Aug 24, 2015
From KPMG TaxWatch
A pair of private letter rulings recently issued by the Illinois Department of Revenue address the taxability of transportation and delivery charges associated with online sales. The taxpayers, out-of-state wineries registered to collect Illinois use tax, requested clarification as to the taxability of wine delivery charges. The taxpayer’s Illinois customers ordered wine via the taxpayers’ website. Customers were offered the option of having wine delivered to the customer’s place of residence or picking the wine up at the winery. The wineries were located outside of Illinois.
The Department observed that its response was governed by Kean v. Wal-Mart Stores, Inc. and that its current transportation and delivery charges regulation (Illinois Admin. Code Section 130.415) is under review in light of Kean. In Kean, a 2009 Illinois Supreme Court case, the court held that shipping charges are taxable when there is an “inseparable link” between the charge and the related merchandise. The inseparable link exists when delivery charges are not separately identified to the customer on the invoice or when the seller does not offer the purchaser an option other than shipment. In Kean, the customer had to choose one of three different delivery options to complete the sale. Thus, because the customer could not complete the transaction without choosing a delivery option, the court ruled that the transportation and delivery charges were part of the taxable gross receipts subject to Illinois tax. In the rulings, however, both wineries provided documentation to support the fact that customers had the option of picking up the wine in lieu of having it delivered. Therefore, the Department concluded that use tax would not be due on the shipping and delivery charges regardless of whether the customer ultimately had the wine delivered. For more information regarding the Illinois Department of Revenue’s Private Letter Ruling Nos. ST 15-0011-PLR and ST 15-0012-PLR, please contact Drew Olson at 312-665-2897.
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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.