Illinois Administrative Code › Title 86 - REVENUE › Part 140 - SERVICE OCCUPATION TAX › Subpart C - BASE OF THE TAX › Section 140.301 - Cost Price

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