Current through Register Vol. 48, No. 38, September 20, 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.
b) If a
serviceman pays Use Tax to his suppliers in the expectation that his cost ratio
will be less than 35% (or less than 75%, if applicable), but the actual ratio
is 35% or more (75% or more, if applicable), the serviceman would be able to
take credit for taxes paid to his supplier but would still be liable for
Service Occupation Tax (including applicable local taxes). The serviceman may
also be liable for penalties and interest. He should register with the
Department immediately and begin remitting Service Occupation Tax on his
selling price.
c) Even though a
serviceman meets the de minimis threshold and is otherwise eligible to pay Use
Tax on the cost price of the tangible personal property transferred to service
customers, he can nevertheless register with the Department and pay Service
Occupation Tax as explained in either Section
140.106
or
140.109.
d) Example of de minimis serviceman paying
Use Tax. An unregistered printer contracts to print wedding invitations. The
printer has determined that his cost ratio falls below the 75% threshold. The
entire service bill is $200. The printer's cost price of the paper and ink
transferred to the customer is $75. If the printer is not required to be
registered as a retailer under Section 2a of the Retailers' Occupation Tax Act,
he can remit Use Tax to his Illinois-registered supplier. If his supplier is
not registered to collect the Use Tax, he may remit it directly to the
Department, on the cost price of $75. The printer may not collect "tax" from
his customer. The printer may not show "tax" on his bill to the customer.
However, the printer may collect "reimbursement" from his customer as provided
in subsection (a)(3) of this Section.
