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Are Services Subject to Illinois Sales Tax?

By March 2, 2013November 8th, 2023Illinois Sales Tax, Uncategorized

Are both products and services subject to Illinois sales tax?
By:  Mansoor Ansari Attorney at Law
Question:  Why is it that when Nancy buys nail polish she pays sales tax, but when she gets a manicure she does not have to pay sales tax?
Answer:  In the first scenario, Nancy is buying a product, so the store owner is responsible for collecting sales tax on the good sold and Nancy is obligated to pay the tax; however, in the second scenario, neither the customer, nor the store owner are responsible for sales tax because a service is being purchased by the buyer and the vendor is solely selling a service.
Question:  When would Nancy be liable for Illinois sales tax?
Answer:  If Nancy purchased a nail with nail polish on it, or she purchased the nail and then the salon painted the nail, then in both cases, the entire purchase would be subject to sales tax.
In a similar case, a door building company was caught in a predicament.  ABC Doors Inc., was in the business of building doors.  After the point of sale (when a consumer would purchase the door), ABC would offer them services to customize the door.  ABC was right to charge sales tax on the purchase of the door, but what they did not realize was that the service (customization of the door) was a part of the end sale.  Since they did not charge sales tax on the entire order, they were held responsible for sales tax on the percentage of the sales of customization.
The bottom line:  When you sell a product, all revenues generated through services associated with the sale of the product are subject to Illinois sales tax.  Note the difference between selling a car and then offering an oil change three months later.  The difference is clear, such that the oil change is maintenance and does not effect the original state of the product and has no correlation to the sale.
If you have been audited for under reporting sales tax in Illlinois, contact our office to discuss your options (888) 577-1482.

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