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

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.)

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.