ill. Adm. Code 130.2145 (true object/minimum charges) come into play; if it's a service, move to the cost-ratio and tax-base rules under Part 140. Because this is a GIL, it cannot be cited as binding precedent for a specific taxpayer's facts — a PLR request under 2 Ill. Adm. Code 1200.110 would be needed for that.

Common questions

Q: Does selling an all-inclusive ticket that bundles admission with food and drink automatically make the whole thing subject to Retailers' Occupation Tax?
A: Not automatically. Under the proportion test from Dinner Theatre Assoc. v. Ill. Dept. of Rev. and American Airlines, Inc. v. Department of Revenue, if the food/drink is a relatively insignificant or incidental part of what's really an entertainment/service transaction, it is instead treated as a sale of service subject to Service Occupation Tax, not ROT.

Q: If the transaction is a sale of service instead of a sale of goods, does 86 Ill. Adm. Code 130.2145 (the true object test/minimum charges rule) still apply?
A: No. The letter states that if ROT liability doesn't apply to the transaction in the first place, there's no need to refer to 130.2145; neither the true object test nor the minimum charges assessment comes into play for a transaction that is properly a sale of service.

Q: How does a "serviceman" figure out how much Service Occupation Tax or Use Tax to pay?
A: First, determine the cost ratio between the annual cost of tangible personal property transferred incident to service and the annual gross receipts from service sales (86 Ill. Adm. Code 140.105). Then the serviceman computes liability using one of four methods described in 86 Ill. Adm. Code 140.106, 140.108, and 140.109: tax on the separately stated selling price, tax on 50% of the entire bill, tax on cost price if a registered de minimis serviceman, or Use Tax on cost price if a non-registered de minimis serviceman.

Q: Is this letter binding on the Department?
A: No. It is a General Information Letter issued under 2 Ill. Adm. Code 1200.120, which by definition is not a statement of Department policy and is not binding on the Department. The requester specifically said they were not looking for binding guidance. A binding Private Letter Ruling would require a separate request under 2 Ill. Adm. Code 1200.110.

Q: What is a "de minimis" serviceman?
A: A serviceman whose annual aggregate cost price of tangible personal property transferred incident to service sales is less than 35% of total annual gross receipts from those service transactions (75% for pharmacists and persons engaged in graphic arts production), as described in connection with 86 Ill. Adm. Code 140.109.

Citations and references

Statutes and regulations:

• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax on retail sales of tangible personal property)
• 86 Ill. Adm. Code 130.2145 (true object test / minimum charges for mixed goods-and-service transactions)
• 86 Ill. Adm. Code 140.101 (Service Occupation Tax on property transferred incident to sales of service)
• 86 Ill. Adm. Code 140.105 (cost ratio test)
• 86 Ill. Adm. Code 140.106 (tax base: separately stated price or 50% of entire bill)
• 86 Ill. Adm. Code 140.108 (de minimis serviceman not required to register; Use Tax)
• 86 Ill. Adm. Code 140.109 (registered de minimis serviceman)
• 86 Ill. Adm. Code 150.101 (Use Tax on tangible personal property purchased at retail)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure)
• 2 Ill. Adm. Code 1200.120 (General Information Letters not binding)

Case law:

• Dinner Theatre Assoc. v. Ill. Dept. of Rev., 139 Ill. App. 3d 911 (3d Dist. 1985)
• Miller v. Department of Revenue, 15 Ill. 2d 323 (1958)
• American Airlines, Inc. v. Department of Revenue, 58 Ill. 2d 251 (1974)

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/st22-0029-gil.pdf

Original ruling text

ST-22-0029-GIL 11/22/2022 SERVICE OCCUPATION TAX
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. Tangible personal property that is transferred to the service
customer may result in either Service Occupation Tax liability or Use Tax liability
for the serviceman depending upon the serviceman’s activities. See 86 Ill. Adm.
Code 140.101. (This is a GIL.)
November 22, 2022

NAME/ADDRESS
Dear Ms. XXX:
This letter is in response to your letter dated October 31, 2022, 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 representing a business that holds sporting events in CITY that is
looking to confirm whether certain ticket sales are subject to Illinois ROT.
They sell all-inclusive tickets that include both admission to the sporting
event and food/drink (all listed for one bundled price). After polling other
businesses in CITY, it looks like the industry standard here is to only
collect CITY and COUNTY amusement tax, not ROT. We’re inclined to
agree that they should be characterized as a service provider that only
collects local amusement taxes on these all-inclusive tickets, but we are
trying to reconcile 86 Ill. Admin. Code 130.2145. On its face, the regulation
makes it appear that ROT could also apply to ticket sales subject to the
amusement taxes, but that doesn’t seem consistent with how the taxes
have historically worked.

COMPANY/NAME
Page 2
November 22, 2022
We are not looking for binding guidance but would like to get your
thoughts, as we expect you have worked with similar businesses in the
past.
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.
Generally, persons engaged in the business of selling meals to purchasers for
use or consumption incur Retailers’ Occupation Tax liability on their receipts from those
sales. However, according to Dinner Theatre Assoc. v. Ill. Dept. of Rev.,
[t]he test for determining the actual nature of a transaction which involves
both a sale of tangible goods and the providing of a service is one of
proportion. If a taxpayer's business is the sale of food, for which
entertainment is offered only to induce customers to dine, then a retailers'
tax is assessed. (Miller v. Department of Revenue (1958), 15 Ill. 2d 323.)
If, on the other hand, the sale of a service includes a relatively insignificant
or incidental transfer of tangible personal property, then a service tax
applies. (American Airlines, Inc. v. Department of Revenue (1974), 58 Ill.
2d 251.) A taxpayer, however, may be involved in a taxable business of
both selling goods at retail and in the furnishing of a service.
139 Ill. App. 3d 911, 912 (3d Dist. 1985).
Comparing Dinner Theatre to American Airlines, the meals are an integral and
substantial part of the dinner theatre operation, whereas the relationship between the
meal cost and the airline ticket is de minimis. Id. at 913. In American Airlines, for
instance, the same fare was charged on flights between the same points even when
food was not served. Id.
A sporting event would not necessarily be considered an inducement for
customers to dine. Depending on the facts, a sporting event where food and beverages
are included in the ticket price and not separately stated, may be considered a sale of
service (providing entertainment) that includes a relatively insignificant or incidental
transfer of tangible personal property. If that is the case, Service Occupation Tax would
apply to the transaction. The Service Occupation Tax base would be determined using
the standard analysis based on whether the serviceman is a de minimis or a registered
serviceman. See 86 Ill. Adm. Code 140.108.

COMPANY/NAME
Page 3
November 22, 2022
If it is determined that Retailers’ Occupation Tax liability is not applicable to a
transaction, there is no need to refer to 86 Ill. Adm. Code 130.2145. Neither the true
object test nor the minimum charges assessment would apply to a situation where the
nature of the transaction is one of service. As such, the next step would be to
determine the cost ratio between the annual aggregate cost of tangible personal
property transferred incident to sales of service and the annual gross receipts from all
sales of service. 86 Ill. Adm. Code 140.105.
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. Tangible personal property that is
transferred to the service customer may result in either Service Occupation Tax
liability or Use Tax liability for the serviceman depending upon the serviceman’s
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 servicemen's entire bill;

(3)
Service Occupation Tax on the servicemen's cost price if the
servicemen are
registered de minimis servicemen; or
(4)

Use Tax on the servicemen's 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 the sale of service.
The tax is then
calculated on the separately stated selling price of the tangible personal property
transferred.
If the servicemen do not separately state the selling price of the
tangible personal property transferred, they must use 50% of the entire bill to the
service customer as the tax base (the second method described above). Both
of the above methods provide that in no event may the tax base be less than the
servicemen's cost price of the tangible personal property transferred.
See 86 Ill.
Adm. Code 140.106.
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. See 86 Ill. Adm. Code 140.109. Servicemen may qualify as de
minimis if they determine that the annual aggregate cost price of tangible personal
property transferred as an incident of the sale of service is less than 35% of the total
annual gross receipts from service transactions (75% in the case of pharmacists and

COMPANY/NAME
Page 4
November 22, 2022
persons engaged in graphics arts production). Registered de minimis servicemen are
authorized to pay Service Occupation Tax (which includes local taxes) based upon their
cost price of tangible personal property transferred incident to the sale of service. Such
servicemen should give suppliers resale certificates and remit Service Occupation Tax
using the Service Occupation Tax rates for their locations. Such servicemen also
collect a corresponding amount of Service Use Tax from their customers, absent an
exemption.
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. 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.
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,

Kimberly Rossini
Associate Counsel
KAR:dlb