Sales of Magnetic Card are Taxable in Illinois
- Oct 3, 2012 | Gail Cole
The Illinois Department of Revenue has ruled that magnetic cards manufactured in Illinois and sold to hotels, casinos, and various retailers are indeed subject to service occupation tax.
The company in question manufactures magnetic cards and sells them to a variety of businesses for different purposes:
- to hotels, for card keys;
- to casinos, so gamblers can put money on the card to use while playing;
- as loyalty rewards for frequent users at restaurant chains and other businesses;
- as gift cards for certain retail chains, sold in grocery stores and outlets.
In ST 12-0034-GIL (General Interest Letter), the company in question asked:
- Is the manufacturing of the card is a service, and therefore not a taxable service because of the custom nature of the cards?
- Are these cards considered a taxable sale of tangible personal property?
In Illinois, the Retailers' Occupation Tax Act "imposes a tax upon persons engaged in this State in the business of selling tangible personal property to purchasers for use or consumption."
However, if "tangible personal property is transferred incident to sales of service," then either Service Occupation Tax or Use Tax applies. (86 Ill. Adm. Code 140.101 through 140.109)
ST 12-0034-GIL states that "a manufacturer who manufactures and sells custom-printed magnetic cards is engaged in a sale of service. Any tangible personal property transferred incident to that sale of service (such as the card itself and any custom printing added) is subject to tax."
The letter outlines several possible ways to calculate that tax. As a:
- Service Occupation Tax on separately stated selling price of tangible personal property transferred incident to service;
- Service Occupation Tax 50% of the servicemen's entire bill;
- Service Occupation Tax on the servicemen's cost price if the servicemen are registered de minimis servicemen; or
- Use Tax on the servicemen's cost price if the servicemen are de minimis and are not otherwise required to be registered under Section 2a of the Retailer's Occupation Tax Act.
ST 12-0034-GIL leaves it to the taxpayer to determine which of the above applies. Tax is due regardless of the choice.