Does an Illinois wedding and event décor business have to charge sales tax on décor packages that combine the temporary use of owned décor items with design and setup services?

Plain-English summary

An Illinois wedding and event décor business asked the Department whether it owes sales tax on its décor packages — flat-rate charges that bundle the temporary use of owned items (sofas, arches, draping, lighting, silk flowers, candles) with design work, delivery, and setup/teardown labor (billed separately). The business does not transfer ownership of the décor to clients; everything is installed for the event and removed afterward.

The Department explained that Illinois sales tax (Retailers' Occupation Tax and Use Tax) does not apply to sales of service. Instead, a separate tax — the Service Occupation Tax — applies when a business selling a service also transfers tangible personal property to the customer, including by lease. Effective January 1, 2025, under Article 75 of Public Act 103-592, leases of tangible personal property became taxable "sales" or "transfers," so lessors and servicemen who lease out property must now collect and remit tax on those lease receipts (see 35 ILCS 115/3 and 35 ILCS 120/2).

Whether this business owes Retailers' Occupation Tax (as a retail lessor) or Service Occupation Tax (as a serviceman) turns on the "true object" test: if the décor items would have no value to the client apart from the design and installation service, and transferring them is just a necessary part of rendering that service, the business is a serviceman subject to Service Occupation Tax — not a retailer. If instead the tangible items are the real substance of the deal and the service is merely incidental, it's a taxable retail lease.

Assuming the true object here is the service, the décor business calculates its Service Occupation Tax liability using one of four methods: tax on the separately stated selling price of the items transferred, tax on 50% of the entire bill if the price isn't separately stated, or (if it qualifies as a "de minimis" serviceman) tax on its own cost price of the property. Critically, the Department flatly rejected the business's proposed workaround: charging clients tax on the full invoice for simplicity while remitting tax on only the actual taxable portion. That is unacceptable overcollection and violates Illinois tax law.

What this means for you

Event/wedding décor and similar service-with-property businesses

If your décor, staging, or similar items would be worthless to the client without your design and installation work, you're likely a "serviceman" under the Service Occupation Tax Act, not a retailer. That means you're taxed on the tangible property you transfer by lease as part of the service (using one of the four calculation methods below), not on your whole invoice, and definitely not by simply taxing 100% of the bill and remitting less. Consumable one-time-use items like candles — which you already paid Illinois sales/use tax on when you bought them — factor into the cost-price calculations under the de minimis method, but the ruling does not say they're separately exempted from the transaction analysis.

Choosing a tax calculation method

You generally have three real options: (1) separately state the selling price of each item transferred and tax just that price; (2) if you don't separately state prices, tax 50% of your entire bill to the customer; or (3) if you qualify as a "de minimis" serviceman (annual cost price of transferred property is under 35% of your annual service gross receipts — 75% for pharmacists and graphic arts producers), register and pay tax on your own cost price instead. Whichever method you use, the tax base can never be less than your cost price for the property transferred (86 Ill. Adm. Code 140.106).

Never overcollect to "simplify" client-facing pricing

The Department was explicit: you cannot charge sales tax on the full package price as a convenience to customers while only remitting the tax you actually determine is owed on the taxable portion. Doing so is an unlawful overcollection of tax, regardless of your internal allocation between "rental" and "labor/design" percentages.

Sourcing your lease receipts

For leases effective January 1, 2025 and after, where recurring periodic payments are involved and the property is delivered to the lessee, sourcing follows the property's primary location. For other leases (including one-time, non-recurring décor rentals delivered and picked up at an event), sourcing follows the regular rules for retail sales or, for servicemen, the rules under 86 Ill. Adm. Code 280.115 based on where the serviceman is engaged in business.

Common questions

Q: Do I have to charge sales tax on décor packages that combine rented items and design services?
A: Only if the tangible items are the true object of the transaction. If your design/installation service is what gives the items value to the client, you owe Service Occupation Tax (not Retailers' Occupation Tax) on the tangible property you transfer by lease as part of that service — figured under one of four specific methods, not automatically on your whole invoice.

Q: Can I just charge sales tax on the full invoice and remit only what I calculate is actually owed?
A: No. The Department states this directly: intentionally charging tax on the full amount while remitting less based on your own internal allocation is unacceptable overcollection and violates Illinois tax law.

Q: What's the "true object test" and who decides it?
A: It's the legal test (from Spagat v. Mahin and related Illinois Supreme Court cases) for whether a transaction is really a sale/lease of property (taxable retail transaction) or really a sale of service with property transferred merely as an incident of that service (Service Occupation Tax instead). If the property would have no value to the buyer without the vendor's services, and transferring it is a necessary part of the service, the vendor is rendering a service.

Q: What if I qualify as a "de minimis" serviceman?
A: If the annual cost price of property you transfer incident to services is under 35% of your annual service gross receipts (75% for pharmacists/graphic arts), you may register and pay Service Occupation Tax on your own cost price of the property instead of on the selling price or 50% of the bill, and you collect a corresponding Service Use Tax from customers. If you're de minimis and not otherwise required to register, you instead just pay Use Tax to your suppliers (or self-assess it) and cannot collect any "tax" from customers.

Q: Does this letter bind the Department the way a Private Letter Ruling would?
A: No. This is a General Information Letter, which only directs the taxpayer to relevant regulations and sources — it is not a statement of Department policy and is not binding on the Department. A binding Private Letter Ruling requires following the separate procedures in 2 Ill. Adm. Code 1200.110.

Citations and references

Statutes and regulations:

• 35 ILCS 115/3 (Service Occupation Tax on property transferred by lease incident to a sale of service)
• 35 ILCS 115/2 (definition of "transfer" includes a lease)
• 35 ILCS 115/12 incorporating 35 ILCS 120/2-12(5.5) (service-lease sourcing)
• 35 ILCS 120/2 (Retailers' Occupation Tax on gross receipts from leases)
• 35 ILCS 120/1 (definition of "sale" includes a lease)
• 35 ILCS 120/2-12(5.5) (lease sourcing rules)
• Article 75 of Public Act 103-592 (effective January 1, 2025 — taxing leases of tangible personal property)
• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax); 86 Ill. Adm. Code 150.101 (Use Tax)
• 86 Ill. Adm. Code 140.101, 140.106, 140.108, 140.109 (Service Occupation Tax on servicemen; tax base; de minimis servicemen)
• 86 Ill. Adm. Code 280.115 (local service occupation tax sourcing)
• 2 Ill. Adm. Code 1200.110 (PLR procedure); 2 Ill. Adm. Code 1200.120 (GIL procedure)

Case law (true object test):

• Spagat v. Mahin, 50 Ill. 2d 183 (1971)
• Velten & Pulver, Inc. v. Department of Revenue, 29 Ill. 2d 524
• Dow Chemical Co. v. Department of Revenue, 26 Ill. 2d 283
• Kellogg Switchboard & Supply Corp. v. Department of Revenue, 14 Ill. 2d 434

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/st25-0023-gil.pdf

Original ruling text

ST 25-0023-GIL

4/15/2025

SERVICE OCCUPATION TAX

Effective January 1, 2025, 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
as amended by Article 75 of Public Act 103-592.
April 15, 2025
NAME
COMPANY
EMAIL
Dear NAME:
This letter is in response to your email dated April 3, 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.
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:
I’m reaching out to request clarification regarding my business’s sales tax
obligations as a provider of wedding and event décor services in Illinois. I
understand there have been updates under P.A. 103-592 effective January 1,
2025, and I’ve received differing guidance from various departments within
the Illinois Department of Revenue as well as from multiple CPAs. Most have
advised that we do not need to charge sales tax, but a few have suggested we
might—though without certainty. We’re hoping to receive clear guidance
directly from your office.
My business specializes in custom event décor, primarily for weddings and
private events. This includes creating designs that incorporate items such as
sofas, arches, draping, lighting, silk flowers, and candles—which are owned
by us. Occasionally, we rent linens and chairs from other vendors, who have
informed us they will begin charging sales tax. We do not transfer ownership

COMPANY
Page 2
April 15, 2025
of any items to the client; all décor is installed for the event and removed
afterward.
Clients are charged a flat rate for the full décor package (for example, $30 for
a wedding centerpiece), which includes both the use of tangible items (such
as vases) and the creative design and preparation work. Labor and delivery are
always listed separately on our invoices and reflect day-of costs such as setup
and teardown. The décor package itself includes our design time and prep
work done in advance of the event.
I would appreciate clarification on the following:
1.
Under the current law, are we required to collect and remit sales tax on
these décor packages, even when a significant portion of the value comes
from design and the temporary use of décor elements?
2.
If it is determined that we do need to collect and remit sales tax, and
we internally determine that, for example, 60% of the package value is
attributable to the rental of tangible items and 40% is labor/design, can we
calculate tax only on the taxable portion? If we decide to charge tax on the full
amount (for simplicity on the client-facing side), but only remit what is owed
based on the actual taxable portion, is that acceptable from a compliance
standpoint? Additionally, does the inclusion of one-time-use items like
candles—which are consumed during the event and already purchased by us
with sales tax paid to our suppliers—affect how that portion should be
treated?
We are committed to ensuring full compliance and would greatly appreciate
your interpretation or direction on how the new law applies to our type of
business.
Thank you for your time and assistance.
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. Retailers’ Occupation Tax and Use Tax do not
apply to sales of service. The Service Occupation Tax Act (SOT) imposes a tax upon persons

COMPANY
Page 3
April 15, 2025
engaged in this State in the business of making sales of service, based on tangible personal
property transferred incident to sales of service.
The provision of a service in Illinois that is not accompanied by the transfer of tangible
personal property is generally 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.
Effective January 1, 2025, in accordance with the provisions of Article 75 of Public Act
103-592, persons engaged in the business of leasing tangible personal property at retail
(“lessors”) in Illinois are subject to State and local retailers’ occupation tax on the gross
receipts from leases of tangible personal property made in the course of business. See 35
ILCS 120/2. 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 retailers’
occupation taxes, the term “sale” includes a lease. See 35 ILCS 120/1. For purposes of
State and local service occupation taxes, the term “transfer” includes a lease. See 35 ILCS
115/2. The tax 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 sales of service, 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 lessor must remit for each tax return period the tax applicable to lease
receipts received during that tax return period. See 35 ILCS 120/2 and 35 ILCS 115/3. For
retail leases and tangible personal property transferred by lease by persons engaged in the
business of making sales of service, tax is due at the lessor’s State and local retailers’
occupation tax or service occupation tax rate based on where the lease is sourced. See 35
ILCS 120/2-12(5.5) and 35 ILCS 115/12 incorporating 35 ILCS 120/2-12(5.5).
True Object Test
If it is determined that the transaction includes a taxable transfer of tangible personal
property, it must be determined whether the transaction is a retail lease transaction or a
transfer by lease of tangible personal property incident to a sale of service. To determine
whether a transaction is a retail lease transaction or a transfer by lease of tangible personal
property incident to a sale of service, the lessor must determine the true object or substance
of the transaction. “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

COMPANY
Page 4
April 15, 2025
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 rented would have value even
without the services a company provides, the substance of the transaction is the tangible
personal property.
Sale of Service
If it is determined that the true object of the transaction is the service and that the
tangible personal property is transferred by lease incident to a sale of service, tax on the
transfer of the tangible personal property by lease is calculated under the Service
Occupation Tax Act. 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

COMPANY
Page 5
April 15, 2025
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 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.
Charging tax on the full amount for simplicity but only remitting what is owed based
on the actual taxable portion is unacceptable. Under no circumstances is a taxpayer
allowed to overcollect tax. The intentional overcollection of tax violates the Illinois tax laws.
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.
Sourcing
The lease of tangible personal property that is subject to the tax on leases under
Article 75 of Public Act 103-592 is sourced as follows:
i)

For a lease that requires recurring periodic payments and for which the
property is delivered to the lessee by the lessor, each periodic payment
is sourced to the primary property location for each period covered by
the payment. The primary property location shall be as indicated by an
address for the property provided by the lessee that is available to the
lessor from its records maintained in the ordinary course of business,
when use of this address does not constitute bad faith. The property

COMPANY
Page 6
April 15, 2025
location is not altered by intermittent use at different locations, such
as use of business property that accompanies employees on business
trips and service calls.
ii)

For all other leases, including a lease that does not require recurring
periodic payments and any lease for which the lessee takes
possession of the property at the lessor’s place of business, the
payment is sourced as otherwise provided under this Act for sales at
retail other than leases.

See 35 ILCS 120/2-12(5.5) (incorporated by 35 ILCS 115/12) as amended by Article 75 of
Public Act 103-592.
A lease requires recurring periodic payments if the lease agreement for the property
provides for a fixed or indeterminate term and requires consideration to be broken into
multiple payments due over the course of multiple return periods. If a lease agreement is
fixed in duration and requires a single payment to be made in consideration for the lease of
a specified item or items, the lease does not require recurring periodic payments.
Sourcing – Sales of Service
For sales of service, if a transfer of tangible personal property by lease incident to a
sale of service does not require recurring periodic payments or is not delivered, pursuant to
35 ILCS 120/2-12(5.5), the payment is sourced as otherwise provided under the Service
Occupation Tax Act. If the Illinois Service Occupation Tax on a transaction is being remitted
to the Department by the serviceman, the serviceman shall also pay any applicable local
service occupation tax to the Department on the same transaction if such serviceman’s
place of business is located in a taxing jurisdiction which has adopted a local service
occupation tax. If a purchase order is accepted outside this State but the tangible personal
property which is transferred by lease incident to the sale of service is in the inventory of a
serviceman located within a jurisdiction with a locally imposed service occupation tax at the
time of its transfer by lease (or is subsequently produced in such a jurisdiction) then
delivered in Illinois to the service customer, the place where the property is located at the
time of the transfer by lease (or subsequent production in the jurisdiction) will determine
where the serviceman is engaged in business for local service occupation tax purposes with
respect to such sale of service. See 86 Ill. Adm. Code 280.115.
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.

COMPANY
Page 7
April 15, 2025
Very truly yours,

Alexis K. Overstreet
Deputy General Counsel
AKO:sce