The Illinois Department of Revenue (Department) has further revised its recently proposed amendments to the regulations governing the taxability of shipping and handling charges. See our prior coverage here. The revisions to the Proposed Amendments to 86 Ill. Admin. Code §§ 130.415 and 130.410 (Revised Proposed Amendments) were made in response to particular comments and concerns raised by industry groups, as explained by the Department in its Second Notice of Proposed Rulemaking. The Revised Proposed Amendments address the following topics:
- Retroactivity of the Revised Proposed Amendments to November 19, 2009, the date of the Kean decision: The Department added a “safe harbor provision” for taxpayers that have complied with the existing regulation for time periods prior to the effective date of the Revised Proposed Amendments. Prop. 86 Ill. Admin. Code § 130.415(b)(1)(A)(i). Taxpayers fitting within the safe harbor will be considered to be in compliance with Illinois law regarding the taxability of delivery charges.
- Clarification of taxpayers subject to the Revised Proposed Amendments: The Department clarified that all persons making taxable sales or collecting or self-assessing Illinois use tax are subject to the Revised Proposed Amendments. Prop. § 130.415(b)(1)(A)(ii).
- Free shipping option: The Department has added language expressly stating that when a seller offers customers free standard shipping or “qualified” free shipping (i.e., free shipping for purchases totaling at least a certain amount), any other separately stated shipping service for which a seller charges customers (i.e., expedited shipping) are separately contracted for and thus nontaxable. Rev. Prop. § 130.415(b)(1)(B)(ii), (C). For delivery charges to qualify as nontaxable because a seller offers “qualified” free shipping, the customer’s purchase must actually be eligible for free shipping (i.e., must total at least a specified dollar threshold). Rev. Prop. § 130.415(b)(1)(D)(v).
- Taxability of delivery charges where taxability or tax rate of underlying property differs: The Revised Proposed Amendments also provide that sellers can elect to itemize delivery charges on sales of taxable and tax exempt items and low and high rate items and pay the associated tax on shipping charges as determined by the underlying item. Rev. Prop. 130.415(b)(1)(F)(i). In the absence of separately identifying the delivery charges, the “lump sum” rules as set forth in the original version of the Proposed Amendments will apply. Rev. Prop. § 130.415(b)(1)(F)(i).
- Taxability of delivery charges where taxability of charges themselves differ: The Department also added a similar rule based on taxability of the delivery charges themselves, in a circumstance, for example, where some charges are taxable and others are not. The Revised Proposed Amendments mirror the rule expressed above, stating that that a seller can separately state delivery charges for each item sold and pay the associated tax as determined per item. Rev. Prop. 130.415(b)(1)(E)(i). If the invoice contains a lump sum of total delivery charges, the sum will not be taxable if the selling price of items with nontaxable delivery charges is greater than the selling price of items with taxable delivery charges. [...]