1) Outgoing
Transportation and Delivery Charges (e.g., Shipping and Handling)
A) Applicability
i) Effective Date - Safe Harbor. Persons who
have computed their tax liability for transportation and delivery charges
according to the provisions of either subsection (a) or subsection (b) for
periods between November 19, 2009 and April 1, 2016 shall be considered to have
properly collected and remitted tax on those charges.
ii) This Section applies equally to retailers
making sales subject to Retailers' Occupation Tax, retailers required to
collect Use Tax on sales to Illinois residents as a result of being a "retailer
maintaining a place of business in this State" pursuant to Section 2 of the Use
Tax Act, and to persons self-assessing Use Tax under Sections 9 and 10 of the
Use Tax Act on purchases for which no tax was collected by a retailer. This
Section also applies to persons that have been issued a winery shipper's
license under Section 5-1(r) of the Liquor Control Act of 1934.
iii) Outgoing transportation and delivery
charges are charges for the final transport or delivery of tangible personal
property from the possession and control of the seller to the possession and
control of the purchaser. Outgoing transportation and delivery charges include,
but are not limited to, charges for freight, express, mail, truck or other
carrier, conveyance or delivery expenses, and shipping and handling.
iv) Costs incurred by the retailer in moving
property to some point from which the property will be delivered or shipped to
the customer, or picked up by the customer, are not outgoing transportation and
delivery charges; they are part of the retailer's costs of doing business. Any
amounts the retailer charges a customer for moving the property cannot be
deducted from gross receipts from that sale.
B) Taxability of Outgoing Transportation and
Delivery
i) Outgoing transportation and
delivery charges are part of the gross receipts subject to Retailers'
Occupation Tax when there is an inseparable link between the sale of tangible
personal property and the outgoing transportation and delivery of the property.
(See Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351(2009).)
ii) An inseparable link exists when the
transportation and delivery charges are not separately identified to the
purchaser on the contract or invoice or when the transportation and delivery
charges are separately identified to the purchaser on the contract or invoice,
but the seller does not offer the purchaser the option to receive the tangible
personal property in any manner except by the payment of transportation and
delivery charges added to the selling price of the item (e.g., the seller does
not offer the purchaser the option to pick up the tangible personal property or
the seller does not offer, or the purchaser does not qualify for, a free
transportation and delivery option). (See Kean v. Wal-Mart Stores, Inc., 235
Ill. 2d 351, 367 (2009) (Does the purchaser have the option to purchase the
tangible personal property for the stated selling price, with no added
transportation and delivery charge, or must transportation and delivery charges
always be added to the selling price of the item in order to obtain the
item?).)
iii) Except for cases in
which an inseparable link exists as provided in subsection (b)(1)(B)(ii),
outgoing transportation and delivery is considered a service separate and
distinct from the sale of tangible personal property that is being transported
or delivered and is excluded from the gross receipts subject to the Retailers'
Occupation Tax.
C) Safe
Harbor. If a seller of tangible personal property offers the purchaser free
transportation and delivery of the property, qualified transportation and
delivery of the property for which the purchaser qualifies, or the option to
pick up the property, any separately identified transportation and delivery
charges chosen by the purchaser (e.g., amounts paid for expedited
transportation and delivery) will be nontaxable, as long as the selling price
of the tangible personal property neither increases nor decreases depending on
the method chosen by the purchaser to obtain the merchandise. When the selling
price of the tangible personal property increases or decreases, the
transportation and delivery charges will be subject to Retailers' Occupation
Tax to the extent those charges exceed the actual cost of outgoing
transportation and delivery as described in subsection
(b)(1)(A)(iii).
D) EXAMPLES:
i) Internet Purchase by an Illinois Customer
from a Retailer Who Also Has Brick-and-mortar Stores. A customer selects
property from a retailer's website on the Internet, clicks the "add to shopping
cart" button and proceeds to "check out". The online retailer adds the price of
the items in the shopping cart, for a total price of $200. The online retailer
then prompts the customer to click on the box corresponding to the method by
which the customer prefers to obtain the merchandise (e.g., USPS or other
common ground carrier for $12.99, two-day delivery for $18.50, Next Day Air for
$
33.50, or
the option to pick up the property at the retailer's store). The customer
clicks on the ground carrier box for delivery to the purchaser's home. The
retailer then calculates the total price of the order ($200 + $12.99 = $212.99
). The cost of the property and the cost of shipping are separately identified
on the invoice when the property is delivered. Because the delivery charge is
separately identified on the purchaser's invoice, and the purchaser had the
option to pick up the property rather than having it shipped, there is no
inseparable link between the purchase of the property and the outgoing
transportation and delivery charges. Therefore, the delivery is a service
separate and distinct from the sale of the items and is not part of the
retailer's gross receipts subject to the Retailers' Occupation Tax. The taxable
amount is $200.
ii) Internet
Purchase from Retailer without a Brick-and-mortar Store. Assume the same facts
as the example in subsection (b)(1)(D)(i), except, because the retailer has no
brick-and-mortar store, the customer is not given the option of picking up the
item. Because the tangible personal property could not be sold to the customer
without including delivery, there is an inseparable link between the purchase
and the delivery, and the charges for delivery are included in taxable gross
receipts. The taxable amount is $212.99.
iii) Internet Purchase from Retailer with
Out-of-state Pick Up Option. Assume the same facts as the example in subsection
(b)(1)(D)(i). However, the retailer's only pick up location is in San Diego,
California. Because the retailer offers an option to pick up the property,
there is no inseparable link between the sale of tangible personal property and
the delivery of that property. The transportation and delivery charges are not
taxable. The taxable amount is $200.
iv) Internet Purchase from Retailer Offering
Unqualified Free Delivery. Assume the same facts as the example in subsection
(b)(1)(D)(i), except that no pick up option is available but the retailer
offers free shipping. Assume also that the customer elects to pay for Next Day
Air delivery for $33.50. Because the customer had the choice of obtaining the
items without paying a delivery charge to the retailer (the free delivery
option), there is no inseparable link between the sale of the tangible personal
property and the delivery of that property. The transportation and delivery
charges are not taxable. The taxable amount is $200.
v) Internet Purchase from Retailer Offering
Qualified Free Delivery. Assume the same facts as the example in subsection
(b)(1)(D)(i), except that no pick up option is available but the retailer
offers free shipping on orders above $250. Assume also that the customer elects
to pay for Next Day Air delivery for $33.50. Because the amount of the order
($200) did not qualify for the free shipping option, the customer did not have
the choice of obtaining the items without paying a delivery charge to the
retailer. As a result, there is an inseparable link between the sale of the
tangible personal property and the delivery of that property. The
transportation and delivery charges are taxable. The taxable amount is
$233.50.
vi) Delivery Charges Need
Not Reflect Actual Costs. Assume the same facts as the example in subsection
(b)(1)(D)(i). However, the actual cost to ship the goods to the customer by
ground carrier is $11. The transportation charge exceeds the actual cost of
shipping. However, because the customer has an option to pick up the property
and avoid the transportation cost, and because the price of the property is the
same regardless of whether the customer picks up the property or has it
delivered, the charges identified as transportation and delivery are
nontaxable. Therefore, the taxable amount is $200.
vii) Price Includes Delivery. A customer
telephones a retailer who sells propane. The retailer offers to sell propane to
the customer for $2/pound if the retailer delivers the propane or $1/pound if
the customer picks up the propane or arranges for the delivery with a third
party. If a customer chooses to have the retailer deliver the propane for
$2/pound, the gross receipts for the delivered propane are $2/pound, and the
retailer may not make any deductions for transportation and delivery. There is
an inseparable link between the purchase of the propane and its delivery
because the retailer charges a single indivisible price. The taxable amount is
$2/pound.
viii) A Transportation
Company Offers to Purchase Material from a Quarry and Sell It to a Customer for
$15/Metric Ton, Including Delivery. The purchaser accepts the offer and orders
three metric tons of gravel. The transportation company purchases three metric
tons of gravel from a quarry for $10/metric ton and delivers it to the
customer. The transportation company is a retailer responsible for the
Retailers' Occupation Tax on the material it sells. Because it offered to sell
and deliver gravel for a single indivisible price, there is an inseparable link
between the sale and delivery of the tangible personal property. The taxable
amount is $15/metric ton.
ix)
Delivery by a Retailer's Affiliated Business. A customer purchases $1,500 worth
of furniture from a local furniture retailer. The retailer has no trucks of its
own to make any deliveries. There is a delivery company affiliated with the
furniture retailer that frequently delivers furniture to customers who make
purchases from the furniture retailer. The furniture retailer offers to arrange
for the delivery of the furniture through its affiliated company for an
additional cost of $100, which is identified separately as the delivery cost of
the affiliated company. In the alternative, the customer may arrange to pick up
the furniture or to have it delivered at his or her own cost. Because the
customer can pick up the furniture or separately arrange for its delivery by a
company of his or her choosing, the delivery of the furniture is a service
separate and apart from the sale of tangible personal property. The $100
delivery fee is not part of gross receipts and is not taxable. The taxable
amount is $1,500.
x) Assume the
same facts as in the example in subsection (b)(1)(D)(ix), except that the
retailer does not permit customers to pick up their purchases and requires that
its affiliated delivery company makes all deliveries. When a retailer requires
the customer to contract for shipping with a specific delivery company (or to
choose one company among several with whom to contract), the retailer is deemed
to be the provider of the shipping service. Because the tangible personal
property could not be sold to the customer without including delivery, there is
an inseparable link between the sale and delivery of the tangible personal
property, and the delivery charge is taxable. The taxable amount is
$1,600.
E) Mixed
Transaction - Calculation of Tax on Purchase Containing Both Taxable Delivery
Charges and Nontaxable Delivery Charges
i)
Itemized Delivery Charge. Tax on delivery charges may be calculated for each
separately listed item on an invoice if the invoice itemizes the delivery
charge for the items.
EXAMPLE:
A customer orders a rug for $250, candlesticks for $50 and a
tablecloth for $25 from an internet retailer. In order to obtain the rug, the
customer must have delivery made by the retailer ($20 for standard delivery and
$40 for expedited delivery). The customer chooses the $20 standard delivery.
The retailer offers free pick up at its local store for the candlesticks and
tablecloth. The customer, however, chooses to have them delivered for a $10
delivery charge. The invoice separately lists the $20 delivery charge for the
rug and the $10 delivery charge for the candlesticks and tablecloth. The $20
delivery charge for the rug is taxable because there is an inseparable link
between the purchase of the rug and the $20 delivery charge (the purchase of
the rug cannot occur without payment of the $20 delivery charge). In contrast,
the $10 delivery charge for the candlesticks and tablecloth is not taxable
since no inseparable link exists between the sale of these items and the
delivery charge (the customer had the choice of picking up these items). The
taxable amount is $345 (a selling price of $270 for the rug comprised of $250
for the rug plus a delivery charge of $20; and a selling price of $75 for the
candlesticks and tablecloth).
ii) Lump Sum Invoice. When an invoice
contains a lump sum delivery charge for separately listed items, the lump sum
delivery charge will not be taxable if the selling price of the items for which
delivery is nontaxable is greater than the selling price of the items for which
delivery is taxable.
EXAMPLE:
Assume the same facts as in the example in subsection
(b)(1)(E)(i), except that the invoice contains a lump sum delivery charge of
$30. Since the selling price of the items for which delivery is nontaxable ($75
for the candlesticks and tablecloth) is not greater than the selling price of
the items for which delivery is taxable ($250 for the rug), the entire delivery
charge is taxable. The taxable amount is $355 ($250 for the rug, $75 for the
candlesticks and tablecloth, and a $30 delivery charge).
F) Taxable Shipping: Exemptions
and Rates. If a retailer has determined that the delivery charges are part of
its gross receipts, then the retailer must determine if any exemptions apply
and, if not, determine the appropriate tax rate for that transaction by
utilizing either the method established in subsection (b)(1)(F)(i) or one of
the applicable methods established in subsections (b)(1)(F)(ii) through (vi).
i) The tax rate on delivery charges may be
calculated for each separately listed item on an invoice if the invoice
itemizes the delivery charge for each of the items. Using this method, the tax
rate for delivery charges could be separately calculated at the high rate on
high rate items, the low rate on low rate items and as exempt on items that are
tax exempt. If this method is not chosen, one of the applicable methods
outlined in subsections (b)(1)(F)(ii) through (vi) must be utilized.
EXAMPLE:
A customer orders insulin testing equipment for $25,
artificial sweetener for $10, hand lotion for $15 and shampoo for $10 from an
internet retailer. The customer cannot purchase the items without choosing a
delivery option by the retailer. The invoice separately lists each item and an
associated delivery charge of $2. In this case, tax is applied at the low 1%
rate to $39 ($25 for the insulin testing equipment plus a $2 delivery charge;
$10 for the artifical sweetner plus a $2 delivery charge). Tax is applied at
the high rate to $29 ($15 for the hand lotion plus a $2 delivery charge; $10
for the shampoo plus a $2 delivery charge).
ii) Exempt Tangible Personal Property. If the
retailer determines that either the purchaser or all of the tangible personal
property being sold is tax exempt, the entire gross receipts from the sale are
not taxable, including the delivery charge.
EXAMPLE:
A church with an active exemption identification number
purchases new choir robes for $600. The retailer charges the church $20 to
deliver the robes. All amounts the retailer charges the church, including for
delivery, are not taxable because the sale to the church was a tax-exempt
sale.
iii) Exempt Tangible
Personal Property with Taxable Tangible Personal Property. If a retailer makes
a sale of multiple items of tangible personal property, some of which are
exempt and some of which are taxable, the outgoing transportation or delivery
charges are exempt if the total selling price of the exempt tangible personal
property is greater than the selling price of the taxable tangible personal
property.
EXAMPLE:
A customer places an order for subscriptions to 3 magazines
for a total of $36 and purchases 2 children's books for a total of $12 through
an online retailer. The retailer charges $4 for shipping and handling. The
magazines qualify for the newsprint and ink exemption, but the books do not. As
a result, the selling price of the exempt tangible personal property ($36) is
greater than the selling price of the taxable tangible personal property ($12).
The shipping and handling charges ($4) are exempt.
iv) Delivery of Tangible Personal Property
Taxed Entirely at the Low Rate of Tax or Entirely at the High Rate of Tax. If a
retailer makes a sale of multiple items of tangible personal property that are
either all taxable at the high rate of tax or all taxable at the low rate of
tax, it must apply that rate to all the gross receipts from the sale, including
delivery charges.
EXAMPLE:
A customer purchases a wheelchair online for $500. The
retailer charges $40 for delivery. The $40 delivery charge is taxed at the low
rate of tax.
v) Delivery of
Multiple Items of Tangible Personal Property, Some of Which are Taxed at the
High Rate and Some of Which are Taxed at the Low Rate. In order to qualify for
the low rate, the selling price of the tangible personal property that is taxed
at the low rate must be greater than the total selling price of the tangible
personal property that is taxed at the high rate.
EXAMPLE:
A customer orders crackers, cheese and fruit for $200 and 6
bottles of wine at $75 per bottle ($450). The retailer charges the customer $20
for delivery. The retailer's outgoing transportation and delivery charges are
part of the retailer's costs of doing business and may not be deducted from its
gross receipts from that sale. The transportation and delivery charges are
taxable at the high rate of tax because the total selling price for tangible
personal property taxed at the high rate ($450) is greater than the total
selling price for the tangible personal property taxed at the low rate
($200).
vi) Delivery of
Multiple Items of Tangible Personal Property, Some of Which are Taxed at the
High Rate, Some of Which are Taxed at the Low Rate, and Some of Which are
Exempt. The outgoing transportation or delivery charges are exempt if the total
selling price of the exempt tangible personal property is greater than the
selling price of the taxable tangible personal property. If the total selling
price of the exempt tangible personal property is not greater than the selling
price of the taxable tangible personal property, the transportation and
delivery charges will qualify for the low rate if the total selling price of
the tangible personal property that is taxed at the low rate is greater than
the total selling price of the tangible personal property that is taxed at the
high rate.
2)
Incoming Transportation and Delivery Costs
A)
Applicability. Incoming transportation and delivery costs are costs incurred by
a retailer in acquiring tangible personal property for sale or moving tangible
personal property from one location to another location, up to and including
transportation to a point from which the property will be delivered or shipped
to the customer, or picked up by the customer.
B) General Rule. Incoming transportation and
delivery costs are a business expense to the retailer and may not be deducted
from the gross receipts from sales of tangible personal property at retail,
even though the retailer may pass those costs on to its customers by quoting
and billing those costs separately from the price of the tangible personal
property sold.
C) EXAMPLES:
i) A customer purchases $25 worth of books on
the internet. The retailer is advertising a $10 transportation and delivery
charge special on orders over $20 or a $1 transportation and delivery charge
special on orders shipped to its brick-and-mortar store for in-store pick up by
the customer. The customer chooses the in-store pickup option. The incoming
transportation and delivery costs incurred by the retailer for the customer's
order shipped to its brick-and-mortar store for in-store pickup are part of the
retailer's costs of doing business. Any amounts the retailer charges the
customer for shipping the books to its brick-and-mortar store are part of the
retailer's gross receipts from that sale and cannot be deducted. The taxable
amount on the sale of the books to the customer is $26.
ii) A customer goes to an appliance store
(Store A) to purchase an oven for $300. The store only has the display model at
that location, but there are several in stock at a second store at another
store location (Store B). The retailer offers to have Store B ship the oven to
Store A for $25, and the customer accepts. Any transportation costs to move the
merchandise from Store B to Store A are part of the retailer's costs of doing
business, and any amounts the retailer charges the customer for moving that
merchandise cannot be deducted from the retailer's gross receipts from that
sale. The taxable amount on the sale of the appliance is $325.
