Ill. Admin. Code tit. 86 § 130.2081

Current through Register Vol. 48, No. 45, November 8, 2024

Section 130.2081 - Tax-Free Purchases By Exempt Entities, Their Employees and Representatives, and Documenting Sales to Exempt Entities, Their Employees and Representatives

a)Gross receipts from proceeds from the sale of the following tangible personal property are exempt from the tax imposed by this Retailers' Occupation Tax Act:

1)Personal property sold to a governmental body, to a corporation, society, association, foundation, or institution organized and operated exclusively for charitable, religious, or educational purposes, or to a not-for-profit corporation, society, association, foundation, institution, or organization that has no compensated officers or employees and that is organized and operated primarily for the recreation of persons 55 years of age or older. A limited liability company may qualify for the exemption under this subsection only if the limited liability company is organized and operated exclusively for educational purposes. On and after July 1, 1987, however, no entity otherwise eligible for this exemption shall make tax-free purchases unless it has an active identification number issued by the Department [35 ILCS 120/2-5(11)]. See 86 Ill. Adm. Code 130.120(h) and 86 Ill. Adm. Code 130.2007.

2)Computers and communications equipment utilized for any hospital purpose and equipment used in the diagnosis, analysis, or treatment of hospital patients sold to a lessor who leases the equipment, under a lease of one year or longer executed or in effect at the time of the purchase, to a hospital that has been issued an active tax exemption identification number by the Department [35 ILCS 120/2-5(36)]. See 86 Ill. Adm. Code 130.120(mm) and 86 Ill. Adm. Code 130.2011.

3)Personal property sold to a lessor who leases the property, under a lease of one year or longer executed or in effect at the time of the purchase, to a governmental body that has been issued an active tax exemption identification number by the Department [35 ILCS 120/2-5(29)]. See 86 Ill. Adm. Code 130.120(nn) and 86 Ill. Adm. Code 130.2012.

4) Sales of materials to construction contractors for incorporation into real estate owned by exclusively charitable, religious or educational institutions or organizations, or any not-for-profit corporation, society, association, foundation, institution or organization that has no compensated officers or employees and that is organized and operated primarily for the recreation of persons 55 years of age or older, or for incorporation into real estate owned by governmental bodies. See 86 Ill. Adm. Code 130.2075.

b) Exempt Entities. Entities must have an active exemption identification number (E-number) in order to make tax-free purchases. See 86 Ill. Adm. Code 130.2007.

1) If an entity does not have an active E-number at the time of purchase, then its purchases are subject to tax. Entities that have applied to the Department but have not yet received an E-number from the Department cannot make purchases tax free. An exempt entity cannot provide a retailer an active E-number for purchases that were made before the Department issued the E-number.

EXAMPLE: The local boys and girls club applied to the Department for an E-number. The club purchased tumbling equipment for its members before it received its E-number. When the club received the E-number, it went back to the retailer, presented the retailer with a copy of the letter from the Department and requested a refund of the taxes it paid on the purchase of the tumbling equipment. The club is not entitled to a refund because a purchaser cannot provide a retailer an active E-number for purchases that it made before the Department issued it an E-number.

2) E-numbers must be renewed every 5 years. Exempt entities are advised to request a renewal of their E-numbers in a timely manner to avoid the expiration of their E-numbers.

3) E-numbers can only be used to make purchases in furtherance of an exempt entity's organizational purpose.

EXAMPLE 1: The vice president of an exempt organization invites a group of friends to his house to watch the football playoffs. Unbeknownst to the other board members of the organization, he takes a check from the organization's checkbook. He goes to a local retailer to purchase a flat screen television to watch the game. He presents the organization's letter from the Department containing its E-number to the retailer and pays for the television with the organization's check. It is improper for the vice president to purchase the television tax exempt because the purchase is for his personal use and not in furtherance of the organizational purpose, and the purchase was made without the exempt organization's knowledge and consent. The vice president would be liable for all taxes and civil penalties and may be subject to criminal penalties in connection with that purchase.

EXAMPLE 2: An assistant golf coach, without authorization, purchases a set of golf clubs as a retirement gift for the long-time head golf coach, uses the high school's E-number and pays by a check drawn on an account in the name of the high school. The retailer does not charge tax because the assistant golf coach presented the high school's E-number and paid for the clubs using a check in the name of the high school. Because the school did not knowingly or willingly allow the assistant coach to use its E-number and its check to purchase the clubs, the assistant golf coach would be liable for all taxes and civil penalties and subject to criminal penalties in connection with the improper use of the high school's E-number. If, however, the high school discovered the purchase and agreed to the use of the E-number for the purchase that was not in furtherance of its organizational purpose, then the high school would be subject to revocation of its E-number and liable for all taxes and civil penalties and subject to criminal penalties in connection with the purchase of the clubs.

4) In order for a purchase by an exempt entity to be tax exempt, the purchase must be made by an exempt entity. The only way to ensure that a purchase is made by an exempt entity is to require that the payment for a purchase be made using an instrument that contains the name of an exempt entity or by use of a purchase order from an exempt entity that is billed to an exempt entity. For purchases by employees and representatives of exempt entities using their own funds (i.e., cash, personal check, personal credit card, or personal debit card) see subsection (d) of this Section.

5) In order for a purchase by an exempt entity to be tax exempt, an exempt entity must pay for its purchase by one of the three following methods:

A) by use of a credit card that is directly billed to an exempt entity and is either in an exempt entity's name only or in an exempt entity's name and the name of a person authorized to use it.

EXAMPLE 1: A minister of a church with an E-number purchases some furniture for the parsonage. The minister gives the furniture retailer a copy of the letter from the Department that contains the church's E-number and pays for the furniture by a credit card issued in the church's name. The retailer notes the method of payment on the bill of sale. This purchase is tax exempt because the minister gave the retailer a copy of the Department's letter, which the retailer retained in its books and records. The purchase was in furtherance of the church's organizational purpose and was paid for by a credit card in the church's name.

EXAMPLE 2: A school administrator purchases computers for the school's computer lab, gives the retailer a copy of the school's letter containing the school's E-number and pays using a credit card that was issued in the school's name and the administrator's name and is directly billed to the school. The purchase was in furtherance of the school's educational purpose and is tax exempt.

B) by a check drawn on an account belonging only to an exempt entity.

EXAMPLE: The football coach of a high school goes to a sporting goods store to purchase additional footballs for the upcoming game. The coach gives a copy of the letter from the Department that contains the E-number issued to the high school and pays for the footballs with a check from the high school. The retailer retains the letter in its books and records and notes the method of payment on the invoice. This purchase is tax exempt because the coach gave a copy of the Department's letter to the retailer; the purchase was in furtherance of the high school's organizational purpose and was paid for with a check drawn on an account belonging only to the high school.

C) by use of a purchase order from an exempt entity and that is billed to the exempt entity.

6) Tangible personal property required to be titled and registered with an agency of this State purchased by an exempt entity for an exempt entity's organizational purpose must be titled and registered in an exempt entity's name only.

EXAMPLE: A pastor of a church purchases a passenger van to transport its youth group to its various outings, gives the dealership a copy of the letter containing the church's E-number and pays for the purchase using a check drawn on an account belonging only to the church. The retailer notes the form of payment on the bill of sale. The pastor titled and registered the car in both the church's name and his name. The purchase is not tax-exempt because the van is titled and registered in both the church's name and the pastor's name. If, however, the van was titled and registered in the church's name only, that purchase would be tax exempt.

7) An exempt entity that knowingly or willingly allows the improper use of its E-number (e.g., for purchases not in furtherance of an exempt entity's organizational purpose) shall be subject to revocation of its E-number.

EXAMPLE: A local cultural organization and a local community art group plan to hold an event in a conference room at a local hotel. The cultural organization's part of the event will be in the morning and the art group's part of the event will be in the afternoon. The cultural organization applied for and obtained an E-number from the Department. The art group applied for but has not yet obtained an E-number from the Department. Each group is having its portion of the event catered by the hotel. Because the art group has yet to receive its E-number from the Department, it asks to use the cultural organization's E-number to present to the hotel in order to purchase the catered items tax exempt. If the cultural organization lets them use its number, it would be subject to revocation of its E-number and liable for all taxes and civil penalties and subject to criminal penalties in connection with the art group's purchase of the catered items because the cultural organization knowingly and willingly allowed the improper use of its E-number by the art group.

8) An exempt entity that knowingly or willingly allows the improper use of its E-number shall also be liable for all taxes and civil penalties and subject to criminal penalties. See Section 14 of the Use Tax Act [35 ILCS 105/14].

9) If a person uses an exempt entity's E-number for the person's own use (e.g., not in furtherance of an exempt entity's organizational purpose), that person shall be liable for all taxes and civil penalties and subject to criminal penalties. See Section 14 of the Use Tax Act [35 ILCS 105/14].

c) Retailers. Requirements for properly documenting tax-exempt purchases by an exempt entity with an active E-number.

1) To support deductions from gross receipts for sales made to an exempt entity holding an active E-number, retailers must obtain and retain in their books and records the following information, whether in electronic format or otherwise:

A) A copy of the letter from the Department issuing the E-number to an exempt entity. In addition, retailers must check the expiration date in the letter to ensure that the number is active. If the E-number that an exempt entity provides to retailers has expired, the Department will not consider any sales made to that exempt entity to be tax exempt, and retailers must include the receipts from those sales in their gross receipts.

B) For subsequent sales to an exempt entity, retailers must record the active E-number at the time of sale (e.g., on the bill of sale, purchase order, or other indicia of the tax free sale) and keep a copy of the bill of sale or purchase order in their books and records.

2) Except for purchases made by employees or representatives pursuant to subsection (d), for sales to an exempt entity to be tax exempt, the sale must be billed directly to an exempt entity, paid for by credit card either in an exempt entity's name only or in an exempt entity's name and the name of a person authorized to use the credit card, or paid for by check drawn on an account belonging only to an exempt entity. Retailers shall note the form of payment on the bill of sale or the purchase order.

3) If a retailer fails to obtain and document the information as outlined in subsection (c) and fails to bill or accept payment as outlined in subsection (c) for a sale to an exempt entity, the retailer cannot claim the exemption.

4) If a retailer obtains and documents the information as outlined in subsection (c) for a sale to an exempt entity, the Department will accept such information as prima facie proof that the sale to that exempt entity was tax exempt.

d) Employees and Representatives of Exempt Entities. Requirements for properly documenting tax exempt purchases by employees and representatives of exempt entities using their own funds.

1) This subsection provides a limited exemption for purchases by persons employed by or representing an exempt entity that possesses an active identification number made in furtherance of the exempt entity's organizational purposes. This limited exemption allows these persons to make tax exempt purchases using their own funds and paying by cash, personal check, and personal credit or debit cards. To receive the exemption the following conditions must be met:

A) Annually, the employee or representative provides each retailer from whom the employee or representative will make exempt purchases of tangible personal property a signed certification that includes the following:

i) the name and address of the employee or representative;

ii) the name and address of the retailer;

iii) the name and address of the exempt entity;

iv) the active identification number of the exempt entity; and

v) a statement under penalty of perjury that the tangible personal property will be used in furtherance of the exempt entity's organizational purpose.

B) The retailer possesses a copy of the active identification number letter issued by the Department to the exempt entity;

C) No single transaction exceeds $400;

D) At the time of sale, the employee or representative shows to the retailer a copy of the certification required by subsection (d)(1)(A), and the retailer verifies the identity of the purchaser by reviewing the employee's or representative's government issued identification or any identification that the exempt entity issues to employees or representatives of the exempt entity.

E) The retailer must maintain the documentation provided under subsections (A) and (B) for the period required by Section 7 of the Retailers' Occupation Tax Act.

2) Retailers making exempt sales pursuant to this subsection (d) must obtain the documentation and information required by subsections (d)(1)(A) and (B).

3) If a retailer fails to obtain the documentation and information in subsections (d)(1)(A) and (B) for a sale to an employee or representative of an exempt entity, it will lack sufficient information to support a deduction from gross receipts for that sale made to that employee or representative of the exempt entity.

4) If a retailer obtains the documentation and information as outlined in subsections (d)(1)(A) and (B) for a sale to an employee or representative of an exempt entity, the Department will accept such documentation and information as prima facie proof that the sale to that employee or representative was tax exempt.

Ill. Admin. Code tit. 86, § 130.2081

Added at 45 Ill. Reg. 7248, effective 6/3/2021