Ill. Admin. Code tit. 86, § 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.
Notes
Amended at 25 Ill. Reg. 4971, effective March 23, 2001
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