Illinois Administrative Code › Title 86 - REVENUE › Part 140 - SERVICE OCCUPATION TAX › Subpart A - NATURE OF TAX › Section 140.108 - "De Minimis" Servicemen Who Incur Use Tax on Their Cost Price

Current through Register Vol. 48, No. 28, July 12, 2024
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.