Illinois – Taxability of Advertising Signs and Freight Charges

SALT Report 2524 – The Illinois Department of Revenue issued a general information letter regarding the taxability of advertising signs purchased by a general contractor. The Taxpayer in this case, purchases the signs direct from the manufacturer and hires a third party to install them at various automobile dealerships in Illinois.

The Taxpayer requested guidance as to whether the signs, when purchased as finished goods from the manufacturer, are considered Real Property or Tangible Personal Property. Also, if taxable who would be liable for the tax, the dealership or the Taxpayer?

In its response the Department stated that under Illinois law, anyone who sells signs that have commercial value will be liable for sales tax, even if the sign is made on special order for the purchaser. Signs that the Department deems to have commercial value include those that spell out words, such as “real estate”, “insurance,” or “hamburgers,” and do not indicate the name of the purchaser, a product’s brand name, or are not individualized to a specific customer.

If the signs are permanently affixed to real estate, then there are different tax consequences. Under Illinois law, a person who converts tangible personal property into real estate is deemed a construction contractor and is the end-user of the property. The construction contractor, as the end user, is liable for Use Tax and the local Retailers’ Occupation Tax if the property is purchased from an Illinois supplier. If the supplier does not collect tax, the person who converts the tangible personal property into real estate is required to self-assess and remit Use Tax to the Department.

If the Taxpayer uses a subcontractor to install the signs, the transaction between the Taxpayer and the subcontractor is not taxable. However, the subcontractor will be liable for Use Tax on any tangible personal property that is purchased and incorporated into real estate.

As for the freight charges, they are considered a part of the retailer’s cost of doing business and the charges are included in the amount subject to tax. However, charges designated as shipping and handling are not taxable if the retailer can verify that they are agreed to separately from the selling price and that the charges reflect the actual costs of shipping.

For Further Information

Illinois Department of Revenue – General Information Letter ST 13-0022-GIL