United States

Illinois: Proposed Revisions to Regulation Addressing Taxability of Delivery Charges

Sep 07, 2015
From KPMG TaxWatch

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As expected, the Illinois Department of Revenue has issued proposed changes to a regulation addressing the taxability of transportation and delivery charges. The amendments to the regulation— Illinois Admin. Code Section 130.415—are in response to the 2009 Illinois Supreme Court decision in Kean v. Wal-Mart Stores, Inc. and are retroactive to November 19, 2009. In Kean, the court held that transportation and delivery 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 Retailer’s Occupation Tax. The revised Illinois rule transports the language from the Kean opinion and provides that if the seller does not offer the purchaser the option to receive the tangible personal property in any manner except by delivery (i.e., the customer does not have the option of picking up the property) then transportation and delivery charges, even if separately stated, will be considered inseparably linked to the sale of tangible personal property and will be subject to tax. If the seller offers the purchaser the option to pick up the property and charges the same price for the property regardless of whether the property is delivered or picked up, then separately identified delivery charges will not be subject to Retailer’s Occupation Tax. If the selling price of the tangible personal property increases or decreases, depending on whether the property is picked up or delivered, then the transportation and delivery charges will be subject to Retailer’s Occupation Tax to the extent the charges exceed the actual cost of outgoing transportation and delivery. It should be noted that it does not matter for purposes of this analysis whether the customer is unlikely to pick up the property, such as when the seller’s only location is in another state. All that matters is that the customer has the option of doing so. The revised rule includes numerous examples and the Department of Revenue will be accepting comments on the proposed changes through October 12, 2015. Please stay tuned to TWIST for future updates on the revised rule.

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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.