Section 140.101  Basis and Rate of the Service Occupation Tax

 

a)         The Service Occupation Tax Act (the Act or the SOTA) [35 ILCS 115] imposes a tax upon persons engaged in this State in the business of making sales of service, based on tangible personal property transferred incident to sales of service.  These persons are referred to in this Part as servicemen.

 

b)         Rate of Tax

 

1)         The rate of Service Occupation Tax (SOT) incurred by a serviceman from October 1, 1969 through December 31, 1983, is 4%, and on and after January 1, 1984 and prior to January 1, 1990, is 5% of the serviceman's cost price of tangible personal property transferred by the serviceman incident to a sale of service.  On and after January 1, 1990, if SOT is computed on the selling price or Use Tax is computed on the cost price of the tangible personal property transferred incident to sales of service, the rate is 6.25%.  Effective January 1, 1990 and prior to July 1, 2003, sales of "gasohol" (a motor fuel that is no more than 90% gasoline and at least 10% denatured ethanol that contains no more than 1.25% water by weight [35 ILCS 105/3-40]) are subject to tax, based upon 70% of the proceeds of sales.  On and after July 1, 2003 and on or before July 1, 2017, tax shall be based upon 80% of the proceeds from sales of gasohol. After July 1, 2017, tax shall be based upon 100% of the proceeds of sales of gasohol.  However, from July 1, 1997 to June 30, 1998, the rate was 85% for gasohol sold in this State during the 12 months beginning July 1 following any calendar year for which the Department determined that the percentages in Section 10 of the Gasohol Fuels Tax Abatement Act were not met.  The Gasohol Fuels Tax Abatement Act was repealed effective July 1, 1998.  Effective July 1, 2003, if at any time the tax under the SOTA on sales of gasohol is imposed at the rate of 1.25%, then the tax imposed by the SOTA applies to 100% of the proceeds of sales of gasohol made during that time.  With respect to majority blended ethanol fuel, as defined in Section 3-44 of the Use Tax Act, the tax imposed by the SOTA does not apply to the proceeds of sales made on or after July 1, 2003 and on or before December 31, 2023, but applies to 100% of the proceeds of sales made thereafter.  With respect to biodiesel blends, as defined in Section 3-42 of the Use Tax Act, with no less than 1% and no more than 10% biodiesel, the tax imposed by the SOTA applies to 80% of the proceeds of sales made on or after July 1, 2003 and on or before December 31, 2018 and 100% of the proceeds of the selling price after December 31, 2018 and before January 1, 2024.  On and after January 1, 2024, the taxation of biodiesel, renewable diesel, and biodiesel blends shall be as provided in 86 Ill. Adm. Code 130.320.  If at any time, however, the tax under the SOTA on sales of biodiesel blends, as defined in the Use Tax Act, with no less than 1% and no more than 10% biodiesel is imposed at the rate of 1.25%, then the tax imposed by the SOTA applies to 100% of the proceeds of sales of biodiesel blends with no less than 1% and no more than 10% biodiesel made during that time.  With respect to biodiesel, as defined in Section 3-41 of the Use Tax Act, and biodiesel blends, as defined in Section 3-42 of the Use Tax Act, with more than 10% but no more than 99% biodiesel, the tax imposed by the SOTA does not apply to the proceeds of sales made on or after July 1, 2003 and on or before December 31, 2023.  [35 ILCS 115/3-10] On and after January 1, 2024, the taxation of biodiesel, renewable diesel, and biodiesel blends shall be as provided in 86 Ill. Adm. Code 130.320.  On and after January 1, 1993, if SOT is computed on the cost price of tangible personal property transferred incident to service, the rate is also 6.25%.  Exceptions to these rules, however, are as follows:

 

A)        On and after January 1, 1984, and prior to January 1, 1990, food for human consumption that is to be consumed off the premises where it is sold (other than soft drinks, alcoholic beverages and food that has been prepared for immediate consumption and except as provided in subsection (b)(1)(B)) and prescription and nonprescription medicines, drugs, medical appliances and insulin, urine testing materials, syringes and needles used by diabetics, for human use, will be taxed at the rate of 0%.  On and after January 1, 1990, except for the period beginning July 1, 2022 and until July 1, 2023 as provided in subsection (b)(1)(D), the rate of tax will be 1%.  For further discussion of food for human consumption that is to be consumed off the premises where sold and prescription and nonprescription medicines, drugs, medical appliances, and similar items, see 86 Ill. Adm. Code 130.310 and 130.311.

 

B)        Effective January 1, 1993, except for the period beginning July 1, 2022 and until July 1, 2023 as provided in subsection (b)(1)(D), food prepared for immediate consumption and transferred incident to a sale of service by an entity licensed under the Hospital Licensing Act or the Nursing Home Care Act shall be subject to tax at the rate of 1%.  Effective August 13, 1999, except for the period beginning July 1, 2022 and until July 1, 2023 as provided in subsection (b)(1)(D), the 1% rate shall also apply to food prepared for immediate consumption and transferred incident to a sale of service by an entity licensed under the Child Care Act of 1969. Effective July 1, 2010 and through December 31, 2011, the 1% rate shall also apply to food prepared for immediate consumption and transferred incident to a sale of service by an entity licensed under the MR/DD Community Care Act.  Effective January 1, 2012, except for the period beginning July 1, 2022 and until July 1, 2023 as provided in subsection (b)(1)(D), the 1% rate shall also apply to food prepared for immediate consumption and transferred incident to a sale of service by an entity licensed under the ID/DD Community Care Act.  Effective June 28, 2011, except for the period beginning July 1, 2022 and until July 1, 2023 as provided in subsection (b)(1)(D), the 1% rate shall also apply to food prepared for immediate consumption and transferred incident to a sale of service by an entity licensed under the Specialized Mental Health Rehabilitation Act of 2013.  Effective July 29, 2015, except for the period beginning July 1, 2022 and until July 1, 2023 as provided in subsection (b)(1)(D), the 1% rate shall also apply to food prepared for immediate consumption and transferred incident to a sale of service by an entity licensed under the MC/DD Act.  Effective June 17, 2021, except for the period beginning July 1, 2022 and until July 1, 2023 as provided in subsection (b)(1)(D), the 1% rate shall also apply to food prepared for immediate consumption and transferred incident to a sale of service by an entity licensed under the Assisted Living and Shared Housing Act or an entity that holds a permit issued pursuant to the Life Care Facilities Act. (Section 3-10 of the Act)

 

C)        Beginning on July 1, 2000 through December 31, 2000, with respect to motor fuel and gasohol, the tax is imposed at the rate of 1.25% (Section 3-10 of the Act). (See the provisions of 86 Ill. Adm. Code 130.101, which is incorporated by reference as if fully set forth in this subsection (b).)

 

D)        Beginning on July 1, 2022 and until July 1, 2023, the tax shall be imposed at the rate of 0% on food prepared for immediate consumption and transferred incident to a sale of service subject to the SOTA or the Service Use Tax Act (SUTA) by an entity licensed under the Hospital Licensing Act, the Nursing Home Care Act, the Assisted Living and Shared Housing Act, the ID/DD Community Care Act, the MC/DD Act, the Specialized Mental Health Rehabilitation Act of 2013, or the Child Care Act of 1969, or an entity that holds a permit issued pursuant to the Life Care Facilities Act.  Beginning July 1, 2022 and until July 1, 2023, the tax shall also be imposed at the rate of 0% on food for human consumption that is to be consumed off the premises where it is sold (other than alcoholic beverages, food consisting of or infused with adult use cannabis, soft drinks, candy, and food that has been prepared for immediate consumption and is not otherwise included in this paragraph).  (Section 3-10 of the Act)

 

2)         On and after January 1, 2001, prepaid telephone calling arrangements shall be considered tangible personal property subject to the tax imposed under the Act regardless of the form in which those arrangements may be embodied, transmitted, or fixed by any method now known or hereafter developed. (Section 3 of the Act)  "Prepaid telephone calling arrangements" means the right to exclusively purchase telephone or telecommunications services that must be paid for in advance and enable the origination of one or more intrastate, interstate, or international telephone calls or other telecommunications using an access number, an authorization code, or both, whether manually or electronically dialed, for which payment to a retailer must be made in advance, provided that, unless recharged, no further service is provided once that prepaid amount of service has been consumed.  Prepaid telephone calling arrangements include the recharge of a prepaid calling arrangement.  For purposes of this Section, "recharge" means the purchase of additional prepaid telephone or telecommunications services whether or not the purchaser acquires a different access number or authorization code.  For purposes of this Section, "telecommunications" means that term as defined in Section 2 of the Telecommunications Excise Tax Act [35 ILCS 630].  "Prepaid telephone calling arrangements" does not include an arrangement whereby the service provider reflects the amount of the purchase as a credit on an account for a customer under an existing subscription plan. (Section 3-27 of the Act)

 

c)         The date of the sale of service is deemed to be the date of the delivery, to the user, of the tangible personal property that the serviceman transfers as an incident to a sale of service.

 

d)         When a serviceman contracts to design, develop and produce special order machinery or equipment, the tax imposed under the Service Occupation Tax shall be based on the serviceman's cost price of the tangible personal property transferred incident to completion of the contracts regardless of that serviceman's annual threshold. (Section 3-10 of the Act)

 

e)         For the purpose of determining the tax base, selling price shall in no event be less than the cost price to the serviceman of the tangible personal property transferred.  The selling price of each item of tangible personal property transferred incident to a sale of service may be stated as a distinct item by the serviceman to the service customer and the tax imposed by the Act shall when collected be stated as a distinct item separate and apart from the selling price of the tangible personal property.  If the selling price of each item of tangible personal property transferred incident to a sale of service is not stated as a separate item on the serviceman's billing to the service customer, then the tax imposed by the Act shall be based on 50% of the serviceman's entire billing to the service customer (Section 3-10 of the Act), but in no event shall this amount be less than the cost price to the serviceman of the tangible personal property so transferred.

 

f)         Taxpayers who are registered may purchase all tangible personal property for retransfer by providing their suppliers with valid resale certificates even if in some transactions the cost price of the tangible personal property will be less than 35% of the total gross receipts from the transaction.  If the serviceman paid tax to the serviceman's supplier in the expectation that the cost of parts would be less than 35% of the total transaction selling price, but the actual percentage was more than 35%, the serviceman would be able to take credit for the tax paid to the supplier but would be liable for tax on the selling price of the parts, if stated, or on 50% of the total transaction selling price.  In the case of servicemen transferring prescription drugs or servicemen engaged in graphic arts production, replace the references to 35% in this subsection with 75%. The serviceman may also be liable for penalties due to a failure to file returns.

 

(Source:  Amended at 47 Ill. Reg. 5251, effective March 21, 2023)

 

Section 140.105  Calculation of Tax Incurred by Servicemen – Threshold Determination of Cost Ratio

 

a)         On and after January 1, 1990, a serviceman may incur either Service Occupation Tax or Use Tax liability when transferring tangible personal property incident to retail sale of service.  The type of tax liability incurred depends upon several factors.  The single most important factor is determining 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.

 

            If this cost ratio is 35% or greater (75% or greater in the case of servicemen transferring prescription drugs or engaged in graphic arts production), the serviceman is required to register and remit Service Occupation Tax on his selling price, as explained in Section 140.106.

 

b)         When the cost ratio is below 35% (75% in the case of servicemen transferring prescription drugs or engaged in graphic arts production), the serviceman, in lieu of paying Service Occupation Tax on the selling price, has the following options:

 

1)         From January 1, 1990 until December 31, 1992, if the cost ratio is below 35% (or less than 75% in the case of servicemen transferring prescription drugs or engaged in graphic arts production), the serviceman may pay Use Tax on his cost price, if the conditions set out in Section 140.108 are met.  However, on and after January 1, 1993, this option is not available if the serviceman is otherwise required to be registered as a retailer under Section 2a of the Retailers' Occupation Tax Act.

 

2)         On and after January 1, 1993, if the cost ratio is below 35% (or 75% in the case of servicemen transferring prescription drugs or engaged in graphic arts production) and if the serviceman is otherwise required to be registered under Section 2a of the Retailers' Occupation Tax Act, the serviceman may pay Service Occupation Tax on his cost price, as explained in Section 140.109.

 

c)         The cost of materials that are not transferred to customers incident to service, such as those sold at retail, removed from inventory for use, or incorporated into repairs of real estate, must be excluded when determining the cost ratio.

 

d)         Beginning January 1, 1990 through December 31, 1992, a serviceman may determine if he meets the cost ratio on a transaction by transaction basis. On and after January 1, 1993, the taxpayer must make this determination on the basis of his fiscal year.

 

e)         The annual aggregate cost of the tangible personal property transferred incident to sales of service, as well as the total annual receipts from sales of service, must be determined on the basis of the taxpayer's fiscal year. Prior years' ratios, while sometimes helpful, cannot be relied upon to establish the current year's threshold.  Estimates can be made based on prior years, but if they are not accurate, the taxpayer must adjust the manner in which tax is calculated and remit all taxes, penalties and interest due.

 

f)         The following example illustrates how to calculate this ratio:

 

Annual aggregate cost of parts	$  56,000
Marked up selling price of parts	$  75,600
Service or labor charge	$  20,000
Sales of service only	$  16,400
Annual gross receipts	$112,000

 

To figure the cost ratio, divide the annual aggregate cost of parts of $56,000 by the annual gross receipts of $112,000.

 

$56,000/112,000 = .50 or 50%

 

The cost ratio is 50%.  So, for example, if the serviceman is subject to the 35% threshold, Service Occupation Tax on the serviceman's selling price will be incurred in this instance.

 

(Source:  Amended at 25 Ill. Reg. 4971, effective March 23, 2001)

 

Section 140.106  When Cost Ratio is 35% or Greater, Service Occupation Tax Liability Is Incurred by Servicemen on Their Selling Price

 

a)         If the cost ratio between the tangible personal property transferred incident to sales of service and the serviceman's total annual gross receipts from all sales of service is 35% or greater (75% or greater in the case of servicemen transferring prescription drugs or engaged in graphic arts production), the serviceman must register and remit Service Occupation Tax.  Unless a lower rate is applicable (see Section 140.101(b)), the Service Occupation Tax incurred is based upon 6.25% of the selling price of the tangible personal property transferred incident to sales of service.  A serviceman may determine "selling price" in the following ways:

 

1)         Separately stated selling price.  If the serviceman separately states the selling price of the tangible personal property transferred incident to service on billings to service customers, then his Service Occupation Tax liability is based on that separately stated selling price.  However, in no event can the Service Occupation Tax liability be based on an amount less than the serviceman's cost price of the tangible personal property being transferred. (Section 3-10 of the Act)

 

2)         Fifty percent base. If the serviceman's bill to the service customer does not separately state the selling price of the tangible personal property transferred, the serviceman's Service Occupation Tax liability is based on 50% of the entire customer bill.  However, in no event can the Service Occupation Tax be based on an amount less than the serviceman's cost price of the tangible personal property being transferred. (Section 3-10 of the Act)

 

b)         A serviceman who incurs SOT on his selling price should provide Certificates of Resale to his suppliers when purchasing tangible personal property that will be transferred to service customers.

 

c)         A serviceman who incurs SOT on his selling price is liable for local Service Occupation Taxes, which are based upon his location.  If he fails to provide suppliers with Certificates of Resale and instead pays tax to suppliers, the consequence could be an underpayment of local Service Occupation Tax, with resulting liabilities for tax, penalty and interest.

 

d)         A serviceman who incurs SOT on his selling price is authorized to claim any exemption provided for in the Service Occupation Tax.  For example, he may claim the interstate commerce exemption or accept various exemption certificates from his customers (e.g., Certificates of Resale, exemption identification numbers).

 

e)         Service Use Tax must be collected from service customers by a serviceman who incurs SOT on his selling price and must be based upon either the separately stated selling price of the tangible personal property transferred or 50% of the entire customer bill, depending upon how it is billed to the customer.  Any tax collected over this amount constitutes an overcollection of tax that must be refunded to the service customer, or if not refunded to the service customer, paid to the Department.  The tax need not be separately stated on the service billing unless so requested by the service customer.

 

f)         Example.  Servicemen paying SOT on selling price would include auto body shops that are at or above the 35% threshold.  Their tax liability will be based upon either the separately stated selling price of the parts transferred or 50% of the entire service bill to the customer.  They should provide suppliers with Certificates of Resale.

 

(Source:  Added at 25 Ill. Reg. 4971, effective March 23, 2001)

 

Section 140.108  "De Minimis" Servicemen Who Incur Use Tax on Their Cost Price

 

a)         If a serviceman's cost ratio is less than 35% (or less than 75% in the case of servicemen transferring prescription drugs or engaged in graphic arts production), he is considered a "de minimis" serviceman.  On and after January 1, 1990 for all de minimis servicemen, and on and after January 1, 1993 for de minimis servicemen not required to be registered as a retailer under Section 2a of the Retailers' Occupation Tax Act, a Use Tax liability may be incurred on the cost price of the tangible personal property transferred to service customers incident to his sales of service.  Examples of servicemen that are not required to be registered under Section 2a of the Retailers' Occupation Tax Act include barbers or seamstresses making no "over-the-counter" retail sales. Other examples could include servicemen who make no taxable retail sales but who have obtained resale numbers under Section 130.1410, or servicemen who are registered solely to pay Use Tax on consumable supplies.  De minimis servicemen eligible to pay Use Tax on their cost price must observe the following conditions:

 

1)         The de minimis serviceman incurring Use Tax liability should remit Use Tax to Illinois registered suppliers at the time of purchase.  If the supplier is not registered to collect Use Tax, the de minimis serviceman must register with the Department for the limited purpose of self-assessing and remitting his Use Tax liability to the Department.  The de minimis serviceman should not provide Certificates of Resale to suppliers, even though he may possess a resale or registration number, because the resale exemption is not available to de minimis servicemen incurring a Use Tax liability.

 

2)         The de minimis serviceman incurring Use Tax liability is considered to be the end user of the tangible personal property transferred to service customers.  In this situation, the de minimis serviceman's customer incurs no tax liability, since the customer is not the "user" of the tangible personal property transferred to him by the serviceman. Although liability rests with a serviceman, the Department has determined that a de minimis serviceman incurring a Use Tax liability may claim exemptions predicated upon either the exempt status of his customer or upon exemptions claimed by his customer based on nontaxable uses of the tangible personal property transferred by the serviceman.  These exemptions are as follows:

 

A)        A customer's status as an exempt entity shall "flow through" to the de minimis serviceman making the sale of service.  The Department has determined that a de minimis serviceman is relieved of his Use Tax liability when making sales of service to customers who have obtained exemption identification numbers ("E" numbers) from the Department (see 86 Ill. Adm. Code 130.2005).  The customer must provide its "E" number to the de minimis serviceman in order to relieve the de minimis serviceman of Use Tax liability on the sale of tangible personal property being transferred to that customer.  The serviceman utilizing this flow through may either present the customer's "E" number to his supplier in advance when making the purchase of tangible personal property that will be transferred to the customer, or, if tax was paid to the supplier, present it to his supplier along with a request that the supplier submit a claim for credit to the Department.  Such a claim may also be filed by the de minimis serviceman, himself, if he has previously self-assessed the tax on that item to the Department.

 

B)        The Department has also determined that a de minimis serviceman incurring a Use Tax liability may claim any of the exemptions, except as provided in subsection (a)(2)(C), authorized under the Service Occupation Tax Act.  For instance, these exemptions would include, but are not limited to, sales to customers who are able to properly document the farm chemicals, newsprint and ink, manufacturing machinery and equipment, graphic arts machinery and equipment, pollution control, farm machinery and rolling stock exemptions.  De minimis servicemen may likewise claim the interstate commerce exemption, which is more fully explained at 86 Ill. Adm. Code 130.605.

 

C)        The Department will apply the provisions of subsections (a)(2)(A) and (B) of this Section governing the exemptions available to de minimis servicemen incurring Use Tax to all periods in which liability has not become final or for which the statute of limitations for filing a claim has not expired.  A liability does not become final until the liability is no longer open to protest, hearing, judicial review, or any other proceeding or action, either before the Department or in any court.

 

D)        A de minimis serviceman incurring Use Tax liability is not authorized to accept resale certificates provided by service customers who claim they will resell the tangible personal property transferred to them by the serviceman.

 

E)        In multi-service situations, in order for both the primary de minimis serviceman and the secondary de minimis serviceman to obtain any of the exemptions listed in subsections (a)(2)(A) and (B), the primary de minimis serviceman should provide the secondary de minimis serviceman with the proper documentation certifying the exemption.

 

3)         The de minimis serviceman incurring Use Tax liability is not authorized to collect "tax" from service customers.  The basis for this prohibition is that the de minimis serviceman, not the customer, is deemed to be the end user of the tangible personal property transferred.  In this situation, the service customer incurs no tax liability.  However, in this situation, the de minimis serviceman may collect "reimbursement" for his tax liability from the customer.  If reimbursement is sought and appears as a separate item on the bill, it must clearly be identified as "reimbursement" for the serviceman's Use Tax liability, and not as a "tax."  Any amount collected as a "tax" in this situation constitutes an overcollection that must be refunded to the customer or, if not refunded to the customer, paid to the Department.

 

4)         A de minimis serviceman incurring Use Tax liability must remit Use Tax on all sales of service for a given fiscal year.  He cannot utilize other methods of determining his Service Occupation Tax liability on a transaction by transaction basis.  However, use of a transaction by transaction basis for determining tax liability was authorized for periods from January 1, 1990 through December 31, 1992.

 

5)         For special rules on multi-service transactions, see Section 140.145 of this Part.

 

b)         If a serviceman pays Use Tax to his suppliers in the expectation that his cost ratio will be less than 35% (or less than 75%, if applicable), but the actual ratio is 35% or more (75% or more, if applicable), the serviceman would be able to take credit for taxes paid to his supplier but would still be liable for Service Occupation Tax (including applicable local taxes).  The serviceman may also be liable for penalties and interest.  He should register with the Department immediately and begin remitting Service Occupation Tax on his selling price.

 

c)         Even though a serviceman meets the de minimis threshold and is otherwise eligible to pay Use Tax on the cost price of the tangible personal property transferred to service customers, he can nevertheless register with the Department and pay Service Occupation Tax as explained in either Section 140.106 or 140.109.

 

d)         Example of de minimis serviceman paying Use Tax.  An unregistered printer contracts to print wedding invitations.  The printer has determined that his cost ratio falls below the 75% threshold.  The entire service bill is $200.  The printer's cost price of the paper and ink transferred to the customer is $75.  If the printer is not required to be registered as a retailer under Section 2a of the Retailers' Occupation Tax Act, he can remit Use Tax to his Illinois-registered supplier.  If his supplier is not registered to collect the Use Tax, he may remit it directly to the Department, on the cost price of $75.  The printer may not collect "tax" from his customer.  The printer may not show "tax" on his bill to the customer. However, the printer may collect "reimbursement" from his customer as provided in subsection (a)(3) of this Section.

 

(Source:  Added at 25 Ill. Reg. 4971, effective March 23, 2001)

 

Section 140.109  "De Minimis" Servicemen Who Incur Service Occupation Tax on Their Cost Price

 

a)         If a serviceman is below the 35% threshold (or under the 75% threshold for servicemen transferring prescription drugs or engaged in graphic arts production) but is otherwise required to be registered as a retailer under Section 2a of the Retailers' Occupation Tax Act because he incurs Retailers' Occupation Tax liability with respect to a portion of his sales, he does not incur a Use Tax liability based on his cost price of items transferred incident to service. Rather, except as provided in subsection (b), on and after January 1, 1993, he incurs and must remit Service Occupation Tax (including local taxes) on his cost price of the tangible personal property transferred incident to sales of service. Such de minimis servicemen include pharmacists transferring prescription drugs and also making over-the-counter sales of non-prescription drugs.  Also, included would be repairmen transferring parts incident to service and also selling parts over-the-counter, or hair stylists transferring hair products incident to service and also making over-the-counter sales of shampoo and other hair care products.  As a result of incurring Service Occupation Tax on his cost price, a de minimis serviceman is subject to the following conditions:

 

1)         A de minimis serviceman incurring Service Occupation Tax liability on his cost price should provide Certificates of Resale to his suppliers when purchasing tangible personal property that will be transferred to service customers.

 

2)         A de minimis serviceman incurring Service Occupation Tax liability on his cost price is also liable for local Service Occupation Taxes, which are based upon his location.  If he fails to provide suppliers with Certificates of Resale and instead pays tax to suppliers, the consequence could be an overpayment of local tax to the supplier's location and an underpayment of local Service Occupation Tax to the serviceman's location, with accompanying penalties and interest.

 

3)         A de minimis serviceman incurring Service Occupation Tax liability on his cost price is authorized to claim any of the various exemptions provided for in the Service Occupation Tax.  For example, he may claim the interstate commerce exemption or accept various exemption certificates from his customers (e.g., he can accept Certificates of Resale).

 

4)         Service Use Tax must be collected from service customers by a de minimis serviceman incurring Service Occupation Tax liability on his cost price and must be based upon the serviceman's corresponding cost price of the tangible personal property transferred.  Any tax collected over this amount constitutes an overcollection of tax that must be refunded to the service customer, or if not refunded to the service customer, paid to the Department.  The tax need not be separately stated on the service billing unless so requested by the service customer.

 

5)         A de minimis serviceman incurring Service Occupation Tax liability on his cost price must remit Service Occupation Tax  on all taxable sales of service for a given fiscal year.  He cannot utilize other methods of determining his Service Occupation Tax liability on a transaction by transaction basis.

 

b)         Even though a serviceman meets the de minimis threshold and is otherwise eligible to pay Service Occupation Tax on his cost price, he can nevertheless opt to pay Service Occupation Tax on the selling price of the tangible personal property transferred to service customers as explained in Section 140.106.

 

c)         Example of de minimis serviceman incurring Service Occupation Tax on cost price.  An air conditioning repairman making repairs to window units also makes over-the-counter sales of parts to customers.  He is under the annual 35% cost ratio.  He makes a repair to a window unit for which he charges $85.  The cost price of the parts transferred incident to the repair total $25.  The repairman should provide a Certificate of Resale to his supplier and remit Service Occupation Tax, including local taxes, on the $25.  He is required to collect Service Use Tax from his customer on the $25.

 

(Source:  Amended at 25 Ill. Reg. 4971, effective March 23, 2001)

 

Section 140.110  Example of Methods Used by Servicemen to Determine Liability

 

An auto mechanic contracts to repair a customer's automobile.  In this example, the serviceman's entire bill to the customer is $500.  Labor costs account for $300 of the total, and the serviceman's cost price of parts transferred totals $100. The selling price of the parts, if separately stated, would be $200.  The following chart represents the manner in which this serviceman might incur tax under the different methods discussed in Sections 140.106, 140.108 and 140.109.

 

a)         Registered Serviceman

 

	Cost Price	Selling Price	Gross Receipts	Service Occupation Tax Base
Separately Stated	$100	$200	$500	$200 (Selling price)
Not Separately Stated	$100	-0-	$500	$250 (½ of gross receipts)
De Minimis (paying SOT on cost price)	$100	$200	$500	$100 (Cost price)

 

b)         De minimis serviceman not required to be registered as a retailer under Section 2a of the Retailers' Occupation Tax Act.

 

Cost Price	Selling Price	Gross Receipts	Service Occupation Tax Base
$100	$200	$500	**

 

** (Not subject to Service Occupation Tax if not required to be registered as a retailer under Section 2a of the Retailers' Occupation Tax Act.  Subject instead to Use Tax on $100, see Section 140.108.)

 

(Source:  Added at 25 Ill. Reg. 4971, effective March 23, 2001)

 

Section 140.115  Occasional Sales to Servicemen by Suppliers (Repealed)

 

(Source:  Repealed at 14 Ill. Reg. 262, effective January 1, 1990)

 

Section 140.120  Meaning of Serviceman

 

Any person who sells tangible personal property as an incident to a sale of service is a serviceman who is engaged in the business of making sales of service within the meaning of the Act and upon whom a tax is imposed under the Act.  Among other things, the term "serviceman" includes a person who repairs tangible personal property for users, except that this is not true when a railroad, on a nonprofit basis, repairs cars for another railroad at an interchange point in connection with the interchange of traffic.  Such repair activities by one railroad for another at interchange points in connection with the interchange of traffic do not constitute a business of making sales of service within the meaning of the Service Occupation Tax Act.  For sales of service in which the cost price of tangible personal property transferred is less than 35% of the gross selling price, see Section 140.101 of this Part.

 

(Source:  Amended at 14 Ill. Reg. 262, effective January 1, 1990)

 

Section 140.124  Commercial Distribution Fee Sales Tax Exemption

 

a)         Qualifications for exemption through June 30, 2004.  Beginning on July 1, 2003 through June 30, 2004, sales of certain motor vehicles are not subject to the tax imposed under this Part if they meet all of the following tests:

 

1)         The motor vehicle qualifies as a second division motor vehicle under Section 1-146 of the Illinois Vehicle Code.  First division motor vehicles, such as those motor vehicles that are designed for the carrying of not more than 10 persons, do not qualify for the exemption  (See 625 ILCS 5/1-146.);

 

2)         The motor vehicle has a gross vehicle weight in excess of 8,000 pounds; and

 

3)         The motor vehicle is subject to the Commercial Distribution Fee imposed under Section 3-815.1 of the Illinois Vehicle Code.  [35 ILCS 115/2]  The motor vehicle must be registered and remain registered in such a manner whereby it is subject to payment of the Commercial Distribution Fee imposed under Section 3-815.1 of the Illinois Vehicle Code [625 ILCS 5/3-815.1] and such fee is actually paid for any period in which the fee is in effect.

 

b)         Qualifications for exemption beginning July 1, 2004.  Beginning on July 1, 2004 through June 30, 2005, sales of certain motor vehicles are not subject to the tax imposed under this Part if they meet all of the following tests:

 

1)         The motor vehicle is a second division motor vehicle.  First division motor vehicles, such as those motor vehicles that are designed for the carrying of not more than 10 persons, do not qualify for the exemption (See 625 ILCS 5/1-146.);

 

2)         The motor vehicle must have a gross vehicle weight rating in excess of 8,000 pounds.  For purposes of this Section, Gross Vehicle Weight Rating means the value specified by the manufacturer or manufacturers as the maximum loaded weight of a single vehicle.  (See 625 ILCS 5/1-124.5.);

 

3)         The motor vehicle is subject to the Commercial Distribution Fee imposed under Section 3-815.1 of the Illinois Vehicle Code.  The motor vehicle must be registered and remain registered in such a manner whereby it is subject to payment of the Commercial Distribution Fee imposed under Section 3-815.1 of the Illinois Vehicle Code [625 ILCS 5/3-815.1] and such fee is actually paid for any period in which the fee is in effect; and

 

4)         The motor vehicle is used primarily for commercial purposes.  [35 ILCS 115/2]  For purposes of this Section, a motor vehicle used for commercial purposes means any motor vehicle used to transport persons or property in the furtherance of any commercial or industrial enterprise, whether for-hire or not-for-hire. 

 

COMMERCIAL PURPOSE EXAMPLE:  A motor vehicle that is used for transportation to work, school, or recreational activities would not be used for commercial purposes.    

 

c)         Documentation of exemption.   To properly document the exemption, the seller must obtain a written certificate from the purchaser stating the following:

 

1)         the name, address, and telephone number of purchaser;

 

2)         the description and Vehicle Identification Number of the motor vehicle or motor vehicles being purchased;

 

3)         the name and address of seller;

 

4)         the date of purchase;

 

5)         a statement that the motor vehicle will be used primarily for commercial purposes and will be registered under Section 3-815(a) or 3-818(a) of the Illinois Vehicle Code or in such other manner whereby the registration of that motor vehicle will require the payment of the Commercial Distribution Fee imposed under Section 3-815.1 of the Illinois Vehicle Code and that such vehicle will remain validly registered in such a manner for subsequent registration years;

 

6)         the commercial purpose for which the vehicle will be used along with the purchaser's Illinois Business Tax (IBT) number or other business registration number; and

 

7)         the signature of purchaser.

 

d)         Liability for tax.  If a purchaser claims the exemption provided in this Section and the vehicle is not considered subject to the Commercial Distribution Fee as described in subsection (a)(3) or (b)(3) of this Section or otherwise does not qualify for this exemption, the purchaser will be liable for the tax based upon the purchase price of that vehicle and any applicable penalties and interest from the date of purchase.

 

e)         Repair and replacement parts.  The exemption provided in this Section may not be claimed for any repair part, replacement part, or other item attached or incorporated into the motor vehicle after the purchase of the motor vehicle.  Such items may qualify for exemption from sales tax if the motor vehicle or trailer is used in a manner that qualifies for the rolling stock exemption.  See 86 Ill. Adm. Code 130.340.

 

f)         Trailers.  For purposes of this Section, a trailer that is subject to the Commercial Distribution Fee imposed under Section 3-815.1 of the Illinois Vehicle Code will qualify as a second division motor vehicle under subsection (a)(1) or (b)(1) of this Section.  The term "trailer" includes a trailer as defined in Section 1-209 of the Illinois Vehicle Code, a semitrailer as defined in Section 1-187 of the Illinois Vehicle Code, and a pole trailer as defined in Section 1-161 of the Illinois Vehicle Code.

 

(Source:  Added at 29 Ill. Reg. 7070, effective April 26, 2005)

 

Section 140.125  Examples of Nontaxability

 

The tax does not apply to:

 

a)         sales of intangible personal property;

 

b)         sales of real property;

 

c)         sales of personal services as such;

 

d)         sales of tangible personal property which come within the protection of the Commerce Clause of the Constitution of the United States (see Subpart E of this Part);

 

e)         personal property sold by a corporation, society, association, foundation, institution, or organization, other than a limited liability company, that is organized and operated as a not-for-profit service enterprise for the benefit of persons 65 years of age or older if the personal property was not purchased by the enterprise for the purpose of resale by the enterprise (Section 3-5(1) of the Act);

 

f)         the retail selling of tangible personal property which is taxable under the Retailers' Occupation Tax Act [35 ILCS 120] or the Use Tax Act [35 ILCS 105];

 

g)         a sale of tangible personal property for the purpose of resale apart from the purchaser's engaging in a service occupation, made in compliance with Section 2c of the Retailers' Occupation Tax Act (Section 2 of the Act);

 

h)         sales of tangible personal property as an incident to sales of service:

 

1)         to or by any corporation, society, association, foundation or institution organized and operated exclusively for charitable, religious or educational purposes (Section 2(c) of the Act), in accordance with the provisions of 86 Ill. Adm. Code 130.2005, which is effective as if fully set forth in this subsection (h)(1);

 

2)         to or by any corporation, society, association, foundation or institution operated primarily for the recreation of persons aged 55 years or older which has no compensated officers or employees, in accordance with the provisions of 86 Ill. Adm. Code 130.2005, which is effective as if fully set forth in this subsection (h)(2) (Section 2(c) of the Act);

 

3)         to or by any governmental body (Section 2(c) of the Act), in accordance with the provisions of 86 Ill. Adm. Code 130.2055 and 130.2080, which are effective as if fully set forth in this subsection (h)(3);

 

4)         to a not-for-profit Illinois county fair association for use in conducting, operating or promoting the county fair (Section 3-5(2) of the Act);

 

5)         to any not-for-profit arts or cultural organization that has received an exemption under Section 501(c)(3) of the Internal Revenue Code (26 U.S.C. 501) and that is organized and operated primarily for the presentation or support of arts or cultural programming, activities, or services.  These organizations include, but are not limited to, music and dramatic arts organizations such as symphony orchestras and theatrical groups, arts and cultural service organizations, local arts councils, visual arts organizations, and media arts organizations. (Section 3-5 of the Act)

 

In order to qualify for exemption, all the above listed organizations (and on and after July 1, 2001, those described in subsection (h)(5)) must have been issued an active exemption identification number by the Department;

 

i)          the sale, employment and transfer of such tangible personal property as newsprint and ink for physical incorporation into newspapers or magazines;

 

j)          the incorporation of tangible personal property into real estate by a construction contractor, which activity constitutes a taxable "use" under the Retailers' Occupation Tax Act and the Use Tax Act, rather than the carrying on of a service occupation;

 

k)         through June 30, 2003, the sale, employment and transfer, as an incident to a sale of service, of such tangible personal property as pollution control facilities, in accordance with the provisions of 86 Ill. Adm. Code 130.335, which are effective as if fully set forth in this subsection (k).  The sale, employment and transfer, as an incident to a sale of service of such tangible personal property as low sulfur dioxide coal fueled devices, in accordance with the provisions of 86 Ill. Adm. Code 130.335, which are effective as if fully set forth in this subsection (k);

 

l)          sales of stock tonics, serums and other medicinal products to veterinarians for retransfer as an incident to service in caring for animals that are to be sold or the products of which are to be sold;

 

m)        sales of sprays and farm chemicals as an incident to service by persons engaged in the service occupation of spraying crops or applying farm chemicals for others, in accordance with the provisions of 86 Ill. Adm. Code 130.1955, which are effective as if fully set forth in this subsection (m);

 

n)         sale of either new or used farm machinery, equipment or replacement parts transferred as an incident to a sale of service for use in production agriculture or for use in State or federal agricultural programs, in accordance with the provisions of 86 Ill. Adm. Code 130.305, which are effective as if fully set forth in this subsection (n);

 

o)         a sale or transfer of machinery and equipment used primarily in the process of manufacturing or assembling, either in an existing, an expanded or a new manufacturing facility, of tangible personal property for wholesale or retail sale or lease, whether such sale or lease is made directly by the manufacturer or by some other person, whether the materials used in the process are owned by the manufacturer or some other person, or whether such sale or lease is made apart from or as an incident to the seller's engaging in a service occupation and the applicable tax is a service occupation tax or service use tax, rather than retailers' occupation tax or use tax. (Section 2 of the Act) (Amended by Public Act 87-876, effective January 1, 1993)  The transfer of standard or stock parts in the repair of qualifying exempt manufacturing machinery and equipment is exempt.  The provisions of 86 Ill. Adm. Code 130.330 are effective as if fully set forth in this subsection (o).  On and after July 1, 2017, the exemption in this subsection includes graphic arts machinery and equipment, as defined in paragraph (5) of Section 3-5.  See subsection (p).  The exemption provided by this subsection includes production related tangible personal property, as defined in Section 3-50 of the Use Tax Act, purchased on or after July 1, 2019.  (Section 2 of the Act);

 

p)         through August 12, 1999, a sale or transfer of graphic arts machinery and equipment, including repair and replacement parts used primarily for graphic arts production by means of printing or other processes or defined in Major Group 27 of the U.S. Standard Industrial Classification Manual.  However, effective August 13, 1999 and through June 30, 2003, and beginning again on September 1, 2004 through August 30, 2014, this exemption applies to a sale or transfer of graphic arts machinery and equipment, including repair and replacement parts used primarily for graphic arts production by means of printing, including ink jet printing, by one or more of the processes as described in Groups 323110 through 323122 of Subsector 323, Groups 511110 through 511199 of Subsector 511 and Group 512230 of Subsector 512 of the North American Industry Classification System published by the United States Office of Management and Budget, 1997 edition, in accordance with the provisions of 86 Ill. Adm. Code 130.325, which are effective as if fully set forth in this subsection (p) (Sections 3-5 and 3-30 of the Act)  Beginning on July 1, 2017, graphic arts machinery and equipment is included in the manufacturing and assembling machinery and equipment exemption under Section 2 of the Act.  (Section 3-5 of the Act).  See subsection (o);

 

q)         through June 30, 2003, sales of oil field exploration, drilling and production equipment and individual replacement parts, in accordance with the provisions of 86 Ill. Adm. Code 130.345, which are effective as if fully set forth in this subsection (q) (Section 3-5(10) of the Act);

 

r)          beginning on and after July 1, 2003 and until July 1, 2028, sales of coal and aggregate exploration, mining, off-highway hauling, processing, maintenance and reclamation equipment, including replacement parts and equipment, and including equipment purchased for lease , but excluding motor vehicles required to be registered under the Illinois Vehicle Code, in accordance with the provisions of 86 Ill. Adm. Code 130.350, which are effective as if fully set forth in this subsection (r) (Section 3-5(12) of the Act).  The exemption provided in this subsection terminated on June 30, 2003, pursuant to P.A. 93-24.  P.A. 98-456, effective August 16, 2013, reinstated the coal and aggregate exemption retroactive to July 1, 2003.  The Department, however, will not approve any claims or refunds on or after August 16, 2013, for taxes due or paid during the period beginning on July 1, 2003 through August 16, 2013.  The exemption for coal and aggregate exploration, mining, off highway hauling, processing, maintenance and reclamation equipment terminated by operation of the sunset provisions of Section 3-55 of the Act on August 16, 2018.  Pursuant to P.A. 100-0594, effective June 29, 2018, the exemption provided in this subsection is extended until July 1, 2023.  Pursuant to P.A. 102-0700, effective April 19, 2022, the exemption provided in this subsection is extended until July 1, 2028;

 

s)         Prior to August 24, 2017, a sale or transfer of tangible personal property as an incident to the rendering of service for interstate carriers for hire for use as rolling stock moving in interstate commerce or lessors under leases of one year or longer, executed or in effect at the time of purchase, to interstate carriers for hire for use as rolling stock moving in interstate commerce and equipment operated by a telecommunications provider, licensed as a common carrier by the Federal Communications Commission, which is permanently installed in or affixed to aircraft moving in interstate commerce, in accordance with the provisions of 86 Ill. Adm. Code 130.340, which are effective as if fully set forth in this subsection (s);

 

t)          a sale or transfer of tangible personal property as an incident to the rendering of service for owners, lessors or shippers of tangible personal property which is utilized by interstate carriers for hire for use as rolling stock moving in interstate commerce and equipment operated by a telecommunications provider, licensed as a common carrier by the Federal Communications Commission, which is permanently installed in or affixed to aircraft moving in interstate commerce, in accordance with the provisions of 86 Ill. Adm. Code 130.340, which are effective as if fully set forth in this subsection (t) (Section 2(d-1) of the Act);

 

u)         through June 30, 2003, the sale or transfer of distillation machinery and equipment, sold as a unit or kit and assembled or installed by the retailer, which machinery and equipment is certified by the user to be used only for the production of ethyl alcohol that will be used for consumption as motor fuel or as a component of motor fuel for the personal use of such user and not subject to sale or resale (Section 2(f) of the Act);

 

v)         sales by teacher-sponsored student organizations affiliated with Illinois elementary and secondary schools, in accordance with the provisions of 86 Ill. Adm. Code 130.2006, which are effective as if fully set forth in this subsection (v) (Section 3-5(6) of the Act);

 

w)        sales of legal tender, currency, medallions, or gold or silver coinage issued by the State of Illinois, the government of the United States or any foreign country and bullion, which shall mean gold, silver or platinum in a bulk state with a purity of not less than 980 parts per 1,000.  In no circumstance shall items sold as jewelry or mounted for wear as jewelry qualify for this exemption (Section 3-5(4) of the Act);

 

x)         sales of modified or custom software are exempt.  Sales of canned software in a service transaction are subject to tax.  Computer software means all types of software including operational, applicational, utilities, compilers, templates, shells and all other forms.  Software is considered to be tangible personal property regardless of the form in which it is transferred or transmitted, including tape, disc, card, electronic means or other media.  The sale at retail or transfer of canned software intended for general or repeated use is taxable, including the sale of software which is subject to manufacturer licenses restricting the use or reproduction of the software.  Tax applies to the entire charge made to the customer, including charges for all associated documentation and materials.  Charges for updates and maintenance of software are considered to be sales of software.  Charges for training, telephone assistance, installation and consultation are exempt if they are separately stated from the selling price of software.  For purposes of this subsection, the provisions of 86 Ill. Adm. Code 130.1935 are effective as if fully set forth in this subsection (x);

 

y)         sales of semen used for artificial insemination of livestock for direct agricultural production.  Exemption certifications must be executed by the purchaser.  The certificate must include the seller's name and address, the purchaser's name and address, the purchaser's registration number with the Department, the purchaser's signature and date of signing, and a statement that the semen purchased will be used for artificial insemination of livestock for direct agricultural production.  The certificates shall be retained by the retailer and shall be made available to the Department for inspection or audit (Section 3-5(14) of the Act);

 

z)         beginning with taxable years ending on or after December 31, 1995 and ending with taxable years ending on or before December 31, 2004, sales of personal property that is donated for disaster relief to be used in a State or federally declared disaster area in Illinois or bordering Illinois by a manufacturer or retailer that is registered in this State to a corporation, society, association, foundation, or institution that has been issued a sales tax exemption identification number by the Department that assists victims of the disaster who reside within the declared disaster area.  Exemption certifications must be executed by the purchaser.  The certificate must include the seller's name and address, the purchaser's name and address, the purchaser's registration number with the Department, if applicable, the purchaser's signature and date of signing, a description of the items being purchased for donation, and a statement that the property purchased will be donated for disaster relief to be used in a State or federally declared disaster area in Illinois or bordering Illinois to a corporation, society, association, foundation, or institution that has been issued a sales tax exemption identification number by the Department that assists victims of the disaster who reside within the declared disaster area, and that entity's sales tax exemption identification number.  The certificates shall be retained by the retailer and shall be made available to the Department for inspection or audit (Section 3-5(18) of the Act);

 

aa)       beginning with taxable years ending on or after December 31, 1995 and ending with taxable years ending on or before December 31, 2004, sales of personal property that is used in the performance of infrastructure repairs in this State, including but not limited to municipal roads and streets, access roads, bridges, sidewalks, waste disposal systems, water and sewer line extensions, water distribution and purification facilities, storm water drainage and retention facilities, and sewage treatment facilities, resulting from a State or federally declared disaster in Illinois or bordering Illinois when such repairs are initiated on facilities located in the declared disaster area within six months after the disaster.  Exemption certifications must be executed by the purchaser.  The certificate must include the seller's name and address, the purchaser's name and address, the purchaser's registration number with the Department, if applicable, the purchaser's signature and date of signing, a description of the items being purchased, and a statement that the property purchased is for use in the performance of infrastructure repairs initiated on facilities located in the declared disaster area within six months after the disaster in this State resulting from a State or federally declared disaster area in Illinois or bordering Illinois.  The certificates shall be retained by the retailer and shall be made available to the Department for inspection or audit (Section 3-5(19) of the Act);

 

bb)       beginning July 20, 1999, game or game birds purchased incident to a sale of service at:

 

1)         a game breeding and hunting preserve area licensed by the Department of Natural Resources (see Section 3.27 of the Wildlife Code [520 ILCS 5/3.27]),

 

2)         an exotic game hunting area licensed by the Department of Natural Resources (see Section 3.34 of the Wildlife Code [520 ILCS 5/3.34]), or

 

3)         a hunting enclosure approved through rules adopted by the Department of Natural Resources (Section 3-5 of the Act);

 

cc)       until June 30, 2013, fuel and petroleum products sold to or used by an air common carrier, certified by the carrier to be used for consumption, shipment, or storage in the conduct of its business as an air common carrier, for a flight destined for or returning from a location or locations outside the United States without regard to previous or subsequent domestic stopovers.  Beginning July 1, 2013, fuel and petroleum products sold to or used by an air carrier, certified by the carrier to be used for consumption, shipment, or storage in the conduct of its business as an air common carrier, for a flight that (i) is engaged in foreign trade or is engaged in trade between the United States and any of its possessions and (ii) transports at least one individual or package for hire from the city of origination to the city of final destination on the same aircraft, without regard to a change in the flight number of that aircraft. (Section 3-5(8) of the Act);

 

dd)      proceeds of mandatory service charges separately stated on customers' bills for the purchase and consumption of food and beverages, to the extent that the proceeds of the service charge are in fact turned over as tips or as a substitute for tips to the employees who participate directly in preparing, serving, hosting or cleaning up the food or beverage function with respect to which the service charge is imposed (Section 3-5(9) of the Act);

 

ee)       photoprocessing machinery and equipment, including repair and replacement parts, both new and used, including that manufactured on special order, certified by the purchaser to be used primarily for photoprocessing, as photoprocessing is defined in Section 3-15 of the Act, and including photoprocessing machinery and equipment purchased for lease (Section 3-5(11) of the Act);

 

ff)        horses, or interests in horses, registered with and meeting the requirements of any of the Arabian Horse Club Registry of America, Appaloosa Horse Club, American Quarter Horse Association, United States Trotting Association, or Jockey Club, as appropriate, used for purposes of breeding or racing for prizes.  The exemption provided for under this subsection applies for all periods beginning May 30, 1995, but no claim for credit or refund is allowed on or after January 1, 2008 for such taxes paid during the period beginning May 30, 2000 and ending on January 1, 2008. (Section 3-5(15) of the Act);

 

gg)       effective January 1, 1996 through December 31, 2000, and on and after August 2, 2001, computers and communications equipment utilized for any hospital purpose and equipment used in the diagnosis, analysis, or treatment of hospital patients sold to a lessor who leases the equipment, under a lease of one year or longer executed or in effect at the time of the purchase, to a hospital that has been issued an active tax exemption identification number by the Department under Section 1g of the Retailers' Occupation Tax Act in accordance with the provisions of 86 Ill. Adm. Code 130.2011, which are effective as fully as if set forth in this subsection (gg) (Section 3-5(16) of the Act);

 

hh)       effective January 1, 1996 through December 31, 2000, and on and after August 2, 2001, personal property sold to a lessor who leases the property, under a lease of one year or longer executed or in effect at the time of the purchase, to a governmental body that has been issued an active tax exemption identification number by the Department under Section 1g of the Retailers' Occupation Tax Act, in accordance with the provisions of 86 Ill. Adm. Code 130.2012, which are effective as fully as if set forth in this subsection (hh) (Section 3-5(17) of the Act);

 

ii)         through June 30, 2003, aggregate exploration, mining, off-highway hauling, processing, maintenance, and reclamation equipment, including replacement parts and equipment, and including equipment purchased for lease, but excluding motor vehicles required to be registered under the Illinois Vehicle Code, in accordance with the provisions of 86 Ill. Adm. Code 130.351, which are effective as fully as if set forth in this subsection (ii) (Section 3-7 of the Act).  See subsection (r);

 

jj)         effective August 20, 1999, sales of a motor vehicle, as that term is defined in Section 1-146 of the Illinois Vehicle Code, that is donated to a corporation, limited liability company, society, association, foundation, or institution that is determined by the Department to be organized and operated exclusively for educational purposes.  For purposes of this exemption, a "corporation, limited liability company, society, association, foundation, or institution organized and operated exclusively for educational purposes" means all tax-supported public schools, private schools that offer systematic instruction in useful branches of learning by methods common to public schools and that compare favorably in their scope and intensity with the course of study presented in tax-supported schools, and vocational or technical schools or institutes organized and operated exclusively to provide a course of study of not less than 6 weeks duration and designed to prepare individuals to follow a trade or to pursue a manual, technical, mechanical, industrial, business, or commercial occupation. (Section 3-5 of the Act). Exemption certificates must be executed by the purchaser.  The certificate must include the seller's name and address, the purchaser's name and address, the purchaser's registration number with the Department, if applicable, the purchaser's signature and date of signing, a description of the motor vehicle that is being purchased for immediate donation to a corporation, limited liability company, society, association, foundation, or institution that is determined by the Department to be organized and operated exclusively for educational purposes (see 86 Ill. Adm. Code 130.2005), such entity's tax exemption identification number, and a statement that the motor vehicle is being purchased for immediate donation to a corporation, limited liability company, society, association, foundation, or institution that is determined by the Department to be organized and operated exclusively for educational purposes.  The certificates shall be retained by the retailer and made available to the Department for inspection or audit;

 

kk)       beginning January 1, 1992 and through June 30, 2016, food for human consumption that is to be consumed off the premises where it is sold (other than alcoholic beverages, soft drinks and food that has been prepared for immediate consumption) and prescription and non-prescription medicine, drugs, medical appliances, and insulin, urine testing materials, syringes, and needles used by diabetics, for human use, when purchased for use by a person receiving medical assistance under Article V of the Illinois Public Aid Code [305 ILCS 5/Art. V] who resides in a licensed long-term care facility, as defined in the Nursing Home Care Act [210 ILCS 45] (Section 3-5(13) of the Act);

 

ll)         beginning January 1, 2000, personal property, including food, purchased through fundraising events for the benefit of a public or private elementary or secondary school, a group of those schools, or one or more school districts if the events are sponsored by an entity recognized by the school district that consists primarily of volunteers and includes parents and teachers of the school children.  This subsection (ll) does not apply to fundraising events:

 

1)         for the benefit of private home instruction; or

 

2)         for which the fundraising entity purchases the personal property sold at the events from another individual or entity that sold the property for the purpose of resale by the fundraising entity and that profits from the sale to the fundraising entity (Section 3-5 of the Act).  For purposes of this subsection, the provisions of 86 Ill. Adm. Code 130.2009 are effective as if fully set forth in this subsection (ll);

 

mm)     until December 31, 2003, jet fuel and petroleum products sold to and used in the conduct of the business of sorting, handling and redistribution of mail, freight, cargo or other parcels in the operation of a high impact service facility located within an enterprise zone established pursuant to the Illinois Enterprise Zone Act [20 ILCS 655], provided that the business enterprise has waived its right to a tax exemption of the charges imposed under Section 9-222.1 of the Public Utilities Act [220 ILCS 5/9-222.1] (Section 12 of the Act, referencing Section 1j.1 of the Retailers' Occupation Tax Act, 35 ILCS 120/1j.1).  High impact service facilities qualifying under the Act and seeking the exemption for such jet fuel and petroleum products shall be ineligible for the exemptions of taxes imposed under Section 9-222.1 of the Public Utilities Act.  High impact service facilities qualifying under the Act and seeking the exemption under Section 9-222.1 of the Public Utilities Act shall be ineligible for the exemption for jet fuel and petroleum products described in this subsection.  The certification of eligibility issued to the high impact service facility by the Department of Commerce and Community Affairs for exemption shall be presented by the high impact service facility to its supplier when making the purchase of jet fuel and petroleum products for which an exemption is granted, together with a certification by the high impact service facility that such jet fuel and petroleum product is exempt from taxation under Section 1j.1 of the Retailers' Occupation Tax Act, and by indicating the exempt status of each subsequent purchase on the face of the purchase order. (Section 1i of the Act) (Section 12 of the Act, incorporating Section 1i of the Retailers' Occupation Tax Act [35 ILCS 120/li]);

 

nn)       beginning January 1, 2000 through December 31, 2001, new or used automatic vending machines that prepare and serve hot food and beverages, including coffee, soup, and other items, and replacement parts for these machines.  Beginning January 1, 2002 and through June 30, 2003, machines and parts for machines used in commercial, coin-operated amusement and vending business if a use or occupation tax is paid on the gross receipts from the use of the commercial, coin-operated amusement and vending machines. [35 ILCS 115/3-5 (23)]  For purposes of this subsection, the provisions of 86 Ill. Adm. Code 130.332 are effective as if fully set forth in this subsection (nn).

 

oo)       beginning January 1, 2010 and continuing through December 31, 2024, materials, parts, equipment, components, and furnishings incorporated into or upon an aircraft as part of the modification, refurbishment, completion, replacement, repair, or maintenance of the aircraft.  This exemption includes consumable supplies used in the modification, refurbishment, completion, replacement, repair, and maintenance of aircraft, but excludes any materials, parts, equipment, components, and consumable supplies used in the modification, replacement, repair, and maintenance of aircraft engines or power plants, whether such engines or power plants are installed or uninstalled upon any such aircraft.  It is the intent of the General Assembly that the exemption under this paragraph (29) applies continuously from January 1, 2010 through December 31, 2024; however, no claim for credit or refund is allowed for taxes paid as a result of the disallowance of this exemption on or after January 1, 2015 and prior to February 5, 2020. [35 ILCS 115/3-5(29)].

 

pp)       beginning January 1, 2017 and through December 31, 2026, menstrual pads, tampons, and menstrual cups [35 ILCS 115/3-5(30)].

 

qq)       tangible personal property transferred to a purchaser who is exempt from tax by operation of federal law.  This paragraph is exempt from the provisions of Section 3-55. [35 ILCS 115/3-5(31)]

 

rr)        qualified tangible personal property used in the construction or operation of a data center that has been granted a certificate of exemption by the Department of Commerce and Economic Opportunity, whether that tangible personal property is purchased by the owner, operator, or tenant of the data center or by a contractor or subcontractor of the owner, operator, or tenant [35 ILCS 115/3-5(32)].

 

ss)        beginning January 1, 2008, tangible personal property used in the construction or maintenance of a community water supply, as defined under Section 3.145 of the Environmental Protection Act, that is operated by a not-for-profit corporation that holds a valid water supply permit issued under Title IV of the Environmental Protection Act.  This paragraph is exempt from the provisions of Section 3-55. [35 ILCS 115/3-5(27)].

 

tt)        tangible personal property sold to a public-facilities corporation, as described in Section 11-65-10 of the Illinois Municipal Code, for purposes of constructing or furnishing a municipal convention hall, but only if the legal title to the municipal convention hall is transferred to the municipality without any further consideration by or on behalf of the municipality at the time of the completion of the municipal convention hall or upon the retirement or redemption of any bonds or other debt instruments issued by the public-facilities corporation in connection with the development of the municipal convention hall.  This exemption includes existing public-facilities corporations as provided in Section 11-65-25 of the Illinois Municipal Code.  This paragraph is exempt from the provisions of Section 3-55.  [35 ILCS 115/3-5(28)]

 

uu)       tangible personal property sold to or used by a hospital owner that owns one or more hospitals licensed under the Hospital Licensing Act or operated under the University of Illinois Hospital Act, or a hospital affiliate that is not already exempt under another provision of this Act and meets the criteria for an exemption under this Section, is exempt from taxation under this Act. [35 ILCS 115/3-8]

 

vv)       Beginning July 1, 2022, breast pumps, breast pump collection and storage supplies, and breast pump kits.  As used in this subsection (vv):

 

"Breast pump" means an electrically controlled or manually controlled pump device designed or marketed to be used to express milk from a human breast during lactation, including the pump device and any battery, AC adapter, or other power supply unit that is used to power the pump device and is packaged and sold with the pump device at the time of sale.

 

"Breast pump collection and storage supplies" means items of tangible personal property designed or marketed to be used in conjunction with a breast pump to collect milk expressed from a human breast and to store collected milk until it is ready for consumption.

 

"Breast pump collection and storage supplies" includes, but is not limited to: breast shields and breast shield connectors; breast pump tubes and tubing adapters; breast pump valves and membranes; backflow protectors and backflow protector adaptors; bottles and bottle caps specific to the operation of the breast pump; and breast milk storage bags.

 

"Breast pump collection and storage supplies" does not include: (1) bottles and bottle caps not specific to the operation of the breast pump; (2) breast pump travel bags and other similar carrying accessories, including ice packs, labels, and other similar products; (3) breast pump cleaning supplies; (4) nursing bras, bra pads, breast shells, and other similar products; and (5) creams, ointments, and other similar products that relieve breastfeeding-related symptoms or conditions of the breasts or nipples, unless sold as part of a breast pump kit that is pre-packaged by the breast pump manufacturer or distributor.

 

"Breast pump kit" means a kit that: (1) contains no more than a breast pump, breast pump collection and storage supplies, a rechargeable battery for operating the breast pump, a breastmilk cooler, bottle stands, ice packs, and a breast pump carrying case; and (2) is pre-packaged as a breast pump kit by the breast pump manufacturer or distributor.  This exemption is statutorily exempt from the sunset provisions of Section 3-55. [P.A. 102-700, Article 70-15, Section 70-15, effective April 19, 2022]

 

ww)     Tangible personal property sold by or on behalf of the State Treasurer pursuant to the Revised Uniform Unclaimed Property Act [765 ILCS 1026].  This exemption is statutorily exempt from the sunset provisions of Section 3-55. (P.A. 102-1026, effective May 27, 2022)

 

(Source:  Amended at 47 Ill. Reg. 5251, effective March 21, 2023)

 

Section 140.126  Taxation of Food, Drugs and Medical Appliances

 

a)         Food for human consumption which is sold or transferred by a serviceman as an incident to a sale of service is generally subject to the high rate of tax (6.25%) if it is prepared for immediate consumption or is sold for consumption on the premises of the sale.  However, effective January 1, 1993, except for the period beginning July 1, 2022 and until July 1, 2023 as provided in Section 140.101(b)(1)(D), food prepared for immediate consumption and transferred incident to a sale of service by an entity licensed under the Hospital Licensing Act or the Nursing Home Care Act shall be subject to tax at the rate of 1%.  In addition, effective August 13, 1999, except for the period beginning July 1, 2022 and until July 1, 2023 as provided in Section 140.101(b)(1)(D), the 1% rate applies to food prepared for immediate consumption and transferred incident to a sale of service by an entity licensed under the Child Care Act of 1969.  Effective July 1, 2010 and through December 31, 2011, the 1% rate shall also apply to food prepared for immediate consumption and transferred incident to a sale of service by an entity licensed under the MR/DD Community Care Act.  Effective January 1, 2012, except for the period beginning July 1, 2022 and until July 1, 2023 as provided in Section 140.101(b)(1)(D), the 1% rate shall also apply to food prepared for immediate consumption and transferred incident to a sale of service by an entity licensed under the ID/DD Community Care Act.  Effective June 28, 2011, except for the period beginning July 1, 2022 and until July 1, 2023 as provided in Section 140.101(b)(1)(D), the 1% rate shall also apply to food prepared for immediate consumption and transferred incident to a sale of service by an entity licensed under the Specialized Mental Health Rehabilitation Act of 2013.  Effective July 29, 2015, except for the period beginning July 1, 2022 and until July 1, 2023 as provided in Section 140.101(b)(1)(D), the 1% rate shall also apply to food prepared for immediate consumption and transferred incident to a sale of service by an entity licensed under the MC/DD Act.  Effective June 17, 2021, except for the period beginning July 1, 2022 and until July 1, 2023 as provided in Section 140.101(b)(1)(D), the 1% rate shall also apply to food prepared for immediate consumption and transferred incident to a sale of service by an entity licensed under the Assisted Living and Shared Housing Act or an entity that holds a permit issued pursuant to the Life Care Facilities Act. (See Section 3-10 of the Act)

 

b)         Food for human consumption off the premises where sold, medicines, drugs and medical appliances.

 

1)         The tax shall also be imposed at the rate of 1% on food for human consumption that is to be consumed off the premises where it is sold (other than alcoholic beverages, food consisting of or infused with adult use cannabis, soft drinks, candy, and food that has been prepared for immediate consumption and is not otherwise included in subsection (a).  For purposes of this subsection, the provisions of 86 Ill. Adm. Code 130.310 are effective as if fully set forth in this subsection (b)(1).

 

2)         The tax shall be imposed at the rate of 1% on prescription and nonprescription medicines, drugs, medical appliances, products classified as Class III medical devices by the United States Food and Drug Administration that are used for cancer treatment pursuant to a prescription, as well as any accessories and components related to those devices, modifications to a motor vehicle for the purpose of rendering it usable by a person with a disability, and insulin, blood sugar testing materials, syringes, and needles used by human diabetics.  For purposes of this subsection, the provisions of 86 Ill. Adm. Code 130.311 are effective as if fully set forth in this subsection (b)(2). (Section 3-10 of the Act).

 

c)         If a serviceman purchases tangible personal property at retail from an unregistered out-of-State supplier that the serviceman does not transfer to service customers, but that the serviceman instead uses or consumes, the serviceman must self-assess Use Tax on that tangible personal property and remit Use Tax to the Department.  The rate is 6.25% for general merchandise and 1% for food, drugs and medical appliances.  (See Part 150, Use Tax.)  Similarly, if a de minimis serviceman paying Use Tax (see Section 140.108) makes purchases of tangible personal property that the de minimis serviceman will transfer to service customers from suppliers who do not charge Illinois tax, the de minimis serviceman must register to self-assess and remit Use Tax directly to the Department.  This would be the case, for example, when purchases were made from out-of-State suppliers not registered to collect Illinois tax.

 

1)         Example:  A doctor purchases tongue depressors from an out-of-State supplier who does not collect Illinois tax.  Since tongue depressors are not medical appliances, but rather are supplies used by the doctor, they are subject to Use Tax (6.25% rate), which must be self-assessed and remitted to the Department. The same would be true if the items were purchased from an Illinois retailer who did not charge tax for some reason.

 

2)         Example:  A dentist purchases gold for dental fillings.  If the dentist is at or above the 35% threshold, the dentist should purchase the gold with a resale certificate and pay Service Occupation Tax on the dentist’s selling price at a 1% rate (Section 140.106).  If the dentist is below the 35% threshold, the dentist may, as appropriate, pay either Use Tax or Service Occupation Tax at the 1% rate on the dentist’s cost price as described in Section 140.108 or 140.109.  If the dentist is a de minimis serviceman incurring a Use Tax liability on the dentist’s cost price and purchases gold from out-of-State suppliers, the dentist must self-assess and remit the Use Tax to the Department.  If the dentist is a de minimis serviceman incurring Service Occupation Tax liability on the dentist’s cost price, the dentist should provide the dentist’s suppliers with Certificates of Resale.

 

3)         Example:  An optometrist makes sales of prescription glasses and non-prescription sunglasses.  The sales of the non-prescription sunglasses are retail sales of general merchandise subject to Retailers' Occupation Tax at the 6.25% rate on the selling price.  The prescription eyeglasses, however, are medical appliances subject to the 1% rate. If the optometrist is at or above the 35% threshold, the optometrist should purchase the eyeglass components with a resale certificate and pay Service Occupation Tax on the optometrist’s selling price at a 1% rate (see Section 140.106).  If the optometrist is below the 35% threshold, the optometrist may pay Service Occupation Tax at the 1% rate on either the optometrist’s cost price as described in Section 140.109, or on the optometrist’s selling price as described in Section 140.106.  If the optometrist is a de minimis serviceman incurring Service Occupation Tax liability on the optometrist’s cost price, the optometrist should provide the optometrist’s suppliers with Certificates of Resale.  If the optometrist purchased the lenses from an optical lab which ground the lenses to the optometrist’s special order prescription, a multi-service situation would exist. See Section 140.145 for further information.

 

(Source:  Amended at 47 Ill. Reg. 5251, effective March 21, 2023)

 

Section 140.127  Service Provided to Persons Who Lease Tangible Personal Property to Exempt Hospitals

 

a)         Effective January 1, 1996 through December 31, 2000, and on and after August 2, 2001, computers and communications equipment utilized for any hospital purpose that are transferred incident to a sale of service to persons who lease those items to exempt hospitals are not subject to Service Occupation Tax. As noted in this subsection, the exemption is not available during the period January 1, 2001 through August 1, 2001 because it expired under the provisions of Section 3-55 of the Service Occupation Tax Act [35 ILCS 115/3-55] and was not reinstated until August 2, 2001.  The exemption is otherwise available, provided that:

 

1)         the computers and communications equipment described above must be leased to a tax exempt hospital under a lease that has been executed or is in effect at the time of purchase;

 

2)         the lease must be for a period of one year or longer; and

 

3)         the lease must be to a hospital that has an active tax exemption identification number issued by the Department under Section 1g of the Retailers' Occupation Tax Act (see 86 Ill. Adm. Code 130.2007).

 

b)         Effective January 1, 1996 through December 31, 2000, and on and after August 2, 2001, equipment, other than that specified in subsection (a), used in the diagnosis, analysis, or treatment of hospital patients that is transferred incident to a sale of service to persons who lease that equipment to exempt hospitals is not subject to Service Occupation Tax. As noted in this subsection, the exemption is not available during the period January 1, 2001 through August 1, 2001 because it expired under the provisions of Section 3-55 of the Service Occupation Tax Act [35 ILCS 115/3-55] and was not reinstated until August 2, 2001.  The exemption is otherwise available, provided that:

 

1)         the equipment described above must all be purchased for lease to a tax exempt hospital under a lease that has been executed or is in effect at the time of purchase;

 

2)         the lease must be for a period of one year or longer; and

 

3)         the lease must be to a hospital that has an active tax exemption identification number issued by the Department under Section 1g of the Retailers' Occupation Tax Act (see 86 Ill. Adm. Code 130.2007).

 

c)         The serviceman must retain the certification described below in his books and records to properly document the exemption described in this Section.

 

1)         When this exemption may be properly claimed for computer or other communications equipment, the service customer must give the serviceman a certification stating that the computer or other communications equipment is for lease to a tax exempt hospital under a lease for a period of one year or longer executed or in effect at the time of the purchase.

 

2)         When this exemption may be properly claimed for equipment used in the diagnosis, analysis, or treatment of hospital patients, the service customer must give the serviceman a certification stating that the equipment is being purchased for lease to a tax exempt hospital under a lease for a period of one year or longer executed or in effect at the time of the purchase, and that the equipment is for use in the diagnosis, analysis, or treatment of hospital patients.

 

3)         The certification described in subsections (c)(1) and (c)(2) of this Section must also contain all of the following:

 

A)        The serviceman's name and address;

 

B)        The service customer's name and address;

 

C)        A description of the tangible personal property being transferred incident to the sale of service;

 

D)        The service customer's signature and date of signing;

 

E)        The name and address of the hospital and its tax exemption identification number issued by the Department; and

 

F)         The date the lease was executed and the lease period.

 

d)         For purposes of this Section, "hospital patients" means persons who seek any form of medical care including, but not limited to, medical treatment, testing, diagnosis, or therapy at a hospital or at another location under the control and supervision of a hospital.  For example, persons who are sent by doctors for X-rays or other tests at qualifying hospitals, even though those persons are not admitted to those hospitals, are considered hospital patients.

 

(Source:  Amended at 26 Ill. Reg. 4905, effective March 15, 2002)

 

Section 140.128  Persons Who Lease Tangible Personal Property to Governmental Bodies

 

a)         Effective January 1, 1996 through December 31, 2000, and on and after August 2, 2001, tangible personal property transferred incident to a sale of service to a lessor who leases that property to a governmental body is not subject to Service Occupation Tax.  As noted in this subsection, the exemption is not available during the period January 1, 2001 through August 1, 2001 because it expired under the provisions of Section 3-55 of the Service Occupation Tax Act  [35 ILCS 115/3-55].  The exemption is otherwise available, provided that:

 

1)         the property must be leased to a governmental body under a lease that has been executed or is in effect at the time of purchase;

 

2)         the lease must be for a period of one year or longer; and

 

3)         The lease must be to a governmental body that has an active tax exemption identification number issued by the Department under Section 1g of the Retailers' Occupation Tax Act (see 86 Ill. Adm. Code 130.2007).

 

b)         When this exemption may be properly claimed, the service customer must give the serviceman a certification stating that the property is for lease to a governmental body, under a lease of one year or longer executed or in effect at the time of the purchase, and containing all of the following:

 

1)         The serviceman's name and address;

 

2)         The service customer's name and address;

 

3)         A description of the tangible personal property being purchased;

 

4)         The service customer's signature and date of signing;

 

5)         The name of the governmental body and its tax exemption identification number issued by the Department; and

 

6)         The date the lease was executed and the lease period.

 

(Source:  Amended at 26 Ill. Reg. 4905, effective March 15, 2002)

 

Section 140.129  Taxation of Seminar Materials

 

a)         Definitions

 

"Cost Price" means the consideration paid by a serviceman for a purchase valued in money, whether paid in money or otherwise, including cash, credits and services, and shall be determined without any deduction on account of his or her supplier's cost of the property sold or on account of any other expense incurred by the supplier.  When a serviceman contracts out part or all of the services required in the sale of service, it shall be presumed that the cost price to the serviceman of the property transferred to him or her by a subcontractor is equal to 50% of the subcontractor's charges to the serviceman in the absence of proof of the consideration paid by the subcontractor for the purchase of the property.  However, if a primary de minimis serviceman who incurs a Use Tax liability on his or her cost price subcontracts service work to a secondary de minimis serviceman who also incurs a Use Tax liability on the cost price, the primary serviceman will not incur Use Tax liability if the secondary de minimis serviceman has paid, or will remit, Illinois Use Tax on the cost price of any tangible personal property transferred to the primary serviceman and certifies that fact in writing to the primary de minimis serviceman.

 

"Non-Seminar Materials" means materials or items transferred incident to the presentation of a seminar but not related to the actual subject matter of the seminar presentation or necessary for participation in the seminar.  These items would include, but are not limited to, coffee mugs, briefcases or other promotional items.  Pencils, pens, pads of paper and similar items are considered items necessary for participation in the seminar.

 

"Seminar" means any presentation, conference, training program, or continuing education course designed for educational, informational, professional or recreational purposes.

 

"Seminar Attendance" occurs when a person is required to be physically at a specific location at a specific date and time in order to participate in the seminar.  For videoconferences and teleconferences, attendance occurs only when instant interactive communication with the speaker is available.

 

"Seminar Materials" mean any educational or informational material, and any other items of tangible personal property, prepared, compiled or otherwise obtained for distribution to seminar customers incident to the presentation of a seminar, or of a right to attend the seminar.  Seminar materials include, but are not limited to:  books, manuals, practice guides, study guides, outlines, audio and video tapes, compact discs, cassette tapes, and items related to the subject of the seminar.

 

"Seminar Provider" means a person, group, organization, association, or other legal entity that offers, organizes or presents seminars.  A seminar provider does not include an organization or institution granted a Department issued exemption identification number ("E" number) pursuant to 35 ILCS 120/1g of the Retailers' Occupation Tax Act when conducting a seminar or course of study in furtherance of its organizational purpose.

 

b)         Seminar Materials – Service Transactions

 

1)         Except as provided in subsection (c) of this Section, a seminar provider will incur either Service Occupation Tax or Use Tax liability on all seminar materials transferred during the presentation of a seminar for which a fee or other charge is made for attendance.  See the examples in subsection (b)(3) and Sections 140.101 through 140.109 of this Part for further information.  See subsection (f) for information regarding the tax liabilities of seminar providers conducting seminars for which no fee or other charge is made for attendance.  A serviceman's liability may be calculated in one of four ways:

 

A)        Service Occupation Tax on the separately stated selling price of tangible personal property transferred incident to service;

 

B)        Service Occupation Tax on 50% of the serviceman's entire bill;

 

C)        Service Occupation Tax on the serviceman's cost price of tangible personal property transferred incident to service if he or she is a registered de minimis serviceman; or

 

D)        Use Tax on the serviceman's cost price of tangible personal property transferred incident to service if he or she is a de minimis serviceman not otherwise required to be registered under Section 2a of the Retailers' Occupation Tax Act.  To determine the proper tax base for seminar materials transferred incident to the sale of service, see the examples in subsection (b)(3) and Sections 140.101 through 140.109 of this Part. 

 

2)         A serviceman is considered a "de minimis" serviceman if his or her aggregate annual cost price of tangible personal property transferred incident to service is less than 35% of the aggregate annual total gross receipts from all sales of service (or less than 75% in the case of servicemen transferring prescription drugs or engaged in graphic arts production).  See Section 140.105 for further information.

 

3)         Examples

 

A)        Unregistered De Minimis Serviceman.  The seminar provider is an unregistered de minimis serviceman as provided in Section 140.108 of this Part (e.g., he or she is unregistered because he or she does not sell tangible personal property at retail, nor has he or she chosen to become registered and remit Service Occupation Tax).  He or she presents a seminar on antiques appraisal in Illinois, and as a part of the seminar provides attendees with a manual, a chart and some graphs.  The provider purchases manuals at retail from a bookseller and the charts and graphs are photocopied at the seminar provider's office.  The seminar provider incurs Use Tax liability on his or her cost price of the manual (i.e., on the amount charged by the bookseller for the purchase of the manuals).  The seminar provider incurs Use Tax on the cost price of the paper and ink used to produce the chart and graphs (i.e., the amount charged by the office supply store for the paper and ink).  If tax is not paid to either of these suppliers, the seminar provider must self-assess and remit tax to the Department.  See Section 140.108 of this Part.  Please note:  if the seminar provider were to make any sales at retail, such as a videotape of the seminar sold outside the seminar, or an antiques appraisal booklet sold over the internet, he or she would not be eligible to pay tax as provided in this Example A and would instead be required to remit Service Occupation Tax to the Department on all his or her service sales as provided in subsections (b)(3)(B) through (D).

 

B)        Registered De Minimis Serviceman.  A seminar provider presents a seminar in Illinois, and as part of the seminar provides the attendees with a manual, a chart and some graphs.  The seminar provider is registered with the Department either because he or she has chosen to remit Service Occupation Tax or because he or she makes sales at retail and incurs Retailers' Occupation Tax.  He or she otherwise qualifies as a "de minimis" serviceman.  See Section 140.109 of this Part.  The seminar provider may remit Service Occupation Tax and any applicable local taxes to the Department on his or her cost price of the materials transferred as part of the seminar.  In this situation, the seminar provider is not authorized to pay tax to his or her suppliers.  He or she must instead provide the suppliers (the bookseller and the office supply store) with a Certificate of Resale for the purchase of materials transferred as part of the seminar.  The seminar provider must register and remit Service Occupation Tax to the Department on his or her cost price of the manuals, the paper and the ink.  If the seminar provider contracts with a print shop to photocopy the chart and graphs, the seminar provider would provide a Certificate of Resale to the print shop and then remit Service Occupation Tax to the Department on his or her cost price of the charts and graphs (i.e., on a lump sum invoice from the print shop, tax would be calculated on 50% of the total print shop bill). 

 

C)        Registered Serviceman Who Is Not De Minimis; Charge for Materials Not Separately Stated.  A seminar provider presents a seminar in Illinois for $500.  As a part of the seminar, he or she provides the attendees with manuals, a chart and some graphs.  The seminar provider is registered with the Department to remit Service Occupation Tax and his or her annual aggregate cost price of materials transferred incident to service is 45% of his or her total sales of service (he does not qualify as a "de minimis" serviceman).  The seminar provider does not separately state a charge for the seminar materials on the invoice to the seminar attendees.  The seminar provider incurs Service Occupation Tax and any applicable local taxes on 50% ($250) of the total invoice charged to the seminar attendees.  However, the tax base cannot be less than the serviceman's cost price.  If the serviceman's cost price of the materials transferred is $300, then the serviceman's tax base is $300.  See Section 140.106 of this Part.  In this situation, the seminar provider is not authorized to pay tax to his or her suppliers.  He or she must instead provide the suppliers with a Certificate of Resale for the purchase of the manuals, charts and graphs that are transferred as part of the seminar.

 

D)        Registered Serviceman Who Is Not De Minimis; Charge for Materials Separately Stated.  A seminar provider presents a seminar in Illinois and provides the attendees with a manual and some charts and graphs.  The total charge to the seminar attendees for the seminar is $125, which includes the price of the seminar materials.  On the invoice to the attendees, the seminar provider lists a charge for the seminar materials of $75.  The seminar provider is registered with the Department to remit Service Occupation Tax and his or her annual aggregate cost of materials transferred is 43% of total gross receipts from sales of service (he or she does not qualify as a "de minimis" serviceman).  The seminar provider incurs Service Occupation Tax and any applicable local taxes on the separately stated charge of $75.  However, the tax base cannot be less than the serviceman's cost price.  If the serviceman's cost price of the materials transferred is $85, then the serviceman's tax base is $85.  See Section 140.106 of this Part.  In this situation, the seminar provider is not authorized to pay tax to his or her suppliers.  He or she must instead provide the suppliers with a Certificate of Resale for the purchase of materials transferred as part of the seminar and remit tax to the Department as provided in this subsection (b)(3)(D). 

 

4)         Servicemen incurring Service Occupation Tax (e.g., subsections (b)(3)(B) through (D) of this Section) shall collect the Service Use Tax from customers.  Although not required unless requested by the service customer, the Service Use Tax may be separately stated as a distinct item on the service bill.  See 86 Ill. Adm. Code 160.115 for additional information.

 

5)         Credit for Taxes Paid in Error to Supplier.  Servicemen in subsections (b)(3)(B) through (D) are required to remit Service Occupation Tax to the Department and are not authorized to pay tax to suppliers.  However, if tax has been paid to a supplier, the serviceman may take a credit against his or her Service Occupation Tax liability for taxes paid in error to a supplier for the same tangible personal property that was transferred to seminar attendees incident to service.  It should be noted, however, that the serviceman will remain liable for any additional local taxes, if applicable.  This would be the case, for instance, if a not-for-profit professional association makes bulk purchases of paper and ink for general administrative purposes, pays Use Tax on those purchases, and then later uses a portion of that paper and ink to photocopy graphs or charts for distribution at a seminar as provided in subsections (b)(3)(B) through (D). 

 

c)         Seminar Materials – Retail Transactions

Transactions in which a seminar provider transfers seminar materials to a person without requiring his or her attendance are subject to Retailers' Occupation Tax liability.  The Retailers' Occupation Tax Act [35 ILCS 120] imposes a tax upon persons engaged in this State in the business of selling tangible personal property to purchasers for use or consumption.  See 86 Ill. Adm. Code 130.  The tax base is the selling price of the seminar materials transferred to the purchaser.  A seminar provider, however, does not incur Retailers' Occupation Tax liability for materials that are provided to a person who is registered to attend a seminar but who is unable to attend because of illness, inclement weather, or similar event. Examples:

 

1)         A seminar provider presents a seminar on how to capitalize on investments through use of the internet.  The charge to attend the seminar is $400.  However, the seminar provider makes the seminar materials available, without requiring attendance, for $175.  Sales of the seminar materials to persons who do not attend the seminar are subject to Retailers' Occupation Tax, and any applicable local taxes, on the $175 selling price of the seminar materials.

 

2)         A seminar provider presents a seminar for $400 on how to buy real estate.  During the seminar, the provider transfers manuals to the attendees.  The transfer of manuals to attendees during the seminar is considered a sale of service.  However, the provider also sells a videotape of the seminar presentation along with the manuals at a table outside the seminar room for a reduced selling price of $200.  The sale of the video presentation and manuals is subject to Retailers' Occupation Tax liability, and any applicable local taxes, on the $200 selling price.  The provider's sale of the videotapes disqualifies him or her from electing to handle the service tax liability by paying Use Tax to suppliers, as provided in subsection (b)(3)(A) of this Section.  He or she must instead remit Service Occupation Tax to the Department as provided in subsections (b)(3)(B) through (D).

 

d)         Non-Seminar Materials – When Subject to Retailers' Occupation Tax or Use Tax Liability

The sale of non-seminar materials by a seminar provider is subject to Retailers' Occupation Tax liability.  The gift of non-seminar materials by a seminar provider will result in the seminar provider incurring Use Tax liability on the cost price of those non-seminar materials.  Examples:

 

1)         Sales.  A seminar provider sells briefcases, coffee mugs, t-shirts, tote bags, and other novelty items.  The seminar provider would incur Retailers' Occupation Tax liability, including any applicable local tax liability, on the selling price of those items.  See 86 Ill. Adm. Code 130.100.

 

2)         Gifts − Items.  A seminar provider purchases calendars, coffee mugs and tote bags and gives the items to the seminar attendees without charge.  The seminar provider incurs Use Tax liability on the cost price of the items given as a gift.  See 86 Ill. Adm. Code 150.305(c).  A seminar provider may discharge his or her tax liability on these items by paying tax to an Illinois-registered supplier.  If the supplier is not registered to remit tax to Illinois (e.g., the items were purchased over the internet from a supplier not registered to remit tax to Illinois), the seminar provider must self-assess and remit Use Tax directly to the Department.

 

3)         Gifts – Food and Beverage.  A seminar provider presents a seminar on the art of origami.  During the seminar, the provider makes coffee and doughnuts available to the attendees at no charge.  The seminar provider incurs Use Tax liability on the cost price of the coffee and doughnuts.  If the seminar provider purchased the doughnuts and coffee at a local supermarket and paid tax at the time of purchase, his or her Use Tax liability has been discharged.  If the coffee and doughnuts were purchased from a caterer (or other provider of food and beverages, including, but not limited to, a hotel), the seminar provider's liability is discharged when he or she pays tax to the caterer.  If the seminar provider does not remit tax to a supermarket or caterer as noted in this subsection (d)(3), he or she must self-assess and remit Use Tax to the Department.  See 86 Ill. Adm. Code 150.305(c) for further information.

 

e)         Exempt Organizations – When Subject to Retailers' Occupation Tax, Service Occupation Tax, or Use Tax Liability

An organization that has been granted a Department issued E-number pursuant to 35 ILCS 120/1g of the Retailers' Occupation Tax Act may incur Retailers' Occupation Tax, Use Tax, or Service Occupation Tax liability as described in this Section if the seminar presented by the organization is not in furtherance of the organization's purpose.  Organizations granted Department issued E-numbers that present seminars that are in furtherance of organizational purposes are not considered to be "seminar providers" for purposes of the tax liability incurred on seminar materials as explained in this Section.  However, if an exempt entity engages in selling tangible personal property at a seminar, Retailers' Occupation Tax liability will be incurred on the sale of the tangible personal property unless the selling is one of the three types of limited selling authorized for exempt entities as provided in 86 Ill. Adm. Code 130.2005(a)(1) through (4).  Examples:

 

1)         A health services group that has been granted a Department issued E-number presents a seminar on automobile repair.  The health services group would be subject to tax under this Section because automobile repair is not an organizational purpose of the group.

 

2)         A church that has been granted a Department issued E-number presents a seminar in furtherance of its organizational purpose on the teachings of religious scholars.  The church would not incur tax liability because it is not included in the definition of a seminar provider under this Section when presenting a seminar in furtherance of its organizational purpose.

 

3)         An organization whose purpose is to promote heart health, and that has been granted a Department issued E-number, sponsors a heart health seminar on Valentine's Day.  During break, the organization sells red roses as a fundraiser.  The charges for the seminar are not taxable because the organization is not considered a seminar provider under this Section when presenting a seminar in furtherance of its organizational purpose.  However, the sale of the roses is subject to Retailers' Occupation Tax unless it is one of the organization's two annual authorized tax exempt fundraising events. 

 

f)         Seminars for Which No Charge Is Made for Attendance

If a seminar provider does not impose a charge for attendance, no sale of service occurs under the Service Occupation Tax.  However, the seminar provider is considered the end user of tangible personal property that he or she uses to conduct the seminar, including materials that are distributed to attendees, and generally incurs Use Tax liability on his or her cost price of such items.  Such items could include tangible personal property that the provider itself uses to conduct the seminar (e.g., a CD used to record information for a presentation; a laser pointer) or items that are provided to attendees (e.g., a binder; legal pads for notes; pencils; pens).  In the former instance, the seminar provider is considered the end user of such items because it consumes them in conducting the seminar.  In the latter instance, the seminar provider is considered to be the end user of these items because it is a donor of the items to attendees.  As a donor, it incurs a Use Tax liability.  See 86 Ill. Adm. Code 150.305(c).  If the seminar provider does not pay tax to its suppliers on these items (e.g., it purchased them over the internet from a supplier not registered to collect and remit tax to the Department), the seminar provider is required to self-assess and remit tax to the Department.  A seminar provider that has obtained an E-number from the Department and conducts a seminar in furtherance of its organizational purpose may make tax-free purchases of tangible personal property for use at the seminar, including donations, by providing suppliers with its E-number.

 

(Source:  Added at 32 Ill. Reg. 13845, effective August 11, 2008)

 

Section 140.130  Suppliers of Printers (Repealed)

 

(Source:  Repealed at 14 Ill. Reg. 262, effective January 1, 1990)

 

Section 140.135  Sales of Drugs and Related Items, to or by Pharmacists (Repealed)

 

(Source:  Repealed at 25 Ill. Reg. 4971, effective March 23, 2001)

 

Section 140.140  Other Examples of Taxable Transactions

 

a)         Sales of metal, wood, rubber and other ingredients by special tool, die, pattern and machinery producers who incorporate them into such products in such a manner as to be exempt from the Retailers' Occupation Tax Act, if the products are produced for users and delivered in Illinois (see Section 140.101(g), Service Occupation Tax);

 

b)         sales of bandages*, medicines*, drugs* and other tangible personal property by doctors to patients as an incident to the furnishing of professional services in Illinois;

 

c)         sales of medicines*, drugs*, dentures*, materials for fillings and other tangible personal property by dentists to patients as an incident to the furnishing of professional services in Illinois;

 

d)         sales of arch supports*, trusses*, braces*, etc., by chiropodists, osteopaths and chiropractors as an incident to the furnishing of licensed services in Illinois;

 

e)         sales of collar supports, coat hangers, suit bags, paper, string, shirtboards, and other tangible personal property by laundries and dry cleaners as an incident to the furnishing of laundering and cleaning services in Illinois;

 

f)         sales of paper bags, wrapping paper, string and other tangible personal property as an incident to the furnishing of wrapping services in Illinois;

 

g)         sales of hair tonic and oil, pomades, powders, dyes, lotions, creams and other similar tangible personal property by barbers and beauticians as an incident to the furnishing of services in Illinois in such a way that the property remains on the person of the customer of the barber or beautician;

 

h)         sales of eyeglasses* and frames* by optometrists and oculists to customers as an incident to the furnishing of licensed services in Illinois; however, when the optometrist or oculist purchases the eyeglasses or frames in finished form from an optician, so that the optometrist or oculist has subcontracted a portion of his service work to the optician thus giving rise to a multi-service situation, see Section 140.145 of this Subpart;

 

i)          sales of book binding by bookbinders and other tangible personal property by graphic arts servicemen in Illinois as an incident to the furnishing of services;

 

j)          sales of paint, wax, undercoating, oil, grease, filters, parts and other similar tangible personal property by automobile servicemen or other servicemen as an incident to the furnishing of services in Illinois;

 

k)         sales of wax and shoe polish by shoe shiners as an incident to the furnishing of shoe shining services;

 

l)          sales of repair parts, repair materials and other tangible personal property by persons who repair, remodel or recondition tangible personal property for others, as an incident to their furnishing of service to their customers; however, such purchases of repair parts and repair materials are not taxable when made by a railroad which will dispose of such parts or materials on a nonprofit basis by installing them, as a repairman, in cars belonging to another railroad at interchange points in connection with the interchange of traffic;

 

m)        sales of food, medicine* and other tangible personal property by business-operated hospitals and sanitaria or by licensed business-operated nursing homes as an incident to rendering hospital or nursing service in Illinois to patients;

 

n)         transfers of prizes by theaters as an incident to service;

 

o)         transfers of embalming fluid by funeral directors as an incident to their providing of an embalming service to others;

 

p)         transfers of dye as an incident to rendering service by persons engaged in the service occupation of dyeing clothing for users;

 

q)         sales of tangible personal property by sign makers as an incident to rendering service in the production of signs which are special enough to be exempt from the Retailers' Occupation Tax under Section 130.2155 of the Retailers' Occupation Tax (86 Ill. Adm. Code 130);

 

r)          sales made by servicemen as an incident to sales of service to national banks or State-chartered banks or to Federal or State savings and loan associations, and sales made by State-chartered banks or Federal and State savings and loan associations as an incident to sales of service.  Sales by national banks as an incident to sales of service are also subject to Service Occupation Tax.  Servicemen are not liable for Service Occupation Tax on tangible personal property transferred incident to sales of service to a purchaser who is exempt from the tax imposed by the Act by operation of federal law [35 ILCS 115/3-5(31)];

 

s)         transfers of fertilizers, pesticides and lawn care chemicals incident to service provided under contracts to maintain lawns, trees, shrubs and other plants.

 

t)          The foregoing examples are illustrative, but not exhaustive.

AGENCY NOTE:  Items with asterisks (*) are subject to 1% rate only.

 

(Source:  Amended at 47 Ill. Reg. 5251, effective March 21, 2023)

 

Section 140.141  Warranty Repairs

 

a)         Transfers of repair parts, repair materials and other tangible personal property by persons who repair tangible personal property belonging to others as an incident of furnishing repair services are generally subject to tax under the Service Occupation Tax Act.  (See Section 140.140(1).)

 

b)         However, where a seller/warrantor (e.g., a retailer or a manufacturer) is required to make a repair to an item under the terms of a warranty included in the retail selling price of that item, the repair parts and materials transferred incident to the repair are not subject to tax.  This is because the warranty (and the work to be done under the warranty) was included as part of the retail selling price of the item and, as such, was subject to Retailers' Occupation Tax and Use Tax when the  item was sold at retail.  The warranty constitutes an agreement, included in the retail selling price of the item, that the item is free from defects in materials and workmanship and, if any such defect exists, it will be cured.  The warranty may be express or implied. So long as the seller/warrantor is obligated to make a repair under the terms of a warranty that was included in the retail selling price of the item, the repair is not subject to tax.  The following situations are examples.

 

1)         Manufacturer's Express Warranty.  When an item of tangible personal property is sold at retail, an express warranty from the manufacturer is often included in the selling price.  This express warranty obligates the manufacturer to correct defects in materials and workmanship during a specified timeframe.  When repairs are made under the terms of an express warranty, no tax is due and this is true whether the manufacturer makes the repairs or whether the manufacturer pays someone else to make the repairs.

 

2)         Safety Related Recall.  Sometimes, a particular product line is recalled by a manufacturer to correct a manufacturing defect that relates to product safety.  Such recalls can be made on the manufacturer's own initiative or as the result of a recommendation by a governmental agency such as the National Highway Traffic Safety Administration or the U.S. Consumer Product Safety Commission.  In either event, when repairs are made in this situation, no tax is incurred as a result of those repairs even if the repairs are not required by the manufacturer's express warranty.  This is so because manufacturers make an implied warranty that the items they sell are free from safety-related manufacturing defects.  Repairs made under safety related recalls are not taxable and this is true whether the manufacturer makes the repairs or pays someone else to make the repairs.

 

3)         Non-safety Related Recall.  Sometimes, a particular product line is recalled by a manufacturer to correct a non-safety related defect in materials and workmanship.  So long as the manufacturer is required to correct the defect as the result of an enforceable agreement included in the retail selling price of the item that the item was being purchased free of manufacturing defects and the repairs are necessary to correct a manufacturing defect, no tax liability is incurred as a result of the repair.  Again, this is true whether the manufacturer makes the repairs or pays someone else to make the repairs.  It is also true even if the repairs are required to be made outside the time limits contained in the manufacturer's express warranty.

 

c)         Repairs made by a seller (e.g., retailer or manufacturer) who is not obligated to make the repair under a warranty included in the retail selling price of the item result in tax liability.  The following situations are examples.

 

1)         Maintenance Agreements.  Maintenance agreements are contracts to provide repairs for a particular item within a stated time period and for a pre-determined fee.  The party agreeing to provide service under a maintenance agreement may or may not be a seller of the item.  However, the maintenance agreement is not included in the retail selling price of the item covered by the maintenance agreement and, for that reason, the selling price of the maintenance agreement is not subject to Retailers' Occupation Tax and Use Tax liability when the item is sold at retail.  Consequently, repairs made under a maintenance agreement result in tax liability.  (See 86 Ill. Adm. Code 140.301(b)(3); 35 ILCS 105/3-75 and 35 ILCS 120/2-55.)

 

2)         Extended Warranties.  Extended warranties are contracts to provide repairs for a particular item for a stated period of time after a manufacturer's express warranty has expired.  An extended warranty is not included in the selling price of the item covered by the extended warranty and, for that reason, the selling price of the extended warranty is not subject to Retailers' Occupation Tax and Use Tax liability when the item is sold at retail. Consequently, repairs made under an extended warranty result in tax liability. Extended warranties are a form of maintenance agreement and are subject to tax just as maintenance agreements are subject to tax.  (See 86 Ill. Adm. Code 140.301(b)(3); 35 ILCS 105/3-75 and 35 ILCS 120/2-55.)

 

3)         Goodwill Repairs. Goodwill repairs are repairs made by a seller for no charge that a seller is not obligated to make.

 

A)        If the seller makes the goodwill repair himself, no service situation exists.  This is so because the seller makes the repair for no charge and cannot be said to be making a sale of service.  Rather, in this situation, the seller is using repair parts to maintain the goodwill of a customer.  For that reason, the seller making the goodwill repair himself incurs a Use Tax liability based on his cost price of all tangible personal property used in making the repair, including the repair parts transferred to the customer.

 

B)        If the seller pays another person to make the goodwill repair, a service situation exists in which the person making the repairs is the serviceman and the seller is the service customer.  In this situation, the tax liabilities depend on the nature of the serviceman.

 

i)          If the serviceman is de minimis and is not required to be registered under Section 2a of the Retailers' Occupation Tax Act, the serviceman incurs a Use Tax liability based on his cost price of the parts transferred in making the repair.  (See 86 Ill. Adm. Code 140.108.)  In this situation, the seller (as the service customer) incurs no tax liability and the serviceman cannot charge "tax" to the seller.  (See 86 Ill. Adm. Code 140.108(a)(3).)

 

ii)         If the serviceman is de minimis and is required to be registered under Section 2a of the Retailers' Occupation Tax Act or is de minimus and is registered under the Service Occupation Tax Act, the serviceman incurs a Service Occupation Tax liability based on his cost price of the parts transferred incident to the repair.  (See 86 Ill. Adm. Code 140.109.)  In this situation, the seller (as the service customer) incurs a Service Use Tax liability that is to be collected by the serviceman.  The serviceman may show this Service Use Tax as a separate item on his billing to the seller (the service customer) but is not required to do so unless the seller (as the service customer) requests that it be so shown.  (See 86 Ill. Adm. Code 140.109(a)(4).)

 

iii)        If the serviceman incurs Service Occupation Tax on his selling price and separately states the selling price of the parts transferred in making the repair, the tax is based on the separately stated selling price of the parts (but not less than the serviceman's cost price of those parts).  (See 86 Ill. Adm. Code 140.106(a)(1).)  If the serviceman incurs Service Occupation Tax on his selling price and does not separately state the selling price of the parts, then the tax is incurred on 50% of the serviceman's entire service billing (but not less than the serviceman's cost price of the parts transferred).  (See 86 Ill. Adm. Code 140.106(a)(2).)  In these situations, the seller (as the service customer) incurs a Service Use Tax liability that is to be collected by the serviceman.  The serviceman may show this Service Use Tax as a separate item on his billing to the seller (the service customer) but is not required to do so unless the seller (as the service customer) requests that it be so shown.  (See 86 Ill. Adm. Code 140.106(e).)

 

(Source:  Added at 25 Ill. Reg. 6531, effective May 3, 2001)

 

Section 140.145  Multi-Service Situations

 

a)         Transactions between de minimis servicemen each paying Use Tax. Effective for sales made on and after August 14, 1996, if a primary de minimis serviceman who incurs a Use Tax liability on his cost price (described in Section 140.108 of this Part) subcontracts service work to a secondary de minimis serviceman who also incurs a Use Tax liability on his cost price, the primary de minimis serviceman does not incur a Use Tax liability if the secondary de minimis serviceman has paid, or will remit, Illinois Use Tax on his cost price of any tangible personal property transferred to the primary serviceman and certifies that fact in writing to the primary de minimis serviceman (Section 2g of the Act).  For example, a de minimis dentist paying Use Tax on his cost price who purchases dentures from a de minimis dental laboratory also paying Use Tax on its cost price will not incur Use Tax liability if the de minimis dental laboratory pays, or agrees to remit, Illinois Use Tax on its cost price of the items used to fabricate the dentures, and certifies this fact in writing to the de minimis dentist.

 

b)         The certification provided by the secondary de minimis serviceman described in subsection (a) shall contain the address of, and be signed and dated by, the secondary de minimis serviceman.  It shall certify that the secondary de minimis serviceman has paid, or will remit, Illinois Use Tax on the cost price of the tangible personal property transferred to the primary de minimis serviceman.  This certification may appear on the invoice to the primary de minimis serviceman.  The primary de minimis serviceman shall retain this certification in his books and records as provided in Section 140.701 of this Part.

 

c)         Multi-service transactions between registered servicemen.  Primary servicemen who are registered with the Department, regardless of whether they are de minimis servicemen paying Service Occupation Tax on their cost price or servicemen paying tax on their selling price, should provide Certificates of Resale to secondary servicemen who are also registered.

 

d)         Multi-service transactions between registered and unregistered servicemen each located in Illinois.  If a registered primary serviceman located in Illinois farms out service work to a secondary serviceman located in Illinois who is not registered and has opted to incur Use Tax as described in Section 140.108 of this Part, tax will be incurred and remitted to the Department at two levels.  The secondary de minimis serviceman will pay Use Tax to his supplier on the tangible personal property transferred to the primary serviceman.  Normally, the primary serviceman would provide a Certificate of Resale to the secondary serviceman to whom he farms out work, for the tangible personal property he transfers to his service customers.  However, in this instance, the unregistered secondary serviceman is not authorized to accept Certificates of Resale from his customers (see Section 140.108(a) of this Part).  As a result, the registered primary serviceman cannot provide a Certificate of Resale to the unregistered secondary serviceman.  When the registered primary serviceman makes a sale of service to his service customer, he will incur Service Occupation Tax on either his selling price or his cost price.  Because, in these instances, the two servicemen are either not both registered or unregistered, tax will be paid twice to the Department.

 

e)         Servicemen engaging in multi-service transactions are urged to utilize one of the methods described in subsection (a) or (c) of this Section.  Use of either of these methods prevents the likelihood of tax being incurred by both servicemen, as described in subsection (d) of this Section.

 

f)         Except as provided in subsection (a) of this Section, when a primary serviceman purchases tangible personal property from a secondary serviceman, the primary serviceman shall determine his cost price either by using the separately stated selling price of tangible personal property set forth on the invoice from the secondary serviceman or, if no selling price is separately stated, 50% of the total invoice including labor and service charges, in the absence of proof (e.g., the secondary serviceman's purchase invoices showing his cost price) of the consideration paid by the secondary serviceman for the purchase of such property.

 

(Source:  Amended at 25 Ill. Reg. 4971, effective March 23, 2001)

SUBPART B: DEFINITIONS

 

Section 140.201  General Definitions

 

a)         "Act" means the Service Occupation Tax [35 ILCS 115].

 

b)         "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 shall 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; but does not include charges which are added to prices by suppliers on account of the purchaser's tax liability under the Act or the Service Use Tax Act [35 ILCS 110]. Except as provided in Section 140.145(a), when a serviceman contracts out part or all of the services required in his sale of service, it shall be presumed that the cost price to the serviceman of the property transferred to him by his subcontractor is equal to 50% of the subcontractor's charges to the serviceman in the absence of proof of the consideration paid by the subcontractor for the purchase of such property.  (Section 2 of the Act)

 

c)         "De minimis serviceman" means a serviceman whose annual aggregate cost price of tangible personal property transferred incident to sales of service is less than 35% (75% in the case of servicemen transferring prescription drugs or servicemen engaged in graphic arts production) of the aggregate annual total gross receipts from all sales of service.  See Section 140.105 for the method used to determine de minimis status.

 

d)         "Department" means the Illinois Department of Revenue.

 

e)         "Person" means any natural individual, firm, partnership, association, joint stock company, limited liability company, joint venture, public or private corporation, and any receiver, executor, trustee, conservator or other representative appointed by order of any court. (Section 2 of the Act)

 

f)         "Sale at Retail" means "sale at retail" as defined in Section 1 of the Retailers' Occupation Tax Act [35 ILCS 120].

 

g)         "Sale of Service" means any transaction except:

 

1)         a retail sale of tangible personal property taxable under the Retailers' Occupation Tax Act or under the Use Tax Act (Section 2(a) of the Act);

 

2)         a sale of tangible personal property for the purpose of resale made in compliance with Section 2c of the Retailers' Occupation Tax Act (Section 2(b) of the Act);

 

3)         a sale or transfer of tangible personal property as an incident to the rendering of service for or by any governmental body or for or by any corporation, society, association, foundation or institution organized and operated exclusively for charitable, religious or educational purposes or for or by any not-for-profit corporation, society, association, foundation, institution or organization which has no compensated officers and employees and which is organized and operated primarily for the recreation of persons 55 years of age or older.  A limited liability company may qualify for the exemption under the Act only if the limited liability company is organized and operated exclusively for educational purposes. (Section 2(c) of the Act) Effective July 1, 1987, this exception will not apply unless the entities noted above have an active exemption identification number issued by the Department (Section 2 of the Act);

 

4)         a sale or transfer of tangible personal property as an incident to the rendering of service for owners, lessors or shippers of tangible personal property which is utilized by interstate carriers for hire for use as rolling stock moving in interstate commerce, and equipment operated by a telecommunications provider, licensed as a common carrier by the Federal Communications Commission, which is permanently installed in or affixed to aircraft moving in interstate commerce.  This exemption is administered in accordance with the provisions of 86 Ill. Adm. Code 130.340 (Section 2(d-1) and Section 2d of the Act);

 

5)         a sale or transfer of machinery and equipment used primarily in the process of manufacturing or assembling, either in an existing, an expanded or a new manufacturing facility, of tangible personal property for wholesale or retail sale or lease, whether such sale or lease is made directly by the manufacturer or by some other person, whether the materials used in the process are owned by the manufacturer or some other person, or whether such sale or lease is made apart from or as an incident to the seller's engaging in a service occupation and the applicable tax is a Service Occupation Tax or Service Use Tax, rather than Retailers' Occupation Tax or Use Tax in accordance with the provisions of 86 Ill. Adm. Code 130.330 (Section 2(e) of the Act);

 

6)         at the election of any serviceman not required to be otherwise registered as a retailer under Section 2a of the Retailers' Occupation Tax Act, made for each fiscal year sales of service in which the aggregate annual cost price of tangible personal property transferred as an incident to the sales of service is less than 35% (75% in the case of servicemen transferring prescription drugs or servicemen engaged in graphic arts production) of the aggregate annual total gross receipts from all sales of service.  The purchase of such tangible personal property by the serviceman shall be subject to tax under the Retailers' Occupation Tax Act and the Use Tax Act (Section 2(g) of the Act);

 

7)         the repairing, reconditioning or remodeling, for a common carrier by rail, of tangible personal property which belongs to such carrier for hire, and as to which such carrier receives the physical possession of the repaired, reconditioned or remodeled item of tangible personal property in Illinois, and which such carrier transports, or shares with another common carrier in the transportation of such property, out of Illinois on a standard uniform bill of lading showing the person who repaired, reconditioned or remodeled the property as the shipper or consignor of such property to a destination outside Illinois, for use outside Illinois (Section 2(d-2) of the Act);

 

8)         a sale or transfer of tangible personal property which is produced by the seller thereof on special order in such a way as to have made the applicable tax the Service Occupation Tax or the Service Use Tax, rather than the Retailers' Occupation Tax or the Use Tax, for an interstate carrier by rail which receives the physical possession of such property in Illinois, and which transports such property, or shares with another common carrier in the transportation of such property, out of Illinois on a standard uniform bill of lading showing the seller of the property as the shipper or consignor of such property to a destination outside Illinois, for use outside Illinois (Section 2(d-3) of the Act).

 

h)         "Selling price" means 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, but does not include interest or finance charges that appear as separate items on the bill of sale or sales contract nor charges that are added to prices by sellers on account of the seller's duty to collect, from the purchaser, the tax that is imposed by the Act.  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.

 

i)          "Serviceman" means any person who is engaged in the occupation of making sales of service. (Section 2 of the Act)

 

i)          "Supplier" means any person who makes sales of tangible personal property to servicemen for the purpose of resale as an incident to a sale of service. (Section 2 of the Act)

 

(Source:  Amended at 48 Ill. Reg. 1939, effective January 18, 2024)

SUBPART C: BASE OF THE TAX

 

Section 140.301  Cost Price

 

a)         "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 shall 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; but does not include charges which are added to prices by suppliers on account of the purchaser's tax liability under this Act or the Service Use Tax Act [35 ILCS 110]. Except as provided in Section 140.145(a), when a serviceman contracts out part or all of the services required in his sale of service, it shall be presumed that the cost price to the serviceman of the property transferred to him by his subcontractor is equal to 50% of the subcontractor's charges to the serviceman in the absence of proof of the consideration paid by the subcontractor for the purchase of such property.

 

b)         The following listing describes the taxation of various charges that may be made by servicemen.

 

1)         Transportation and Delivery Charges

 

A)        Transportation and delivery charges are considered to be freight, express, mail, truck or other carrier, conveyance or delivery expenses.  Many times these charges are designated as shipping and handling charges.

 

B)        Whether amounts charged by a serviceman to his customers in order to secure delivery of the property to his customers are taxable depends upon the method used by the serviceman to calculate his tax liability.  Delivery charges made by a de minimis serviceman paying either Use Tax (see Section 140.108) or Service Occupation Tax (see Section 140.109) on his cost price are not taxable, since tax in these instances is incurred only on the cost price of the tangible personal property transferred to the service customer incident to a sale of service.  If, however, the serviceman remits Service Occupation Tax on his selling price, as provided in Section 140.106, delivery charges made to his customer may be taxable.  If the serviceman calculates his tax liability on the basis of the separately stated selling price of tangible personal property transferred to service customers, such delivery charges are not taxable. However, if the serviceman does not separately state the selling price of the tangible personal property transferred to the customer and, rather, calculates his liability on 50% of the entire service bill, delivery charges will become part of the tax base.

 

C)        Incoming Transportation Costs – Servicemen Who Incur Service Occupation Tax on Their Selling Price. Incoming freight or other delivery expense incurred by a serviceman remitting Service Occupation Tax on his selling price in acquiring property for sale may not be deducted from the selling price charged by the serviceman for the tangible personal property transferred to the customer even if this type of delivery expense is priced and billed separately on the bill to the customer. It represents a serviceman's cost of doing business, which is never deductible from gross receipts subject to tax.

 

D)        Incoming Transportation Costs – De Minimis Servicemen Who Incur Either Use Tax or Service Occupation Tax on Their Cost Price.  In contrast to servicemen paying tax on their selling price, de minimis servicemen generally pay Use Tax on the cost price of the tangible personal property they acquire for transfer to service customers.  Whether de minimis servicemen paying Use Tax to their suppliers are subject to tax on shipping charges made by their suppliers depends upon whether the supplier and the de minimis serviceman have a separate contract for delivery charges and whether the delivery charges are actually reflective of the costs of shipping, transportation and delivery.  If such charges are shown to be separately contracted for and reflective of actual shipping costs, they are not considered part of the cost price of the tangible personal property purchased by the serviceman.  The same rule applies to de minimis servicemen paying Service Occupation Tax on their cost price.  (See 86 Ill. Adm. Code 130.415.)

 

2)         Finance or Interest Charges – Penalties – Discounts

 

A)        Where any tangible personal property is sold by a supplier to a serviceman under an installment contract, the interest or finance charges on account of credit so extended are not considered to be a part of the cost price. The books and records of suppliers must clearly reflect such finance or interest charges.  In the absence of an adequate showing of what such charges actually are, the Department will presume that such charges are not in excess of like charges which are customarily made in connection with similar installment sales.

 

B)        If a "penalty" is added to the base cost price in the event that the serviceman does not pay such price within a specified time and if such penalty is paid to the supplier, such "penalty" is considered to be a part of the cost price.

 

C)        If a discount is allowed for a payment in cash within a stated period of time, any amounts realized by suppliers through failure of a serviceman to take advantage of such a discount will be considered to be a part of the cost price.  Conversely, if the supplier allows the serviceman a discount from the base cost price (such as a discount for prompt payment) and the serviceman avails himself of the discount so that the supplier does not receive any receipts from that source, the amount of such discount is not a part of the cost price.

 

3)         Maintenance Agreements.  If a serviceman enters into an agreement to provide repair service for a particular piece of equipment for a stated period for a predetermined fee, the serviceman shall pay Use Tax to his supplier (or to the Department if the supplier is not registered to collect tax) on the cost price of tangible personal property purchased for transfer by the serviceman incident to completion of the maintenance agreement (see Section 2 of the Act and Section 3-75 of the Use Tax Act). However, a serviceman will incur no tax liability on repairs made under a maintenance agreement for a person that is able to claim an exemption, either because of that person's exempt status (e.g., the person possesses an exemption identification number issued by the Department, such as the Federal or State government) or because the tangible personal property being repaired is exempt from tax (e.g., due to the manufacturing machinery, graphic arts or pollution control equipment exemptions).

 

(Source:  Amended at 25 Ill. Reg. 4971, effective March 23, 2001)

 

Section 140.305  Refunds by Serviceman

 

Where a serviceman has made a sale of service and has paid the applicable Service Occupation Tax to the Department, and then subsequently refunds to his customer the amount paid by the customer for the service and where such refund is the result of the return of tangible personal property previously transferred to the customer as an incident to that sale of service, the serviceman may take a deduction for the returned merchandise on his monthly return.

 

(Source:  Amended at 14 Ill. Reg. 262, effective January 1, 1990)

SUBPART D: TAX RETURNS

 

Section 140.401  Monthly Returns When Due – Contents of Returns

 

a)         Except as provided in Section 140.405 of this Subpart, on or before the twentieth day of each calendar month, every serviceman registered with the Department is required to file a return with the Department covering the preceding month, stating the name of the person filing the return, his residence address, the address of his or her principal place of business and the address of his or her principal place of business in this State (if that is a different address) and each address from which he or she engages in that taxable business as a serviceman.  When the serviceman has more than one business registered with the Department under separate registrations, that serviceman shall file separate returns for each separately registered business.  On and after January 1, 2018, with respect to servicemen whose annual gross receipts average $20,000 or more, all returns required to be filed pursuant to the Act shall be filed electronically.  Servicemen who demonstrate that they do not have access to the Internet or demonstrate hardship in filing electronically may petition the Department to waive the electronic filing requirement. [35 ILCS 115/9]

 

b)         Information Required in Taxpayer's Return.  A taxpayer's return shall disclose the following:

 

1)         total tax base for the return period;

 

2)         the amount of tax due;

 

3)         the total of the tax and penalty; and

 

4)         other information the Department may require on the tax form.

 

c)         1.75% Allowance to Serviceman for Collecting State Tax

After entering his or her State Service Occupation Tax liability on the return, the serviceman may then deduct 1.75% of that liability as compensation for acting as a collector of the tax.  The minimum discount, over the entire period of any given calendar year, for any single serviceman (if that serviceman has that much tax to remit) shall be $5.00 for the calendar year.  This allowance against the State tax is available only when the tax is remitted with a return that is filed when due under the Act; it is not available in any case in which the tax is paid late.  Servicemen required to file returns electronically pursuant to the Act who fail to file their returns electronically may not take the discount allowed to reimburse servicemen for the expenses incurred in keeping records, preparing and filing returns, remitting the tax and supplying data to the Department on request.

 

(Source:  Amended at 42 Ill. Reg. 19034, effective October 4, 2018)

 

Section 140.405  Annual Tax Returns

 

a)         If the serviceman's average monthly tax liability to the Department does not exceed $200.00, the Department may authorize his returns to be filed on a quarter annual basis, with the return for January, February and March of a given year being due by April 20 of such year; with the return for April, May and June of a given year being due by July 20 of such year; with the return for July, August and September of a given year being due by October 20 of such year, and with the return for October, November and December of a given year being due by January 20 of the following year.

 

b)         If the serviceman's average monthly tax liability to the Department does not exceed $50.00, the Department may authorize his returns to be filed on an annual basis, with the return for a given year being due by January 20 of the following year.

 

c)         Such quarter annual and annual returns, as to form and substance, shall be subject to the same requirements as monthly returns.

 

(Source:  Amended at 20 Ill. Reg. 7008, effective May 7, 1996)

 

Section 140.410  Final Return

 

Notwithstanding any other provision in the Act concerning the time within which a serviceman may file his return, in the case of any serviceman who ceases to engage in a kind of business which makes him responsible for filing returns under the Act, such serviceman shall file a final return under the Act with the Department not more than one month after discontinuing such business.

 

(Source:  Amended at 14 Ill. Reg. 262, effective January 1, 1990)

 

Section 140.415  Taxpayer's Duty to Obtain Form

 

Returns shall be filed on forms prescribed and furnished by the Department. It is the duty of the taxpayer to obtain forms, and failure to obtain them will not be an excuse for failure to file returns when and as required by law.

 

(Source:  Amended at 3 Ill. Reg. 44, p. 198, effective October 19, 1979)

 

Section 140.420  Annual Information Returns by Servicemen

 

a)         In addition to any other return required by the Act, each serviceman shall annually file an information return covering the preceding calendar year (or fiscal year if the serviceman files his Federal income tax returns on the basis of a fiscal year).  Such annual return shall be filed with the Department on a form prescribed by the Department not more than 30 days after the date set for the filing of such serviceman's Federal income tax return.  Such annual return to the Department shall include a statement of gross receipts as shown by the serviceman's last Federal income tax return.  If the total receipts of the business as reported in the Federal income tax return do not agree with the gross receipts reported to the Department of Revenue for the same period, the serviceman shall attach to his annual return a schedule showing a reconciliation of the 2 amounts and the reasons for the difference.  The serviceman's annual return to the Department shall also disclose the cost of goods sold by the serviceman during the year covered by such return, opening and closing inventories of such goods for such year, cost of goods used from stock or taken from stock and given away by the serviceman during such year, payroll information of the serviceman's business during such year and any additional reasonable information which the Department deems would be helpful in determining the accuracy of the monthly, quarterly or annual returns filed by such serviceman as hereinbefore provided for in this Section.

 

b)         The foregoing portion of this Section concerning the filing of an annual information return also does not apply to a serviceman who is not required to file an income tax return with the United States Government.

 

(Source:  Amended at 14 Ill. Reg. 262, effective January 1, 1990)

 

Section 140.425  Filing of Returns for Serviceman by their Suppliers Under Certain Circumstances

 

For greater simplicity of administration, it shall be permissible for manufacturers, importers and wholesalers whose products are sold by numerous servicemen in Illinois, and who wish to do so, to assume the responsibility for accounting and paying to the Department all tax accruing under the Act with respect to such sales, if the servicemen who are affected do not make written objection to the Department to this arrangement and provided that such arrangement in any given case is acceptable to the Department.

 

(Source:  Amended at 14 Ill. Reg. 262, effective January 1, 1990)

 

Section 140.430  Incorporation by Reference

 

86 Ill. Adm. Code 130.525, 130.530, 130.535, 130.545 and 130.560 are incorporated herein by reference and made a part hereof insofar as such Sections can be applied, without conflict, to comparable Service Occupation Tax situations.

 

(Source:  Amended at 14 Ill. Reg. 262, effective January 1, 1990)

SUBPART E: INTERSTATE COMMERCE

 

Section 140.501  Sales of Service Involving Property Originating in Illinois

 

a)         Where tangible personal property is located in this State at the time of its transfer (or is subsequently produced in Illinois) as an incident to a sale of service, and is then delivered in Illinois, the serviceman incurs Service Occupation Tax liability on the selling price of the property.  The sale is not deemed to be in interstate commerce if the purchaser or his representative receives the physical possession of such property in this State.  This is so notwithstanding the fact that the purchaser may, after receiving physical possession of the property in this State, transport or send the property out of the State for use outside the State or for use in the conduct of interstate commerce.  The place at which the contract of sale of the service or contract to sell the service is negotiated and executed and the place at which title to the property passes to the purchaser are immaterial.  The place at which the purchaser resides is also immaterial.  Except as is set out at Section 140.501(d) of this Part, it also makes no difference that the purchaser is a carrier when that happens to be the case.

 

b)         The serviceman does not incur Service Occupation Tax liability on property which he resells as an incident to a sale of service under an agreement by which the serviceman is obligated to make physical delivery of the goods from a point in this State to a point outside this State, not to be returned to a point within this State, provided that such delivery is actually made.  Nor does the tax apply to property which the serviceman resells as an incident to a sale of service under an agreement by which the serviceman, by carrier (when the carrier is not also the purchaser) or by mail, delivers the property from a point in this State to a point outside this State, not to be returned to a point within this State.  The place at which title to the property passes to the purchaser is immaterial.  The place at which the contract of sale of the service or contract to sell the service is negotiated and executed and the place at which the purchaser resides are also immaterial.  Sales of service of the type described in this paragraph are deemed to be within the protection of the Commerce Clause of the Constitution of the United States.

 

c)         To establish that the selling price of property sold as an incident to any given sale of service is exempt because the property is delivered by the serviceman from a point within this State to a point outside this State under the terms of an agreement with the purchaser, the serviceman will be required to retain in his records, to support deductions taken on his tax returns, proof which satisfies the Department that there was such an agreement and a bona fide delivery, outside this State, of the property involved in the sale of service.  The most acceptable proof of this fact will be:

 

1)         If shipped by a common carrier:  A waybill or bill of lading requiring delivery outside this State;

 

2)         if sent by mail:  An authorized receipt from the United States Post Office Department, for articles sent by registered mail, parcel post, ordinary mail or otherwise, showing the name of the addressee, the point outside Illinois to which the property is mailed and the date of such mailing; if the receipt does not comply with these requirements, other supporting evidence will be required;

 

3)         if sent by the serviceman's own transportation equipment:  A trip sheet signed by the person making delivery for the serviceman and showing the name, address and signature of the person to whom the goods were delivered outside this State; or, in lieu thereof, an affidavit signed by the purchaser or his representative, showing the name and address of the serviceman, the name and address of the purchaser and the time and place of such delivery outside Illinois by the serviceman, together with other supporting data as required by Section 140.701(c) of this Part and by Section 11 of the Act.

 

d)         Effective September 17, 1982, there are two exceptions to the rule that the tax is applicable where the service customer receives physical possession of the property in Illinois.

 

1)         The serviceman does not incur Service Occupation Tax liability with respect to items transferred as an incident to repairing, reconditioning or remodeling tangible personal property belonging to a common carrier by rail which takes delivery of the items in Illinois but which transports the items (or shares with another common carrier in transporting the items) out of Illinois on  a standard uniform bill of lading showing the serviceman as the shipper or consignor of the items to a destination outside Illinois for use outside Illinois (Section 2 of the Act).

 

2)         With respect to items produced for an interstate carrier by rail on special order (in such a way so that the applicable tax would be Service Occupation Tax rather than Retailers' Occupation Tax), no Service Occupation Tax liability is incurred if that interstate carrier by rail takes delivery of the items in Illinois but transports the items (or shares with another common carrier in transporting the items) out of Illinois on a standard uniform bill of lading showing the seller as the shipper or consignor of the item to a destination outside Illinois for use outside Illinois (Section 2 of the Act).

 

3)         The two exceptions described immediately above at subsections (d)(1) and (2) of this Section are also applicable to local Service Occupation Taxes imposed by home rule units or by the Regional Transportation Authority and the Metro East Mass Transit District.

 

(Source:  Amended at 14 Ill. Reg. 262, effective January 1, 1990)

 

Section 140.505  Sales of Service Involving Property Originating Outside of Illinois (Repealed)

 

(Source:  Repealed at 14 Ill. Reg. 262, effective January 1, 1990)

SUBPART F: REGISTRATION UNDER THE SERVICE OCCUPATION TAX ACT

 

Section 140.601  General Information

 

a)         Any supplier or serviceman maintaining a place of business in this State, who is required to collect or to pay to the Department (or who voluntarily does so) the Retailers' Occupation Tax, the Use Tax, the Service Occupation Tax or the Service Use Tax, is required to obtain only one Certificate of Registration from the Department.  Such certificate is valid for the purposes of all of said taxes.

 

b)         Every supplier and every serviceman maintaining a place of business in this State who does not already have such a certificate is required to apply for one to the Department upon a form furnished by the Department.  (For information on what constitutes "maintaining a place of business in this State", see Subpart E of this Part.)

 

c)         Each supplier and each serviceman who is registered with the Department must file with the Department a list of the names and addresses of all of his agents operating in this State and the location of any and all of his distribution or sales houses.

 

d)         A supplier who is not required to register under the Act may voluntarily register with the Department as a tax collector.  Such a supplier who voluntarily registers will then have all of the rights and duties of a supplier who is required to register under the Act, including the duty to collect and remit the tax.

 

e)         Subpart G of the Regulations promulgated under the Retailers' Occupation Tax Act (86 Ill. Adm. Code 130) is applicable, and is incorporated herein by reference, except for provisions concerning special requirements pertaining to vending machines.

 

(Source:  Amended at 6 Ill. Reg. 2897, effective March 3, 1982)

SUBPART G: BOOKS AND RECORDS

 

Section 140.701  Books and Records − Requirements

 

a)         Every supplier required or authorized to collect the tax imposed under the Act, and every serviceman making sales or transactions that are subject to the Act, shall keep all sales invoices, purchase orders, merchandise records and requisitions, inventory records, credit memos, debit memos, bills of lading, shipping records, and all other records pertaining to any and all purchases and sales of goods whether or not the supplier or serviceman believes them to be taxable under the Act; and the supplier or serviceman shall also keep summaries, recapitulations, totals, journal entries, ledger accounts, accounts receivable records, accounts payable records, statements, tax returns, and other documents listing, summarizing or pertaining to those sales, purchases, inventory changes, shipments or other transactions.

 

1)         When the records are voluminous, the records must be kept in chronological order, or in some systematic order that is in accordance with the taxpayer's regular bookkeeping system.

 

2)         Records kept on punched cards, magnetic tape, and other mechanical or electronic record keeping methods are permitted, provided that the taxpayer makes available all necessary codes and equipment to enable the Department to audit those records, or provides a written transcript of those parts of the records that the Department wishes to examine.

 

b)         The books and records must clearly indicate and explain the complete information (deductions as well as cost price) that provide the basis for the information required for tax returns and shall, at all times during business hours of the day, be subject to inspection and audit by the Department or its duly authorized agents and employees. The books and records must be kept in the American language. The books and records must be kept in Illinois except in instances where a business has several branches, with the head office being located outside Illinois, and where all books and records have been regularly kept outside the State at the head office.  The taxpayer must, within a reasonable time after notification by the Department, make all pertinent books, records, papers and documents available at some point within Illinois for the purpose of inspection and audit as the Department may deem necessary.

 

c)         When the nature of a business is such that a portion of sales are nontaxable for any reason, the records as will clearly indicate the information required in filing tax returns must be kept. Entries in any books, records or other pertinent papers or documents of the taxpayer in relation thereto shall be in detail sufficient to show the name and address of each purchaser to whom a sale is made, the character of every such transaction (i.e., whether it is a sale for resale other than as an incident to a sale of service, a sale made within the protection of the Commerce Clause of the Constitution of the United States, etc.), the date of every such transaction and the amount of cost price involved in every such transaction.

 

d)         Books and records and other papers reflecting transactions during any period with respect to which the Department is authorized to issue Notices of Tax Liability as provided by Section 12 of the Act shall be preserved until the expiration of that period unless the Department, in writing, should authorize their destruction or disposal prior to expiration.  This means that, in the absence of fraudulent returns or the willful refusal to file returns as to which there is no limitation, books for a given 6-month period from January through June, or from July through December, as the case may be, must be preserved for 3 years after the end of the 6-month period (e.g., books for January through June, 1962, must be preserved through June 30, 1965, etc.).  However, if a Notice of Tax Liability has been issued, and if the questions raised thereby have not been completely disposed of, books and records reflecting information relevant to transactions that took place during the period covered by the Notice of Tax Liability must be preserved until the termination of all proceedings before the Department and before any court upon review.

 

e)         In all cases the Department may, in writing, authorize the destruction of books and records and other papers prior to the expiration of the periods of time during which the taxpayer, except for written authorization from the Department, is required to keep his or her books and records.  (See 86 Ill. Adm. Code 130.825 (Retailers' Occupation Tax Regulations).)

 

f)         Any person who fails to keep books and records or fails to produce books and records for examination, as required by Section 11 of the Act and this Part, is liable to pay to the Department, for deposit into the Tax Compliance and Administration Fund, a penalty of $1,000 for the first failure to keep books and records or produce books and records for examination and a penalty of $3,000 for each subsequent failure to keep books and records or produce books and records for examination, as required by Section 11 of the Act and this Part.  The penalties imposed under Section 11 of the Act shall not apply if the taxpayer shows that he or she acted with ordinary business care and prudence.  [35 ILCS 115/11]  The provisions of 86 Ill. Adm. Code 130.801(i) that are not inconsistent with the Service Occupation Tax Act shall apply, as far as practicable, to the subject matter of this Part to the same extent as if those provisions were included in this Part.

 

(Source:  Amended at 43 Ill. Reg. 8889, effective July 30, 2019)

SUBPART H: PENALTIES, INTEREST AND PROCEDURES

 

Section 140.801  General Information

 

All civil penalties, provisions concerning interest and procedures (such as the making of assessments, the venue and mode of conducting hearings, subpoenas, matters pertaining to judicial review and other procedural subjects), together with statutes of limitation (except that these apply from the date when the tax is due rather than from the date when the gross receipts are received), are the same under the Service Occupation Tax Act as under the Retailers' Occupation Tax Act (see Retailers' Occupation Tax Regulations, 86 Ill. Adm. Code 130, Subpart I and Ill. Rev. Stat. 1991, ch. 120, pars. 440-453) [35 ILCS 120].  For information concerning civil penalties and interest see the Uniform Penalty and Interest Act [35 ILCS 735] and 86 Ill. Adm. Code 700. For information concerning criminal penalties, see Section 15 of the Service Occupation Tax Act.

 

(Source:  Amended at 18 Ill. Reg. 1550, effective January 13, 1994)

SUBPART I: WHEN OPINIONS FROM THE DEPARTMENT ARE BINDING

 

Section 140.901  Written Opinions

 

a)         Taxpayers must not rely on verbal opinions from Department employees, but will be protected only if the opinion from the Department is in writing.  For Department rules concerning the binding effect of Private Letter Rulings and General Information Letters, see 2 Ill. Adm. Code 1200.

 

b)         For Department rules concerning the rescission of Private Letter Rulings, see 2 Ill. Adm. Code 1200.

 

c)         As used in this Part, "Regulation" means any Department rule or regulation of general application, whether called a "Rule", a "Regulation", an "Article", a "Section", a "Part" or something else.

 

(Source:  Amended at 25 Ill. Reg. 4971, effective March 23, 2001)

SUBPART J: COLLECTION OF THE TAX

 

Section 140.1001  Payment of Tax

 

a)         A de minimis serviceman who incurs Use Tax as described in Section 140.108 of this Part, should pay the tax to his Illinois-registered suppliers on the cost price of the tangible personal property transferred to his service customers.  However, if for any reason the serviceman does not pay tax to his supplier (for example, his supplier is an out-of-State supplier not registered to collect the tax), the serviceman is required to register to remit Use Tax to the Department.

 

b)         In contrast, however, all servicemen paying Service Occupation Tax to the Department, as provided in Sections 140.106 and 140.109 of this Part, should provide suppliers with Certificates of Resale (see Subpart M of this Part) for the tangible personal property transferred to service customers incident to sales of service.  Failure of servicemen remitting Service Occupation Tax to provide a properly executed Certificate of Resale creates a presumption that the sale is not for resale, and is therefore taxable.

 

(Source:  Amended at 25 Ill. Reg. 4971, effective March 23, 2001)

 

Section 140.1005  Receipt to be Obtained for Tax Payments

 

A serviceman who pays tax to his supplier may request and obtain from the supplier a receipt for the amount of tax paid.  The receipt may be in the form of a separate itemization of the tax on the supplier's sales invoice or other document covering the sale.  The receipt should always indicate the amount, description and selling price of the tangible personal property to which the tax applies.  Suppliers must furnish such receipts on request.

 

(Source:  Amended at 25 Ill. Reg. 4971, effective March 23, 2001)

 

Section 140.1010  Payment of Tax Directly to the Department (Repealed)

 

(Source:  Repealed at 25 Ill. Reg. 4971, effective March 23, 2001)

 

Section 140.1015  Itemization of the Tax by Suppliers (Repealed)

 

(Source:  Repealed at 25 Ill. Reg. 4971, effective March 23, 2001)

 

Section 140.1020  Use of Bracket Chart

 

Suppliers who are required to collect the tax from servicemen under the provisions of the Act shall use the applicable tax collection bracket chart as prescribed in Subpart D of the Use Tax Regulations (86 Ill. Adm. Code 150) for the rate of tax or combined taxes which apply to the transaction.

 

(Source:  Amended at 4 Ill. Reg. 24, p. 550, effective June 1, 1980)

 

Section 140.1025  Advertising in Regard to the Tax

 

A serviceman incurring Service Occupation Tax as described in Section 140.106 or 140.109 of this Part, when required to collect the Service Use Tax from his service customer, may not advertise or state, in any manner, that he (the serviceman) will assume or absorb the tax.  Likewise, the serviceman may not state in any manner that the Service Use Tax will be refunded (except when a bona fide refund is made when goods are returned, or when a claim for credit is made under the provisions of the Act).

 

(Source:  Amended at 25 Ill. Reg. 4971, effective March 23, 2001)

SUBPART K: TIMELY MAILING TREATED AS TIMELY FILING AND PAYING – MEANING OF DUE DATE WHICH FALLS ON SATURDAY, SUNDAY OR A HOLIDAY

 

Section 140.1101  Filing of Documents with the Department

 

a)         Any report, claim, tax return, statement or other document required or authorized to be filed with or any payment made to the Department of Revenue, which document or payment is transmitted through the United States mail, will be deemed to have been filed with and received by the Department on the date shown by the post office cancellation mark stamped upon the envelope or other appropriate wrapper containing it.  If mailed but not received by the Department, or if received, but the cancellation mark is illegible, erroneous or omitted, the document or payment will be deemed to have been filed on the date it was mailed if the sender establishes by competent evidence that the document or payment was deposited in the United States mail on or before the date due for filing.  If the envelope or other wrapper bears a postmark made by a private postage meter in addition to a legible postmark made by the United States Postal Service, the postmark not made by the United States Postal Service shall be disregarded.  In the event of the Department's failure to receive a document or payment required by law to be filed, such document or payment will be deemed to have been received by the Department on time if the sender files with the Department a duplicate within 30 days after written notification is given to the sender by the Department of its failure to receive such document or payment, provided proof is furnished that the original of the document was deposited in the United States mail on or before the date due for filing.

 

b)         If any report, claim, tax return, statement, remittance or other document is sent by United States registered mail, certified mail or certificate of mailing, a record authenticated by the United States Post Office of such registration, certification or certificate shall be considered competent evidence that the report, claim, tax return, statement, remittance or other document was mailed, and the date of registration, certification or certificate shall be deemed to be the postmarked date made by the United States Postal Service.

 

c)         If the due date for any return or other report or payment falls on Saturday, Sunday or a Holiday, such due date shall be considered to be the next business day either for the purpose of submitting such return or other report or payment by mail or for the purpose of submitting such return or other report or payment in person.

 

d)         Reports, claims, tax returns, statements, remittances or other documents delivered by means other than the United States mail are considered to be filed on the date they are received by the Department.

 

(Source:  Amended at 47 Ill. Reg. 5251, effective March 21, 2023)

SUBPART L: LEASED PORTIONS OF LESSOR'S BUSINESS SPACE

 

Section 140.1201  When Lessee of Premises May File Return for Leased Department

 

Where a serviceman or supplier leases to other persons, for use in engaging in the business of selling services or of selling tangible personal property to servicemen for resale as an incident to sales of service, certain parts of the premises in which the lessor conducts his business, each such lessee may file his own tax returns with the Department if he operates under his own trade name, and a separate identity from the lessor is made known to the general public.

 

(Source:  Amended and effective August 20, 1963)

 

Section 140.1205  When Lessor of Premises Should File Return for Leased Department

 

If the lessee operates under the identity of the lessor, then the lessor should account to the State for the lessee's tax on his Service Occupation Tax return.  If the lessor is required to be responsible for the Service Occupation Tax of a leased department, and the lessor permits the lessee to file his own Service Occupation Tax return, the Department of Revenue reserves the right to proceed against the lessor or the lessee or both in the event that the Service Occupation Tax liability incurred by virtue of the operation of such leased department is not properly discharged.

 

(Source:  Amended and effective August 20, 1963)

 

Section 140.1210  Meaning of "Lessor" and "Lessee" in this Regulation

 

The word "lessor" shall include lessors, concessionaires and licensors.  The word "lessee" shall include lessees, concessioners and licensees.

 

(Source:  Amended and effective August 20, 1963)

SUBPART M: USE OF EXEMPTION CERTIFICATES

 

Section 140.1301  When Purpose of Serviceman's Purchase is Known (Repealed)

 

(Source:  Repealed at 14 Ill. Reg. 262, effective January 1, 1990)

 

Section 140.1305  When Purpose of Serviceman's Purchase is Unknown

 

a)         If a serviceman registered to remit Service Occupation Tax is unable to determine, at the time he purchases tangible personal property, how he will ultimately dispose of such property, he may certify to his supplier that he is buying all of such tangible personal property for resale and will thereafter account to the Department for the tax on disposing of such property.  However, no such certificate shall be valid unless the serviceman who signs it has an active registration or resale number from the Department and includes such number in such certificate.

 

b)         Upon the ultimate disposition of such tangible personal property by the serviceman, described in subsection (a) of this Section, he shall remit to the Department either Service Occupation Tax, including any applicable local taxes, on the selling or cost price of the tangible personal property transferred to service customers, or Use Tax for items consumed by him in conducting his business.  Any tangible personal property that the serviceman sells "over-the-counter" is subject to Retailers' Occupation Tax.

 

(Source:  Amended at 25 Ill. Reg. 4971, effective March 23, 2001)

 

Section 140.1310  Blanket Percentage Exemption Certificates (Repealed)

 

(Source:  Repealed at 14 Ill. Reg. 262, effective January 1, 1990)

SUBPART N: CLAIMS TO RECOVER ERRONEOUSLY PAID TAX

 

Section 140.1401  Claims for Credit – Limitations – Procedures

 

a)         Limitations Upon Claims

 

1)         Where a taxpayer under the Service Occupation Tax Act pays to the Department an amount of tax or penalty or interest not due under the provisions of the Act, either as the result of a mistake of fact or an error of law, the taxpayer may file a claim for credit with the Department.  The Department cannot approve any claim for credit unless the proof submitted in support clearly establishes that the claimant has borne the burden of the tax erroneously paid or that the claimant has unconditionally repaid the amount of the tax to the vendee from whom the claimant has collected the amount.  In the latter event, the claimant must also prove that the vendee has borne the burden of the amount or has unconditionally repaid persons to whom the vendee has shifted the burden of the amount (see Section 17 of the Act).  In addition, no credit shall be allowed for any amount paid by or collected from any claimant unless it shall appear that the claimant has unconditionally repaid, to the purchaser, any amount collected from the purchaser and retained by the claimant with respect to the same transaction under the Service Use Tax Act.  Claimant will be considered to have satisfied the unconditional repayment requirement where it provides its purchaser with an instrument upon which the customer can make a demand upon claimant for payment of the tax recovered if the claim is allowed.  The claimant's provision of unconditional promissory notes or irrevocable credit memoranda to its purchasers who paid tax in error would satisfy this requirement.  The purpose of requiring the claimant to make an unconditional repayment to its purchasers is to prevent unjust enrichment on the part of the claimant.  Therefore, in order to establish that it was not unjustly enriched, the claimant filing a claim for credit must be able to demonstrate that it gave unconditional promissory notes or irrevocable credit memoranda to its purchasers who paid tax in error to the claimant.  The Department cannot approve any claim for credit to the extent that the amount claimed is an amount which has been paid (voluntarily or involuntarily) in total or partial liquidation of an assessment which had become final before the claim for credit to recover the amount so paid is filed with the Department, or if paid in total or partial liquidation of a judgment, order or decree of court.  Also, all claims for credit are subject to the following statute of limitations;

 

2)         As to any claim for credit filed with the Department on and after January 1, but on or before June 30 of any given year, no amount of tax or penalty or interest erroneously paid (either in total or partial liquidation of a tax or penalty or amount of interest under the Act) more than 3 years prior to January 1 shall be credited, and as to any claim filed on and after July 1 but on or before December 31 of any given year, no amount of tax or penalty or interest erroneously paid (either in total or partial liquidation of a tax or penalty or amount of interest under the Act) more than 3 years prior to July 1 shall be credited, except that, if both the Department and the taxpayer have agreed to an extension of time to issue a notice of tax liability as provided in Section 4 of the Retailers' Occupation Tax Act, that claim may be filed at any time prior to the expiration of the period agreed upon.

 

3)         Beginning June 25, 2021, for any period included in a claim for credit or refund for which the statute of limitations for issuing a notice of tax liability under this Act will expire less than 6 months after the date a taxpayer files the claim for credit or refund, the statute of limitations is automatically extended for 6 months from the date it would have otherwise expired.  [35 ILCS 115/19].

 

b)         Filing of Claims

 

1)         Claims for credit shall be prepared and filed upon forms provided by the Department and available at www.tax.illinois.gov.  Where the claimant is a corporation, the claim filed on behalf of the corporation shall be signed by the president, vice-president, secretary or treasurer or by the properly accredited agent of the corporation.

 

2)         A claim for credit shall be considered to have been filed with the Department on the date upon which it is received by the Department.  Upon receipt of any claim for credit filed under the Act, any officer or employee of the Department, authorized in writing by the Director of Revenue to acknowledge receipt of the claims on behalf of the Department shall execute on behalf of the Department, and shall deliver or mail to the claimant or its duly authorized agent, a written receipt, acknowledging that the claim has been filed with the Department, describing the claim in sufficient detail to identify it and stating the date upon which the claim was received by the Department.  The written receipt shall be prima facie evidence that the Department received the claim described and shall be prima facie evidence of the date when the claim was received by the Department. In the absence of such a written receipt, the records of the Department as to when the claim was received by the Department, or as to whether or not the claim was received at all by the Department, shall be deemed to be prima facie correct upon these questions in the event of any dispute between the claimant (or his legal representative) and the Department concerning these questions.  (See Section 17 of the Act.)

 

c)         Procedure After Filing of Claims

The Department will examine each claim for credit as soon as practicable after the claim is filed and will notify the claimant (or its legal representative, if the claim is filed by such legal representative, or if the claimant has died or become incompetent and the legal representative has notified the Department of its appointment and qualification as the legal representative, or if the Department, on its own motion, has substituted the legal representative in the proceeding for the deceased or incompetent claimant) of its Tentative Determination of the amount of credit, if any, to which the claimant or its legal representative is entitled.  If the claimant, or the legal representative of a deceased or incompetent taxpayer, shall, within 60 days after the Department's Notice of Tentative Determination of Claim, file a protest and request a hearing, the Department shall give notice to the claimant, or to the legal representative of a deceased or incompetent taxpayer, of the time and place fixed for such hearing, and shall hold a hearing in conformity with the provisions of the Act, and pursuant thereto shall issue its Final Determination of the amount of credit, if any, found to be due as a result of the hearing, to the claimant, or to the legal representative of a deceased or incompetent taxpayer.  If a protest to the Department's Notice of Tentative Determination of Claim is not filed within 60 days and a request for a hearing is not made, the Notice shall become and operate as a "Final Determination". (See Section 18 of the Service Occupation Tax Act.)

 

d)         Use of Credit Memoranda to Satisfy Prior Rights of Department

If, following the above procedure, a credit is found to be due, as evidence of  a credit memorandum for the amount shall be issued in the name of the claimant.  If there is an established unpaid assessment or an admitted unpaid liability, or unpaid penalty or unpaid amount of interest, against the claimant either under the Retailers' Occupation Tax Act, the Use Tax Act, the Service Occupation Tax Act, the Service Use Tax Act, any local occupation or use tax administered by the Department, Section 4 of the Water Commission Act of 1985 [70 ILCS 3720/4], subsections (b), (c), and (d) of Section 5.01 of the Local Mass Transit District Act [70 ILCS 3610/5.01], or subsections (e), (f) and (g) of Section 4.03 of the Regional Transportation Authority Act [70 ILCS 3615/4.03], the amount of the credit shall be credited against the tax or penalty or interest due or to become due under these Acts from the person who made the erroneous payment.  If the credit is in an amount less than that of the unpaid liability, it shall be applied toward satisfaction of the unpaid liability.  If the amount of the credit exceeds that of the unpaid liability, after crediting an amount sufficient to liquidate or cancel out the unpaid liability, a new credit memorandum shall be issued for an amount representing the difference between that of the original credit found to be due and that of the liability liquidated or paid, and the new credit memorandum shall be delivered to the person entitled to receive delivery, provided that no proceeding is pending against the claimant to establish an unpaid liability under the Retailers' Occupation Tax Act, the Use Tax Act, the Service Occupation Tax Act, the Service Use Tax Act, any local occupation or use tax administered by the Department, Section 4 of the Water Commission Act of 1985, subsections (b), (c), and (d) of Section 5.01 of the Local Mass Transit District Act, or subsections (e), (f) and (g) of Section 4.03 of the Regional Transportation Authority Act.  If a proceeding to establish such an unpaid liability is pending, the credit memorandum shall be held by the Department until the proceeding is concluded; and if the proceeding results in the issuance of an assessment which becomes final, the credit shall be applied by the Department, to the extent which may be necessary, in liquidation of the assessment, or any interest that may accrue, and the balance of the credit, if any (after cancellation of the credit memorandum applied in liquidation of the liability), shall be issued in the form of a new credit memorandum and delivered to the person entitled to receive delivery.

 

(Source:  Amended at 47 Ill. Reg. 5771, effective April 4, 2023)

 

Section 140.1405  Disposition of Credit Memoranda by Holders Thereof

 

a)         Assignment of Credit Memoranda

 

1)         Credit memoranda issued in accordance with the provisions of the Act may be assigned or transferred only after a request for that purpose is filed with the Department upon forms prescribed and furnished by it, and subject to the following conditions:

 

A)        That the assignment is made to a person who is subject to the Retailers' Occupation Tax Act, Use Tax Act, Service Occupation Tax Act or Service Use Tax Act, the Municipal Retailers' Occupation Tax Act, the Municipal Use Tax Act, the Municipal Service Occupation Tax Act, the County Retailers' Occupation Tax Act, the County Supplementary Retailers' Occupation Tax Act, the County Service Occupation Tax Act, the County Supplementary Service Occupation Tax Act, the County Use Tax Act, the County Supplementary Use Tax Act, Section 4 of the Water Commission Act of 1985, subsections (b), (c), and (d) of Section 5.01 of the Local Mass Transit District Act, or subsections (e), (f) and (g) of Section 4.03 of the Regional Transportation Authority Act;

 

B)        that there is no proceeding pending to establish an unpaid liability against the assignor pursuant to notice given of the Department's proposal to assess an amount against him under said Acts, and

 

C)        that there is no established assessment or admitted liability or interest or penalty unpaid by the assignor, under said Acts.

 

2)         Provided, that if the amount of the credit memorandum must first be applied, in whole or in part, against an established unpaid assessment which has been issued to the claimant-assignor, or in total or partial liquidation of an unpaid admitted tax liability, or unpaid penalty, or unpaid amount of interest, due from the claimant-assignor, notice to this effect shall be given the claimant-assignor by the Department.  If any balance is due such claimant-assignor, after application of the credit memorandum in the manner and to the purposes aforesaid, such balance may be assigned upon receipt by the Department of instructions to that effect.  If there are no unpaid established assessments or unpaid admitted tax liabilities, or unpaid penalties, or unpaid amounts of interest, due from the claimant-assignor, and if there are no pending proceedings as herein outlined against the claimant-assignor, and if the contemplated assignee is a person who is subject to said Acts, the request for leave to assign shall be approved; the original credit memorandum shall be cancelled, and a new credit memorandum shall be issued to the assignee in the amount shown on the cancelled memorandum.  However, before a credit memorandum is issued to the assignee, the amount of such credit shall be applied, to the extent which may be necessary, in liquidation of any established or admitted unpaid liability due from the assignee under the Retailers' Occupation Tax Act, the Use Tax Act, the Service Occupation Tax Act, the Service Use Tax Act, the Municipal Retailers' Occupation Tax Act, the Municipal Use Tax Act, the Municipal Service Occupation Tax Act, the County Retailers' Occupation Tax Act, the County Supplementary Retailers' Occupation Tax Act, the County Service Occupation Tax Act, the County Supplementary Service Occupation Tax Act, the County Use Tax Act, the County Supplementary Use Tax Act, Section 4 of the Water Commission Act of 1985, subsections (b), (c), and (d) of Section 5.01 of the Local Mass Transit District Act, or subsections (e), (f) and (g) of Section 4.03 of the Regional Transportation Authority Act, and a credit memorandum for the balance of the credit, if any, shall then be issued to the assignee:  Provided, that there is no proceeding pending against the assignee to establish an unpaid liability against him under any of said Acts.  If a proceeding to establish such an unpaid liability is pending, the credit memorandum shall be held by the Department until such proceeding is concluded; and if such proceeding results in the issuance of an assessment which becomes final, the credit shall be applied by the Department, to the extent which may be necessary, in liquidation of such assessment or any interest that may accrue thereon, and the balance of the credit, if any (after cancellation of the credit memorandum applied in liquidation of said assessment), shall be issued in the form of a new credit memorandum and delivered to the assignor for transmittal to the assignee.

 

b)         Submission of Credit Memoranda With Tax Returns

 

1)         Credit memoranda, in the hands of the original claimant or of his assignee, may be submitted to the Department, along with tax returns, in payment of any of said taxes incurred by the holder of such credit memoranda. The holder of the credit memorandum may also use it to pay any penalty or interest that may be due from him to the Department under the Retailers' Occupation Tax Act, the Use Tax Act, the Service Occupation Tax Act, the Service Use Tax Act, the Municipal Retailers' Occupation Tax Act, the Municipal Use Tax Act, the Municipal Service Occupation Tax Act, the County Retailers' Occupation Tax Act, the County Supplementary Retailers' Occupation Tax Act, the County Service Occupation Tax Act, the County Use Tax Act, the County Supplementary Use Tax Act, Section 4 of the Water Commission Act of 1985, subsections (b), (c), and (d) of Section 5.01 of the Local Mass Transit District Act, or subsections (e), (f), and (g) of Section 4.03 of the Regional Transportation Authority Act.

 

2)         If, after applying any such credit memorandum against the amount of liability shown to be due by the tax return with which the credit memorandum is submitted, there is a balance of the credit memorandum in favor of the taxpayer, the Department will cancel the credit memorandum which the taxpayer submits with his return and will issue and deliver to such taxpayer a new credit memorandum for such balance.  This process will be followed until the credit, to which such taxpayer is entitled, is exhausted.  However, any new credit memorandum, which is issued for a balance of credit due the taxpayer after applying the amount of a credit memorandum to the payment of current taxes, is subject to the prior rights of the Department to the same extent that such prior rights take precedence when a credit memorandum is first issued (see Section 140.1401(d) of this Subpart) or when leave to assign a credit memorandum is requested (see Section 140.1405(a) of this Subpart).

 

(Source:  Amended at 13 Ill. Reg. 9388, effective June 6, 1989)

 

Section 140.1410  Refunds

 

In case the Department determines that the claimant is entitled to a refund, such refund shall be made only from such appropriation as may be available for that purpose.  If it appears unlikely that the amount appropriated would permit everyone having a claim allowed during the period covered by such appropriation to elect to receive a cash refund, the Department will make such refunds only in hardship cases (i.e., in cases in which the claimant cannot use a credit memorandum).  The two most likely situations where this would be the case are the situation in which the claimant has discontinued business and the situation in which the claimant will have a small volume of liability to the Department in the foreseeable future, but receives a large credit memorandum which it therefore might take the claimant a long time to liquidate by using it to pay current taxes.  In these instances, the claimant probably would have to sell the credit memorandum at a loss in order to realize anything from it within any reasonable period of time.

 

(Source:  Amended at 6 Ill. Reg. 2886, effective March 3, 1982)

 

Section 140.1415  Interest

 

a)         Effective February 1, 1985 until January 1, 1994, any credit or refund that is allowed under the Act shall bear interest at the rate of 1% per month or fraction thereof from the date when the erroneous payment for which the credit or refund is being allowed was made to the Department until the credit memorandum is issued or the refund is paid. Interest shall not be paid on claims filed after the effective date of the Uniform Penalty and Interest Act and 86 Ill. Adm. Code 700 except such interest which is paid in accordance with the Act. (Section 3-9 of the Uniform Penalty and Interest Act) [35 ILCS 735/3-9]

 

           

 

EXAMPLE:  A taxpayer files a claim for credit with the Department on January 15, 1994 for an overpayment of Service Occupation Tax.  The overpayment occurred in October 1992 when the taxpayer, an Illinois serviceman, made a sale of service to an Illinois service customer, collected service use tax and remitted service occupation tax to the Department.  The sale of service involved the repair of a piece of graphic arts machinery and equipment.  The serviceman determined that the repair should have been made tax-free, refunded the tax to the service customer and filed a claim for credit with the Department.  The credit memorandum is issued on June 15, 1994.  Interest shall be paid at the rate of 1% per month for the period from October 1992 through December 31, 1993; and at the semiannually adjusted interest rate imposed pursuant to the Uniform Penalty and Interest Act from January 1, 1994 through June 15, 1994, the date on which the credit memorandum was issued by the Department.

 

b)         No interest will be allowed if the overpayment is found by the Department to have been made deliberately for the purpose of drawing interest, or if the overpayment is ascertained not to have been bona fide for some other reason.

 

c)         When a claim that is allowed is paid by means of a credit memorandum instead of by means of a cash refund, the claim will be considered to have been paid when the credit memorandum is issued by the Department to the claimant, and no interest will be allowed or paid by the Department for any period subsequent to that, even if the claimant does not use or assign the credit memorandum immediately after it is issued.

 

(Source:  Amended at 18 Ill. Reg. 1550, effective January 13, 1994)

 

Section 140.1420  Verified Credit

 

a)         Verified credits.  A verified credit is a specific type of credit arising under Section 3 of the Retailers' Occupation Tax Act, which states:

 

If any payment provided for in this Section exceeds the taxpayer's liabilities under this Act, the Use Tax Act, the Service Occupation Tax Act and the Service Use Tax Act, as shown on an original monthly return, the Department shall, if requested by the taxpayer, issue to the taxpayer a credit memorandum no later than 30 days after the date of payment.  The credit evidenced by such credit memorandum may be assigned by the taxpayer to a similar taxpayer under this Act, the Use Tax Act, the Service Occupation Tax Act or the Service Use Tax Act, in accordance with reasonable rules and regulations to be prescribed by the Department. If no such request is made, the taxpayer may credit such excess payment against tax liability subsequently to be remitted to the Department under this Act, the Use Tax Act, the Service Occupation Tax Act or the Service Use Tax Act, in accordance with reasonable rules and regulations prescribed by the Department.  If the Department subsequently determined that all or any part of the credit taken was not actually due to the taxpayer, the taxpayer's 2.1% and 1.75% vendor's discount shall be reduced by 2.1% or 1.75% of the difference between the credit taken and that actually due, and that taxpayer shall be liable for penalties and interest on such difference.  [35 ILCS 120/3]

 

b)         Verified credit – explanation – no interest paid.  A verified credit is an amount of tax overpaid in a prior period that may be rolled over and applied to subsequent tax liabilities without the need to comply with the formalities involved in submitting a claim for credit.  Since the taxpayer has the immediate use of the verified credit to apply against its liability without the need to file a claim for credit and prove the overpayment, interest is not paid on verified credits  (See also, 86 Ill. Adm. Code 700.230(a)(2)).  Verified credits appear on a taxpayer's Statement of Account.

 

c)         Verified credit − How used.  A verified credit may be used by a taxpayer in only 3 ways:

 

1)         It can be used to offset liability of the taxpayer that arises under the Retailers’ Occupation Tax Act, the Use Tax Act, the Service Occupation Tax Act, or the Service Use Tax Act subsequent to the origination of the verified credit;

 

2)         It can be converted to a credit memorandum no later than 30 days after the date of overpayment, upon request made to the Department upon forms prescribed by the Department.  Interest is not paid on verified credits that are converted to credit memoranda in accordance with this subsection (c)(2); and

 

3)         It can be converted to a credit memorandum at any time, starting 30 days after the date of the overpayment, by making a request to the Department using forms prescribed by the Department and available at www.tax.illinois.gov, and without regard to the limitations on claims for refund.  See also 86 Ill. Adm. Code 140.1401, for limitations on claims.  Interest is not paid on verified credits that are converted to credit memoranda in accordance with this subsection (c)(3).

 

d)         A verified credit that is converted to a credit memorandum under this subsection (d) may be assigned to another taxpayer in the same manner as other credit memoranda issued to taxpayers by the Department.

 

(Source:  Added at 46 Ill. Reg. 18843, effective November 1, 2022)

SUBPART O: DISCONTINUATION OF A BUSINESS

 

Section 140.1501  Procedures

 

a)         Where a serviceman under the Service Occupation Tax Act sells out or discontinues his business, such serviceman shall continue to file returns and pay tax with respect to selling prices received by the serviceman thereafter on account of taxable transactions which occurred up to the date upon which he sells out or discontinues his business.  Such tax should be paid notwithstanding the fact that the serviceman is no longer engaged in business.  For the purposes of filing a final return under Section 140.410 of this Part, the taxpayer is not considered to have discontinued business as long as he continues to collect receipts on which he is required to remit tax to the Department.

 

b)         For information concerning the requirements for complying with the Bulk Sales Law when a business is sold by one person to another, see Subpart P of this Part.

 

(Source:  Amended at 14 Ill. Reg. 262, effective January 1, 1990)

SUBPART P: NOTICE OF SALES OF GOODS IN BULK

 

Section 140.1601  Requirements and Procedures

 

a)         If any taxpayer, outside the usual course of the taxpayer's business, sells or transfers the major part of any one or more of:

 

1)         the stock of goods which the taxpayer is engaged in the business of selling, or

 

2)         the furniture or fixtures, the machinery and equipment, or the real property of any business that is subject to the provisions of the Act,

 

the purchaser or transferee of such assets shall, no later than 10 business days prior to the sale or transfer, file a notice of sale or transfer of business assets with the Department disclosing the name and address of the seller or transferor, the name and address of the purchaser or transferee, the date of the sale or transfer, a copy of the sales contract and financing agreements, which shall include a description of the property sold, the amount of the purchase price or a statement of other consideration for the sale or transfer, the terms for payment of the purchase price and such other information as the Department may reasonably require. If the purchaser or transferee fails to file the above-described notice of sale with the Department within the prescribed time, the purchaser or transferee shall be personally liable for the amount owed under this Section by the seller or transferor to the Department up to the amount of the reasonable value of the property acquired by the purchaser or transferee.  The seller or transferor shall pay the Department the amount of tax, penalty and interest (if any) due under the Act up to the date of the payment of tax. The seller or transferor, or the purchaser or transferee, at least 10 business days before the date of the sale or transfer, may notify the Department of the intended sale or transfer and request the Department to audit the books and records of the seller or transferor, or to do whatever else may be necessary to determine how much the seller or transferor owes to the Department under the Act up to the date of the sale or transfer.  The Department shall take such steps as may be appropriate to comply with such request under this Section.

 

b)         Any order issued by the Department pursuant to the Act and this Section to withhold from the purchase price shall be issued within 10 business days after the Department receives notification of a sale as provided in the Act and this Section.  The purchaser or transferee shall withhold such portion of the purchase price as may be directed by the Department, but not to exceed a minimum amount varying by type of business, as determined by the Department pursuant to this Part, plus twice the outstanding unpaid liabilities and twice the average liability of preceding filings times the number of unfiled returns to cover the amount of all tax, penalty and interest due and unpaid by the seller or transferor under the Act or, if the payment of money or property is not involved, shall withhold the performance of the condition that constitutes the consideration for the sale or transfer.  Within 60 business days after issuance of the initial order to withhold, the Department shall provide written notice to the purchaser or transferee of the actual amount of all taxes, penalties and interest then due and whether or not additional amounts may become due as a result of unfiled returns, pending assessments and audits not completed.  The purchaser or transferee shall continue to withhold the amount directed to be withheld by the initial order or such lesser amount as is specified by the final withholding order or to withhold the performance of the condition which constitutes the consideration for the sale or transfer until the purchaser or transferee receives from the Department a certificate showing that such tax, penalty and interest have been paid or a certificate from the Department showing that no tax, penalty or interest is due from the seller or transferor under the Act.

 

c)         The purchaser or transferee is relieved of any duty to continue to withhold from the purchase price and of any liability for tax, penalty or interest due under the Act from the seller or transferor if the Department fails to notify the purchaser or transferee in the manner provided in this Section of the amount to be withheld within 10 business days after the sale or transfer has been reported to the Department or within 60 business days after issuance of the initial order to withhold, as the case may be. The Department shall have the right to determine amounts claimed on an estimated basis to allow for non-filed periods, pending assessments and audits not completed, however, the purchaser or transferee shall be personally liable only for the actual amount due when determined.

 

d)         If the seller or transferor fails to pay the tax, penalty and interest (if any) due under the Act and the Department makes timely claim therefor against the purchaser or transferee as provided in subsection (b), then the purchaser or transferee shall pay the amount so withheld from the purchase price to the Department.  If the purchaser or transferee fails to comply with the requirements of this Section or under the Act, the purchaser or transferee shall be personally liable to the Department for the amount owed under the Act by the seller or transferor to the Department up to the amount of the reasonable value of the property acquired by the purchaser or transferee.

 

e)         Any person who shall acquire any property or rights thereto which, at the time of such acquisition, is subject to a valid lien in favor of the Department shall be personally liable to the Department for a sum equal to the amount of taxes secured by such lien but not to exceed the reasonable value of such property acquired. (Section 5j of the Retailers' Occupation Tax Act)

 

f)         Examples of situations where bulk sales reporting is required:

 

1)         When a store selling clothing and shoes sells the clothing inventory of the business to another entity, bulk sales reporting is required.

 

2)         When a company sells its business on a contract for deed basis, bulk sales reporting is required when the company enters into the contract.

 

g)         Examples of situations where bulk sales reporting is not required:

 

1)         When a corporation is merged into another corporation pursuant to the Business Corporation Act of 1983 [805 ILCS 5], there are no bulk sales reporting requirements because the surviving corporation retains all of the liabilities of the merged corporation.

 

2)         When one or more corporations are consolidated into a new corporation pursuant to the Business Corporation Act of 1983 [805 ILCS 5], there are no bulk sales reporting requirements because the new corporation retains all of the liabilities of the consolidated corporations.

 

3)         A repossession of equipment and inventory by a lender upon default by a borrower does not constitute a transfer within the meaning of the bulk sales provisions of the Act.  For example, when a company is in default on a loan for business furniture and fixtures and the holder of the security interest forecloses and enters the business to repossess the furniture and fixtures, bulk sales reporting is not required.

 

4)         A transfer of the majority of assets from one location to another location where a business has multiple locations and operates such locations under the same certificate of registration number is not a transfer that requires bulk sales reporting.

 

(Source:  Amended at 46 Ill. Reg. 18152, effective October 25, 2022)

SUBPART Q: POWER OF ATTORNEY

 

Section 140.1701  General Information

 

Taxpayers under the Service Occupation Tax Act may appoint other persons to act as their attorneys for the purpose of filing returns and performing other acts under the Act in the same manner and to the same extent as they may under Subpart R of the Retailers' Occupation Tax Regulations.

 

(Source:  Amended and effective May 21, 1962)