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