Is a home-security company's equipment-installation fee subject to Illinois sales tax, and does the 2025 lease-tax law change the answer?

Plain-English summary

The Illinois Department of Revenue ruled on how a home-security monitoring company should tax the fees it charges customers under a lease-based service model, where the company installs alarm equipment (keypads, sensors, cameras, and similar devices), keeps title to that equipment, and charges a one-time Installation Fee plus a separate recurring monthly monitoring FEE.

The Department first agreed that the equipment stays tangible personal property even after installation: it is not hardwired into the customer's electrical system, attaches with adhesives or limited screws, and is designed to be removed or relocated without damage, so it never becomes part of the real estate. The Department then applied the "true object test" from Spagat v. Mahin and concluded that the company is selling security-monitoring services, not retail goods -- the equipment has no independent value to the customer apart from the monitoring service delivered through it. Because the equipment is nonetheless leased to the customer as an incident of that service, the company is a "serviceman" subject to Service Occupation Tax ("SOT"), not the Retailers' Occupation Tax ("ROT"), on the equipment. This is a direct consequence of the state's 2025 lease-tax overhaul (Article 75 of Public Act 103-592), which took effect January 1, 2025, and expanded the definition of a taxable "transfer" to include a lease, not just a sale of title.

Because the taxpayer separately itemizes the equipment's selling price (the Installation Fee) from the monthly monitoring charge on its invoices, and because the cost of that equipment exceeds 35% of gross receipts (so the company does not qualify as a "de minimis serviceman"), the Department held that SOT is owed on the separately stated selling price of the Installation Fee, but never less than the company's own cost price for the equipment. The Department also declined the company's request to apply the ruling only prospectively -- PLRs cannot be limited that way -- and separately noted that lease receipts already taxed under a qualifying home-rule local lease tax adopted before January 1, 2023 (such as Chicago's Personal Property Lease Transaction Tax) would be exempt from the state and local ROT/SOT on the same receipts.

Because this is a Private Letter Ruling, it binds the Department only as to the specific (redacted) taxpayer who requested it, and only so long as the facts described remain accurate. It expires automatically after 10 years and can be revoked sooner if the law or the facts change.

What this means for you

Security-monitoring and alarm companies with lease-based service models

If you retain title to installed alarm or monitoring equipment and charge customers a separate installation or equipment fee alongside a recurring service fee, this ruling indicates the equipment fee is likely taxable under SOT (not ROT), because the equipment is being transferred by lease as an incident of your monitoring service. Since January 1, 2025, that lease is treated as a taxable "transfer" under 35 ILCS 115/3, so you may need to start collecting SOT on installation charges you previously did not tax, especially on pre-existing customer contracts once payments are received on or after that date.

Accountants and tax professionals advising service businesses that lease equipment

The key mechanics here are the four SOT calculation methods and the 35% de minimis cost-ratio test in 86 Ill. Adm. Code 140.106-140.109: if equipment cost exceeds 35% of gross service receipts, the company cannot use the de minimis (cost-price) methods and instead owes SOT on the separately stated selling price of the equipment (or 50% of the entire bill if not separately stated), never less than cost price. Also watch for the home-rule carve-out in 35 ILCS 115/3-5(36)(2): lease receipts already subject to a qualifying pre-2023 home-rule lease tax (e.g., a city's personal property lease transaction tax) are exempt from state and Department-administered local ROT/SOT on those same receipts.

Businesses hoping to phase in the 2025 lease-tax changes gradually

The Department explicitly refused to let this ruling apply only prospectively. If your lease or service contracts were already in effect before January 1, 2025, you still owe tax on payments received on or after that date -- there is no grace period built into a PLR, so plan for retroactive-to-2025 compliance rather than assuming a phase-in.

Common questions

Q: Does the customer's monthly monitoring fee get taxed the same way as the installation fee?
A: The ruling centers on the Installation Fee. The company argued its monthly FEE is a nontaxable service charge, unaffected by how much equipment a customer has. The Department's discussion of the invoice (which separately lists an "Install" column and a "Monthly" column) is consistent with taxing only the separately stated equipment/installation charge under SOT, not the monthly monitoring charge, but the Department's response focuses its explicit holding on the Installation Fee.

Q: Why is this taxed as a service (SOT) instead of a retail sale (ROT)?
A: Under the true object test from Spagat v. Mahin, the question is whether the equipment has value to the customer apart from the service. Here, the security equipment is worthless to the customer without the monitoring service delivered through it, so the company is "rendering a service" rather than "selling at retail," which places the transaction under the Service Occupation Tax Act instead of the Retailers' Occupation Tax Act.

Q: Why does it matter whether the equipment becomes part of the customer's real property?
A: If the equipment were permanently affixed and treated as a real-property fixture, the installer could instead be treated as a construction contractor, which is taxed differently. Because this equipment is not hardwired, uses adhesives or limited screws, and is designed to be removable and relocatable, the Department found it stays tangible personal property, which keeps the transaction within the sales/service tax framework analyzed in this ruling.

Q: Could this company ever avoid Service Occupation Tax on the equipment?
A: Only if it qualified as a "de minimis serviceman" (equipment cost under 35% of gross service receipts), which would let it pay tax on its own cost price instead. Here, the Department noted the equipment cost exceeds that 35% threshold, so the de minimis methods are not available and SOT applies to the separately stated selling price of the Installation Fee.

Q: Can another security-monitoring company rely on this ruling?
A: No. This is a Private Letter Ruling, binding on the Department only as to the specific (redacted) taxpayer who requested it, and only to the extent the facts recited are correct and complete. It expires 10 years from issuance under 2 Ill. Adm. Code 1200.110(e), or sooner if the law or facts change. Other companies with similar facts should request their own PLR or consult a tax professional rather than rely on this one.

Citations and references

• 35 ILCS 115/3 (Service Occupation Tax on tangible personal property transferred by lease incident to a sale of service, as amended by Article 75 of P.A. 103-592)
• 35 ILCS 115/2 (definition of "lease" and "transfer" for Service Occupation Tax purposes)
• 35 ILCS 115/3-10 ("selling price" and "cost price" for Service Occupation Tax)
• 35 ILCS 115/3-5(36)(2) (home rule lease-receipts tax exemption from ROT/SOT, added by Article 75 of P.A. 103-592)
• 35 ILCS 120/1 (definition of "sale at retail"; "sale" includes a lease on/after 1/1/2025)
• 35 ILCS 120/2 (Retailers' Occupation Tax on lessors' gross receipts from leases on/after 1/1/2025)
• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax imposed on retail sales)
• 86 Ill. Adm. Code 140.101 (Service Occupation Tax imposed on servicemen)
• 86 Ill. Adm. Code 140.106 (four methods servicemen use to calculate Service Occupation Tax base)
• 86 Ill. Adm. Code 140.108-140.109 (de minimis serviceman rules; 35% cost-ratio test)
• 86 Ill. Adm. Code 130.1940 (intention test for tangible personal property vs. real property fixtures)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure, binding effect, and 10-year expiration)
• Spagat v. Mahin, 50 Ill. 2d 183 (1971) (true object test for service vs. retail sale)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2025.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2025/st25-0006-plr.pdf

Original ruling text

ST 25-0006-PLR 09/15/2025 LEASING
Effective January 1, 2025, under the Service Occupation Tax Act, servicemen are
taxed on tangible personal property transferred by lease incident to sales of service.
See 35 ILCS 115/3 as amended by Article 75 of Public Act 103-592. Security
monitoring equipment transferred by lease incident to a sale of security monitoring
services is subject to Service Occupation Tax. (This is a PLR).
September 15, 2025
NAME
COMPANY1
ADDRESS
Dear NAME:
This letter is in response to your letter dated April 21, 2025, 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
https://tax.illinois.gov/ to review regulations, letter rulings and other types of information
relevant to your inquiry.
Review of your request disclosed that all the information described in paragraphs 1
through 8 of Section 1200.110 appears to be contained in your request. This Private Letter
Ruling will bind the Department only with respect to COMPANY, for the issue or issues
presented in this ruling, and is subject to the provisions of subsection (e) of Section
1200.110 governing expiration of Private Letter Rulings. Issuance of this ruling is
conditioned upon the understanding that neither COMPANY, nor a related taxpayer is
currently under audit or involved in litigation concerning the issues that are the subject of
this ruling request. In your letter you have stated and made inquiry as follows:
This letter constitutes a request for a Private Letter Ruling (“PLR”) on behalf of
our client, COMPANY (“Company”), regarding the application of the Illinois
Retailers' Occupation Tax Act (“Retailers' Occupation Tax” or “ROT”) and the
Illinois Service Occupation Tax Act (“Service Occupation Tax” or “SOT”) to
certain fees charged by Company. COMPANY1 (“COMPANY1”) has been

COMPANY/NAME
Page 2
September 15, 2025
engaged to represent Company for purposes of this PLR request. The relevant
facts are summarized below, followed by a statement of the issues on which
we request a ruling, and our analysis of such issues.
To the best of Company’s knowledge, the same or substantially similar issue
is not being considered by the Illinois Department of Revenue (the
“Department”) or Internal Revenue Service in connection with an active
examination, audit of Company or related party.
To the best of Company’s knowledge, there are not any authorities supporting
a position contrary to that advanced by Company in this letter. Company
acknowledges that the Department is authorized to publish a redacted copy
of the PLR for official purposes and requests the opportunity to review any
draft prior to publication.
A properly executed Form IL-2848, Power of Attorney, (copy attached hereto
as Exhibit “A”) is attached for the Department’s reference.
I. STATEMENT OF FACTS
Company is primarily engaged in the business of providing security monitoring
services to customers. The monitoring services are provided through wireless
connectivity to security monitoring system equipment (“Equipment”) that is
installed on the customer’s property. The customer’s property is linked with
one of Company’s monitoring centers (“CENTERS”) that will signal
notifications to the customer in the event of triggering alerts, such as burglary,
fire, carbon monoxide, or smoke detection on the property.
Company offers various monitoring service plans to its customers:
•

•

•

Level 1: This level is for entry-level services that provide the customer
with 24-hour security monitoring and Equipment, which initially
includes one panel, two contacts, and one motion sensor. Level 1
utilizes a traditional landline phone line, cellular backup, or a
dedicated internet connection, depending on the customer’s plan, to
communicate with the CENTER.
Level 2: This level includes all service and Equipment offerings from
Level 1 in addition to a radio. Company radios are cellular
communication modules that allow Company security systems to
communicate with CENTERS.
Level 3: This level includes all service and Equipment offerings from
Level 1 and 2, as well as remote access to the customer’s alarm
system through a mobile app. The mobile app allows customers to

COMPANY/NAME
Page 3
September 15, 2025
•

control their home security system from any location.
Level 4: This level is the highest level and includes all services and
Equipment offerings from Levels 1, 2, and 3, as well as video
monitoring and two Wi-Fi cameras. 1

As part of the four levels of services provided (collectively referred to
hereinafter as “the Services”), Company provides certain other services to its
customers:
•

•

•

•

•

Company offers an optional extended warranty plan (referred to on the
provided sample contract as “SERVICE1”) on the Equipment that
provides customers with free repair and replacement services for the
Equipment as long as they continue the Services under the
Agreement. 2
Professional Installation - Company Technician will visit customer’s
location to set up and connect all the equipment to make sure it works
correctly. The company also offers Do It Yourself (DIY) as an alternative
to professional installation. 3
Remote Assistance - Company ships equipment to the customer’s
location. Customer schedules a video call with a Company-trained
professional to walk the customer through the setup and installation
process.
Company offers SERVICE2 the Equipment to avoid disruption in a
customer’s service. This involves monitoring the Equipment for
outages or repairs needed to the Equipment and transmitting signals
to the applicable CENTER through a cellular network which prevents a
lapse that would otherwise be caused by a failure in the customer’s
home network (referred to on the provided sample contract as
“SERVICE2”). 4
Company offers cloud-based video surveillance solutions that allow
customers to record, store, and access videos in a secure online
environment (referred to on the provided sample contract as
“SERVICE3”).

The configuring and installation of the Equipment is performed by a
professional technician who works with the CENTER to ensure that the
Equipment is properly installed. The technician also trains the customer on
the proper use of the Equipment. Customers interact with the Equipment’s
1 Please see the attached sample contract (“Sample Contract”) (copy attached hereto as Exhibit “B”), which contains an itemized list of the

Equipment components and the Services available. As the Sample Contract for Level 4 services is inclusive of the Equipment and the Services
provided in Levels 1 through 3, the Sample Contract will be solely discussed in this private letter ruling request for ease of reference.
2
See Section 9 on page 4 “IMPORTANT TERMS AND CONDITIONS” of the attached Sample Contract.
3 See “Section 2. Services to be Provided” of the attached Sample Contract.
4 Please see the attached sample invoice (“Sample Invoice”) (copy attached hereto as Exhibit “C”).

COMPANY/NAME
Page 4
September 15, 2025
system by arming/disarming the system through a free mobile application that
can be downloaded to their personal devices or through a control panel of the
Equipment. Customers also have the ability to use the Equipment for other
purposes, such as recording and accessing video footage on cameras,
creating recording schedules, and programming lighting devices to follow preset schedules.
The typical Equipment that is provided as part of the monitoring system
includes, but is not limited to, keypads, smoke detectors, carbon monoxide
detectors, motion detectors, glass break detection devices, window sensors,
and cameras, and a free-standing base which communicates with all the
security sensors and devices. Company does not manufacture the
component parts of the Equipment, and the Equipment is generally installed
in the same form as it was purchased from the manufacturer. In other words,
the Equipment is fully fabricated by the manufacturer and only negligible or
no assembly is required for any component part of the Equipment before it is
ready to be mounted, or after it has been mounted for that matter.
Company does not hardwire the Equipment to the electrical system of the
customer’s real property during the installation process (i.e., any “wired”
component is simply plugged into an available electrical outlet). 5 The
Equipment is installed by mounting the devices and hardware to the
customer’s property using adhesive materials, and in certain cases limited
screws, and are designed to provide a low-impact system that does not
permanently attach to or impact the underlying property. Minimal to no
assembly is required for the Equipment. This design is intentional and allows
the customer to easily remove and move the components of Equipment from
one area of the residence to another, as needed. For example, the base device
that operates the Equipment is free-standing and can be carried from room to
room in the home as desired. Similarly, the various detectors which are
attached to the walls, doors, or other areas of the residence with adhesives
can quickly be removed and moved to a new location in the home.
Additionally, this design allows the customer to remove and transport the
security system from one location to another (e.g., from an old apartment to
a new one) as the customer moves to a new residence.
Under Company’s sales model, 6 Company enters into a AGREEMENT
(“Agreement”) with its customer to install the Equipment and to provide the
5 Company notes that there are limited instances where certain customers may require hardwired components, but these cases are rare and

are not within the scope of this letter.
Please note that Company also provides a sales model (“Customer-Owned Sales Model”) whereby Company sells the equipment to customers
under a single charge for equipment plus applicable installation fees. However, for purposes of this private letter ruling request, the analysis is
focused solely on the sales model discussed herein. Company does not request or seek a response from the Department concerning the application
of Illinois law to the Customer-Owned Sales Model.
6

COMPANY/NAME
Page 5
September 15, 2025
Services for a monthly recurring fee (“FEE”). Per the language of the
Agreement, the ownership of the installed Equipment is retained by Company
and provided to customers for use under the terms of the Agreement. In the
event that a customer fails to make payments, or otherwise breaches the
terms of the Agreement, Company holds the right to terminate the Agreement
and repossess any Company-owned Equipment.
Company maintains an Agreement with all customers, who are responsible
for paying the FEE, as well as a one-time installation fee (“Installation Fee”)
for the installation of Equipment by a Company professional or, alternatively,
a one-time installation fee by live remote assistance (“Remote Assistance
Fee”). 7 The Installation Fee is priced separately on the contract to the
customer. The pricing for monitoring and installation varies by market and
depends on the monitoring package and interactive features and specific
pieces of Equipment selected by the customer. The invoice is comprised of
materials, installation labor, and overhead. The invoice includes separate
itemization of each piece of Equipment included in the contract and installed
by Company. Company currently collects tax on the Installation Fee charged
to each customer in Illinois.
Company also offers a do-it-yourself (“DIY”) installation method to customers
as an alternative to professional installation or installation by remote
assistance. If a customer opts for the DIY installation method, then the
customer must pay the price of each piece of Equipment selected by the
customer but is not responsible for payment of the Installation Fee.
Company currently purchases its inventory of Equipment in bulk for resale in
2025. Company therefore does not pay sales tax on the purchases and
instead provides the appropriate Illinois resale certificates to its vendors at
the time of purchase, as applicable.
II. ISSUES
A. Whether Company’s Installation Fee is subject to ROT or,
alternatively, to SOT?
B. Whether Company’s FEE is subject to ROT or, alternatively, to SOT?
C. If the Department determines that Company’s FEE and Installation
Fee are subject to ROT or SOT, whether Company may collect and
The Installation Fee and the Remote Assistance Fee are charges for the installation of Equipment to the customer’s property. For purposes of
this private letter ruling request, references to the Installation Fee include references to the Remote Assistance Fee. Thus, for ease of reading, only
the Installation Fee will be referenced.

7

COMPANY/NAME
Page 6
September 15, 2025
remit the applicable tax on a prospective basis?
III. ANALYSIS
A. Is Company’s Installation Fee subject to ROT or, alternatively, to
SOT?
General Overview of Illinois Sales Tax
In Illinois, ROT and SOT are privilege taxes imposed on businesses that sell
tangible personal property for use or consumption or as an incident to
services provided. 8 The objective of ROT and SOT is to apply sales tax to
transactions that result in the consumption or use of tangible personal
property, and not merely to impose sales tax on the mere sale or use of the
property.
The Equipment is Tangible Personal Property Upon Installation
While “tangible personal property” is not specifically defined in Illinois law or
regulations, the term is generally understood to mean all material things with
intrinsic value, but does not include real property, such as land, building, and
attached fixtures, or intangibles. 9 A person who incorporates tangible
personal property into real property is considered a construction contractor
for ROT purposes. 10 The Department utilizes an intention test to determine
whether items remain tangible personal property after installation or become
part of real property: if circumstances indicate that the parties obviously
intended that the item remain with the real property, then the Department
gives effect to that intention. 11 If an obvious intent is not apparent, then the
Department looks to the extent to which the item has been affixed. If the item
cannot be removed without damage to the item or to the real estate, that is an
indication that the parties intended that the item become part of the realty. 12
In the present case, Company’s installation of the Equipment in Illinois does
not qualify as a permanent affixation to real property under the intention test.
Company’s Agreements with its customers do not contain any language that
refers to the component parts or Equipment as a real property fixture. The
property is designed to be minimally invasive and can easily be moved and
repositioned by Company’s customer as needed. Furthermore, Taxpayer’s
Agreements describe the system components as “wireless.” They are
ILCS § 120/2; ILCS § 115/3; Ill. Admin. Code 86 § 130.101; Ill. Admin. Code 86 § 140.101.
The Department of Revenue of the State of Illinois v. John Doe, Taxpayer, UT 02-2, 04/30/2002.
10
Ill. Admin. Code 130.1940.
11
Illinois Dept. of Rev. General Information Letter ST 15-0063-GIL, 10/29/2015.
12
Id.
8
9

COMPANY/NAME
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September 15, 2025
designated in the customer catalogues as wireless equipment operated via
battery power. Similar to furniture or appliances that simply plug in without
being screwed in place and wired directly, the Equipment is designed to be
detachable, transferable, and removal of the Equipment would not diminish
the value of a customer’s realty. Nor would there generally be any expectation
that Taxpayer’s Equipment would be treated as real property that transfers
with the sale of the customer’s home when vacating the premises for a new
owner, unless the contract of sale specifically requires that the Equipment be
left behind.
Even if the intent for the Equipment to remain tangible personal property after
installation is not obviously apparent, the method of attachment of the
Equipment clearly demonstrates that Company did not intend for the
Equipment to become part of the customer’s realty. The Equipment itself is
almost entirely wireless and any items of Equipment which require additional
power plug into the wall via a standard electrical outlet. None of the
Equipment is required to be directly hard-wired into the electrical system of
the real property in order to function. As noted above, the Equipment is
designed to be minimally invasive, portable, can be easily detached and
moved to various areas within the home (or from one home to another). Thus,
the Equipment can be easily removed without damage to the item or to the
real estate.
For the foregoing reasons, the Equipment qualifies as tangible personal
property after installation for Illinois SOT and ROT purposes.
Retailers’ Occupation Tax
ROT is imposed on persons engaged in Illinois in the business of making retail
sales of tangible personal property to purchasers for use or consumption and
is measured by the seller's gross receipts from such sales made in the course
of such business. 13 “Gross receipts” means the total selling price or the
amount of sales. 14
Beginning January 1, 2025, a lease of tangible personal property (excluding
items that must be titled or registered with a state government agency) is
considered to be a sale at retail for purposes of ROT. 15 “Sale at retail” means
any transfer of the ownership of or title to tangible personal property to a
purchaser for the purpose of use or consumption, and not for the purpose of
resale in any form, for a valuable consideration. 16 As such, effective January
ILCS § 120/2; Ill. Admin. Code 86 § 130.101(a).
ILCS § 110/1; ILCS § 120/2-10; Ill. Admin. Code 86 § 130.401(e).
15
ILCS § 120/1.
16
ILCS 120/1.
13
14

COMPANY/NAME
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September 15, 2025
1, 2025, persons engaged in the business of leasing tangible personal
property at retail in Illinois are subject to ROT on the gross receipts from
leases of tangible personal property made in the course of business. 17 ROT
applies to lease receipts received on or after January 1, 2025 for leases in
effect, entered into, or renewed on or after that date. For retail sales sourced
outside of Illinois and made to Illinois customers, retailers were previously
obligated to collect and remit use tax. Beginning January 1, 2025, retailers are
now subject to destination-based ROT, which means that the total ROT rate
calculated for a sale is the rate in effect at the Illinois location to which the
tangible personal property is shipped or delivered, or at which possession is
taken by the purchaser. 18
Service Occupation Tax
While the provision of a service in Illinois that is not accompanied by the
transfer of tangible personal property is not subject to ROT or SOT, the sale of
a service that is accompanied by an incidental transfer of tangible personal
property is subject to SOT. 19 SOT is imposed on persons engaged in Illinois in
the business of making sales of services (referred to as “servicemen”), based
on the cost price of tangible personal property transferred incident to sales of
services. 20 “Cost price” means the consideration paid by the serviceman for
a purchase valued in money, whether paid in money or otherwise, including
cash, credits and services, and is required to be determined without any
deduction on account of the supplier's cost of the property sold or on account
of any other expense incurred by the supplier. 21 “Transfer” means any transfer
of the title to property or of the ownership of property whether or not the
transferor retains title as security for the payment of amounts due him from
the transferee. 22
Effective January 1, 2025, persons engaged in the business of making sales of
services are subject to SOT on all tangible personal property transferred by
lease as an incident of a sale of service. 23 Thus, the term “transfer” also
includes a lease. 24 A “lease” is defined as a transfer of the possession or
control of, the right to possess or control, or a license to use, but not title to,
tangible personal property for a fixed or indeterminate term for consideration,
regardless of the name by which the transaction is called, but does not
include a lease entered into merely as a security agreement that does not
ILCS § 120/2.
Ill. Admin. Code 86 § 270.115.
19
Please note that gross receipts from the lease of property that is subject to the Chicago Personal Property Lease Transaction Tax are exempt
from State and Department-administered ROT and SOT.
20
ILCS § 115/3; ILCS § 115/3-10; Ill. Admin. Code 86 § 140.101.
21
Ill. Admin. Code 86 § 140.301(a).
22
ILCS § 115/2.
23
ILCS § 115/3.
24
ILCS § 115/2.
17
18

COMPANY/NAME
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September 15, 2025
involve a transfer of possession or control from the lessor to the lessee. 25
Four Methods of Servicemen to Calculate Tax Base
In Illinois, SOT is imposed upon servicemen based on tangible personal
property transferred incident to sales of service. 26 Effective January 1, 2025,
servicemen are subject to SOT on all tangible personal property transferred by
lease as an incident of a sale of service. 27 The rate of SOT incurred by a
serviceman is based on the selling price of the tangible personal property. 28
“Selling price” means the consideration for a sale, including, on and after
January 1, 2025, a lease, valued in money whether received in money or
otherwise, including cash, credits and service, and must be determined
without any deduction on account of the serviceman's cost of the property
sold, the cost of materials used, labor or service cost or any other expense
whatsoever. 29 Selling price cannot be less than the cost price to the
serviceman of the tangible personal property transferred. 30 "Cost Price"
means the consideration paid by the serviceman for a purchase valued in
money, whether paid in money or otherwise, including cash, credits and
services, and must be determined without any deduction on account of the
supplier's cost of the property sold or on account of any other expense
incurred by the supplier. 31
Servicemen may calculate their tax base in one of four methods:
1) SOT on the separately stated selling price of tangible personal property
transferred incident to service;
2) SOT on 50% of the servicemen’s entire bill;
3) SOT 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 the ROT.
A serviceman may determine the “selling price” by the first two methods
provided above. If the selling price of tangible personal property transferred
incident to service can be shown as distinct items on the serviceman’s billing
to the service customer, then the first method may be used. SOT is then
calculated on the separately stated selling price of the tangible personal
property transferred incident to services. If no selling price is shown on the
Illinois Dept. of Rev. Info. Bulletin, No. FY 2025-15, 12/01/2024.
Ill. Admin. Code 86 § 140.101(a).
27
ILCS § 115/3.
28
ILCS § 115/3-10.
29
ILCS § 110/2.
30
ILCS § 115/3-10.
31
Ill. Admin. Code 86 § 140.301(a).
25
26

COMPANY/NAME
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serviceman’s billing, and the tangible personal property transferred incident
to service is not separately stated, then the selling price is considered to be
50% of the serviceman’s entire billing and the second method should be
utilized to calculate the tax base. Both of the above methods provide that in
no event may the tax base be less than the serviceman's cost price of the
tangible personal property being transferred. 32
The third and fourth methods for calculating tax base only applies to qualifying
de minimis servicemen. If a serviceman does not qualify as a de minimis
serviceman, then the third and fourth methods are not available options. The
third method only applies to de minimis servicemen who have either chosen
to be registered or are required to be registered because they incur ROT
liability with respect to a portion of their business. Servicemen may qualify as
de minimis if their cost ratio is less than 35% (i.e., 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). 33 Under the third method, registered de minimis servicemen
may calculate their tax base to pay SOT (which includes local taxes) based
upon their cost price of tangible personal property transferred incident to the
sale of service.
The final method of determining tax liability may be used by de minimis
servicemen that are not otherwise required to be registered for ROT. Such de
minimis servicemen may calculate their tax liability by remitting use tax to
their suppliers. 34 The servicemen are considered to be the end-users of the
tangible personal property transferred incident to service. Consequently, the
servicemen in this case are not authorized to collect tax from the service
customers. 35
To the extent that the Department determines that Equipment is transferred
by Company to its customers as an incident of the sale of the Services for
purposes of establishing SOT liability, then Company will be deemed to be a
serviceman. If the Department determines that Company is a serviceman for
purposes of SOT, then Company will be taxed on the Equipment transferred
and will incur SOT depending on one of the four methods used to calculate
liability.
Determination of Sale of Services subject to SOT or Retail Sales subject to ROT
In order to distinguish a sale of service subject to SOT from a retail sale subject
Ill. Admin. Code 86 § 140.106(a)(1).
Ill. Admin. Code 86 § 140.108(a).
34
Ill. Admin. Code 86 § 140.108(a)(1).
35
Ill. Admin. Code 86 § 140.108.
32
33

COMPANY/NAME
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September 15, 2025
to ROT, the Illinois Supreme Court set the following standard in Spagat v.
Mahin: if the article sold has no value to the buyer except as a result of services
rendered by the seller and the transfer of the article to the buyer is an actual
and necessary part of the service rendered, then the seller is in the business
of rendering a service—not selling at retail. 36 If the article sold is the substance
of the transaction and the service is merely part of the transfer to the buyer of
the article sold, then the seller is in the business of selling at retail. 37
When the Spagat standard is applied to the Services and Equipment provided
by Company to its customers, it is apparent that the nature of the Services is
not one where the objective is the acquisition of property such as what would
typically occur in a retail environment. The Equipment that Company is
providing consists of monitoring system parts, such as smoke detectors,
keypads, window sensors, and cameras. While such property has nominal
value, it does not have meaningful value to the customer apart from the
Services rendered by Company. In order to provide the Services, Company
must provide and install Equipment to its customers in order to link the
customers’ properties to Company’s CENTERS so that customers receive
notifications in the event of triggering alerts, such as burglary, fire, carbon
monoxide, or smoke detection. The Equipment itself does not provide value
to Company’s customers except as a result of receiving the Services through
the Equipment. While the Equipment is an actual and necessary part of the
Services rendered, the intended benefit of having Equipment installed is the
monitoring of the customer’s property by Company via the CENTER.
Determination of Company’s Installation Fee
Company must provide and install Equipment for its customers in order to
provide the Services. Prior to executing the contract, each customer selects
the quantity of peripheral devices to be included in the contract (such as
cameras, sensors, and motion detectors). Then each piece of Equipment is
separately itemized on the customer’s contract and a separate price is listed
for each component of the system. 38 This is done in the form of an Installation
Fee, which is charged by Company to all customers who maintain an
Agreement with Company for the installation of Equipment and who have not
opted for the DIY method of installation.
Upon installation, Company retains title to the Equipment but transfers
operation and control of the Equipment to the customer. Customers may
Martin Spagat et al., Appellees, v. George Mahin, Director of Revenue, et al., Appellants., 50 Ill 2d 183 277 NE2d 834, 11/30/1971.
Id.
38
The cost of the components which are charged to the customer generally exceeds 35% of the total installation fee, and in some instances
exceeds 35% of the total combined installation and monitoring fees charged to the customer in a standard 3-year contract. Consequently,
Company does not qualify as a de minimis serviceman for purposes of establishing the SOT owed on the contractual charges.
36
37

COMPANY/NAME
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September 15, 2025
interact with the Equipment’s system by arming/disarming the system
through a free mobile application that can be downloaded to their personal
devices or through a control panel of the Equipment. Customers also have the
ability to use and control the Equipment for other purposes, such as recording
and accessing video footage on cameras, creating recording schedules, and
programming lighting devices to follow pre-set schedules.
Effective January 1, 2025, the term “sale” includes a lease of tangible personal
property, and SOT applies to charges for tangible personal property
transferred by lease by servicemen in Illinois. “Lease” means a transfer of the
possession or control of, the right to possess or control, or a license to use,
but not title to, tangible personal property for a fixed or indeterminate term for
consideration, regardless of the name by which the transaction is called. 39
Since the term “sale” includes a lease as of January 1, 2025, the imposition of
sales tax, or SOT, on tangible personal property transferred by lease by
servicemen applies to leases in effect, entered into, or renewed on or after
January 1, 2025. In the case of leases, except as otherwise provided, the
serviceman who is a lessor must remit for each tax return period only the tax
applicable to that part of the selling price actually received during such tax
return period. 40 For existing contracts for lease or rental entered into prior to
January 1, 2025, tax is imposed on all gross receipts received on or after
January 1, 2025 under a lease or rental contract. 41 While tax does not apply to
receipts received before January 1, 2025, any amounts received on or after
January 1, 2025 are subject to tax, including amounts received on contracts
with current customers that were in place before January 1, 2025. 42
When Company charges the customer an Installation Fee for each piece of
Equipment provided to the customer in conjunction with the services, and
Company retains title to the Equipment during the duration of the Agreement,
Company believes the Installation Fee is subject to SOT under the described
serviceman treatment. Consequently, SOT should be calculated on the
separately stated “selling price” of the Equipment transferred incident to
Company’s Services in the form of the Installation Fee. Company respectfully
requests guidance from the Department that its understanding is correct with
respect to the treatment of this Fee for Illinois tax purposes.
B. Is Company’s FEE subject to ROT or, alternatively, to SOT?
In addition to the Installation Fee charged for each piece of Equipment,
Company charges the customer a separate recurring monthly FEE. The
ILCS § 105/2
ILCS § 115/3
41
Illinois Dept. of Rev. Info. Bulletin, No. FY 2025-15, 12/01/2024
42
Id.
39
40

COMPANY/NAME
Page 13
September 15, 2025
monitoring services are contracted for separately in the Agreement 43 and
appear as separate charges on each customer invoice. Furthermore, the FEE
is not impacted by the amount of Equipment selected by the customer. For
example, if the customer chooses to include one security camera in the
contract, the customer is charged an Installation Fee for the camera and a
separate FEE for each month’s monitoring service. If the customer chooses to
include 15 security cameras in the contract, the customer is charged an
Installation Fee for each of the 15 cameras, however the amount of the FEE
remains the same. It is not impacted by the amount of Equipment selected by
the customer, since it is independent from the Installation Fee.
The Company believes the FEE constitutes a charge for nontaxable services
in Illinois, and in such a case, this Fee would not be subject to ROT or SOT. The
Company respectfully requests guidance from the Department that its
understanding is correct.
C. If it is determined by the Department that Company’s Installation Fee
or FEE are subject to SOT, Company requests confirmation that it may
collect and remit the applicable tax on a prospective basis.
Prior to January 1, 2025, lessors who rented or leased tangible personal
property under true leases were deemed end users of the property to be
leased. 44 As end users of tangible personal property located in Illinois, lessors
owed use tax on their cost price of such property. 45 Since Illinois did not
impose tax on rental receipts, lessees incurred no tax liability. 46
However, effective January 1, 2025, persons engaged in the business of
making sales of services are now subject to SOT on all tangible personal
property transferred by lease as an incident of a sale of service. 47 The
serviceman who is a lessor must remit for each tax return period only the tax
applicable to that part of the selling price actually received during such tax
return period. 48 For existing contracts for lease or rental entered into prior to
January 1, 2025, tax is imposed on all gross receipts received on or after
January 1, 2025 under a lease or rental contract. 49 While tax does not apply to
receipts received before January 1, 2025, any amounts received on or after
January 1, 2025 are subject to tax, including amounts received on contracts
with current customers that were in place before January 1, 2025. 50 Here,
43

See Section 2. “Services to be Provided” of the Sample Contract.
Ill. Admin. Code 86 § 130.220.
45
Ill. Admin. Code 86 § 130.2010(b) ; Ill. Admin. Code 86 § 150.305(e) .
46
Illinois Dept. of Rev. General Information Letter ST 10-0018-GIL, 03/15/2010.
47
ILCS § 115/3
48
ILCS § 115/3
49
Illinois Dept. of Rev. Info. Bulletin, No. FY 2025-15, 12/01/2024
50
Id.
44

COMPANY/NAME
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September 15, 2025
Company enters into Agreements with its customers for the sale of the
Services, which includes the use and installation of Equipment. Prior to
January 1, 2025, Company was not required to collect tax from its customers
on payment of the Installation Fee and the FEE. As neither security services
nor rental receipts were subject to tax in Illinois, no tax was collected from
Company’s customers in Illinois. However, because the term “sale” now
includes a “lease” as of January 1, 2025, Company requires guidance from the
Department concerning the proper application of Illinois tax to the fees
charged to its customers in Illinois.
Given the complexity of Company’s service offerings and the structuring of
Company’s service contracts, Company requests the Department’s guidance
in confirming the correct approach. Upon confirmation of the correct
approach, Company will be in a position to collect and report the appropriate
tax and modify its current process, if applicable. Consequently, Company
believes it is appropriate that any modifications to its tax collection on the fees
should be on a prospective basis upon issuance of the PLR.

Thank you for your consideration of this private letter ruling request. Your
assistance in this matter is greatly appreciated. If you have any questions
regarding this private letter ruling request, please contact me by e-mail at
EMAIL or by telephone at PHONE.
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.
The provision of a service in Illinois that is not accompanied by the transfer of tangible
personal property is not subject to Retailers’ Occupation Tax or Service Occupation Tax
liability. The sale of service that is accompanied by a transfer of tangible personal property
would be subject to liability under the Service Occupation Tax Act. For general information
see 86 Ill. Adm. Code 140.101 through 140.109 regarding sales of service and Service
Occupation Tax.
Effective January 1, 2025, in accordance with the provisions of Article 75 of Public Act

COMPANY/NAME
Page 15
September 15, 2025
103-592, persons engaged in the business of making sales of service are subject to State and
local service occupation tax on all tangible personal property transferred by lease as an
incident of a sale of service. See 35 ILCS 115/3. A “lease” is defined as a transfer of the
possession or control of, the right to possess or control, or a license to use, but not title to,
tangible personal property for a fixed or indeterminate term for consideration, regardless of
the name by which the transaction is called, but does not include a lease entered into merely
as a security agreement that does not involve a transfer of possession or control from the
lessor to the lessee. On and after January 1, 2025, for purposes of State and local service
occupation taxes, the term “transfer” includes a lease. See 35 ILCS 115/2. The tax applies to
tangible personal property transferred by lease by persons engaged in the business of making
sales of service in which leases are in effect, entered into, or renewed on or after January 1,
2025. The serviceman who is a lessor must remit for each tax return period only the tax
applicable to that part of the selling price actually received during such tax return period. See
35 ILCS 115/3.
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.

COMPANY/NAME
Page 16
September 15, 2025
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 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 as an incident of
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 (referred to as “unregistered de minimis servicemen”). 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.
Security monitoring equipment
Section 1 of the Retailers’ Occupation Tax Act provides that “[c]onstruction contracts
for the improvement of real estate consisting of engineering, installation, and maintenance of
voice, data, video, security, and all telecommunication systems do not constitute engaging in
a business of selling tangible personal property at retail within the meaning of this Act if they
are sold at one specified contract price.” See 35 ILCS 120/1. However, in the opinion of the
Department, based on the information provided, the CONTRACTS COMPANY enters into are
not construction contracts subject to the provisions of Section 1 of the Retailers’ Occupation
Tax Act, but rather service contracts. For purposes of the Illinois sales tax laws, the
Department uses an intention test to determine whether items remain tangible personal
property after installation or become part of realty. If circumstances indicate that the parties
obviously intended that the item remain with the realty, we give effect to that intention. If an
obvious intent is not apparent, we look to the extent to which the item has been affixed. If the
item cannot be removed without damage to the item or to the real estate, that is an indication
the parties intended for the item to become part of the realty. The information provided
indicates COMPANY does not hardwire the equipment to the electrical system of the
customer’s real property, and the equipment is installed by mounting the devices and
hardware to the customer’s property using adhesive materials and, in certain cases, limited
screws. The materials are designed to provide a low-impact system that does not

COMPANY/NAME
Page 17
September 15, 2025
permanently attach to or impact the underlying property. You also indicate this design is
intentional and allows the customer to easily remove and move the equipment from one
area of the residence to another and even to a new residence. Based on the representations
in this letter and the attached documents, the Department agrees that the security monitoring
equipment transferred to customers as part of the security monitoring services remains
tangible personal property after installation and is not incorporated into the real estate.
Sale of security monitoring service
The transactions you describe in your letter constitute the sale of security monitoring
services. The security monitoring equipment is leased as an incident of the sale of the security
monitoring service. This conclusion is consistent with the true object test set forth by the
Illinois Supreme Court.
If the article sold has no value to the purchaser except as a result of services
rendered by the vendor and the transfer of the article to the purchaser is an
actual and necessary part of the service rendered, then the vendor is engaged
in the business of rendering service and not in the business of selling at retail.
If the article sold is the substance of the transaction and the service rendered
is merely incidental to and an inseparable part of the transfer to the purchaser
of the article sold, then the vendor is engaged in the business of selling at retail.
Spagat v. Mahin, 50 Ill. 2d 183 (1971); Velten & Pulver, Inc. v. Department of Revenue, 29 Ill.
2d 524, 529; Dow Chemical Co. v. Department of Revenue, 26 Ill. 2d 283, 285; Kellogg
Switchboard & Supply Corp. v. Department of Revenue, 14 Ill. 2d 434, 437. If the tangible
personal property leased or rented would have value even without the services a company
provides, the substance of the transaction is the tangible personal property. Without the
security monitoring service, the equipment is of no value to the customer. As such, the
provisions of the Service Occupation Tax Act apply to your sales of security monitoring
services.
Separately stated selling price – Installation
COMPANY represents that the annual aggregate cost price of the tangible personal
property (security monitoring equipment) transferred incident to the sale of the security
monitoring services exceeds 35% of the total annual gross receipts from sales of security
monitoring services. While the Department is unable to verify this assertion based only on the
information provided, this is consistent with the pricing information provided and the
Department assumes for purposes of this letter ruling that COMPANY is not a de minimis
serviceman. As such, COMPANY is subject to Service Occupation Tax on the separately
stated selling price of security monitoring equipment transferred by lease incident to the sale
of security monitoring services or, if not separately stated, on 50% of its entire service bill, but
not less than its cost price of the tangible personal property transferred. 86 Ill. Adm. Code

COMPANY/NAME
Page 18
September 15, 2025
140.106(a). “Selling price” is defined in relevant part as the consideration for a sale valued in
money, whether received in money, or otherwise, including cash, credits and service, and
shall be determined without any deduction on account of the serviceman’s cost of the
property sold, the cost of materials used, labor or service cost or any other expense
whatsoever. For purposes of calculating the serviceman’s tax base, the selling price shall not
be less than the cost price to the serviceman of the tangible personal property transferred to
the service customer. 86 Ill. Adm. Code 140.201(h).
COMPANY’s “INVOICE” sheet contains two columns. One column labeled “Install”
itemizes the separately stated selling price for each item of security monitoring equipment as
installed. The other column labeled “Monthly” itemizes the monthly security monitoring
service charges. Based on the invoices provided, COMPANY separately states the selling
price of the security monitoring equipment, as installed, from the charge for the monthly
security monitoring service. Therefore, COMPANY owes service occupation tax on the
separately stated selling price of the security monitoring equipment, as installed, but not less
than its cost price of the security monitoring equipment transferred.
We note that gross receipts from the lease of property that is subject to a tax on lease
receipts imposed by a home rule unit of local government are exempt from the State and
Department-administered local retailers’ occupation and service occupation taxes if the
ordinance imposing the home rule tax was adopted prior to January 1, 2023. See 35 ILCS
115/3-5(36)(2) as added by Article 75 of Public Act 103-592. Specifically, gross receipts from
the lease of property that is subject to Chicago’s Personal Property Lease Transaction Tax are
exempt from the State and Department-administered local retailers’ and service occupation
taxes. However, if the lease of this property would, but for this exemption, be subject to the
tax on leases implemented by Article 75 of Public Act 103-592, then a sale to the lessor of this
tangible personal property, for the purpose of leasing that property, shall be made State and
local retailers’ occupation tax-free as a sale for resale. To the extent that COMPANY’s receipts
from the lease of security monitoring equipment are subject to tax by a home rule unit whose
tax was adopted prior to January 1, 2023, they are exempt from State and local Retailers’ and
Service Occupation Tax on the same transaction.
We are unable to authorize that the conclusions of a Private Letter Ruling apply
prospectively only.
The factual representations upon which this ruling is based are subject to review by the
Department during the course of any audit, investigation, or hearing and this ruling shall bind
the Department only if the factual representations recited in this ruling are correct and
complete. This Private Letter Ruling is revoked and will cease to bind the Department 10 years
after the date of this letter under the provisions of 2 Ill. Adm. Code 1200.110(e) or earlier if
there is a pertinent change in statutory law, case law, rules or in the factual representations
recited in this ruling.

COMPANY/NAME
Page 19
September 15, 2025
I hope this information is helpful. If you require additional information, please visit
our website at https://tax.illinois.gov/ or contact the Department's Taxpayer Information
Division at 800-732-8866.
Very truly yours,

Samuel J. Moore
Chairman, Private Letter Ruling
SJM:KAR:slc