United States

Illinois: Membership Fee Paid to Online Retailer Not Subject to Illinois Sales and Use Tax

Jul 20, 2015
From KPMG TaxWatch

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In a recent General Information Letter, the Illinois Department of Revenue addressed whether an annual membership fee paid by certain of an online retailer’s customers was subject to Illinois Retailer’s Occupation Tax and Use Tax or Service Occupation Tax and Service Use Tax. The taxpayer had originally requested a Private Letter Ruling, which the Department declined to give; the General Information Letter did not provide detailed guidance. The taxpayer at issue operated a website that allowed it and certain unrelated sellers to make sales of goods or services. For an annual fee, customers could purchase a membership entitling them to shipping benefits, special pricing on certain goods, and access to electronic books, photo storage, and free streaming of certain movies and television shows. The shipping benefits included free two-day shipping and other discounted shipping on eligible purchases, including a “bulky item” benefit that allowed members to purchase and ship items weighing up to 45 pounds for a flat shipping fee.

In response to the taxpayer’s inquiry, the Department advised that it does not consider receipts from the sale of a membership to be taxable gross receipts from the sale of tangible personal property. Rather, a membership fee is considered an intangible, which is not subject to Retailers' Occupation Tax or Use Tax. However, the Department cautions that if the membership fee entitles the customer to receive an item of tangible personal property or to receive a service and tangible personal property is transferred incident to that service, then tax may be imposed. The Department did not specifically address whether access to streaming videos and electronic books and the free shipping that taxpayers were entitled to as a result of the membership would transform the fee into a taxable transaction. For more information on Illinois General Information Letter ST- 15-0027-GIL (April 30, 2015), please contact Drew Olson at 312-665-2897 or Jill Nielsen at (312) 665-2794.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.