Do I have to charge sales tax for this?

Factual Questions
1

I am a few weeks away from launching a small business that provides a set of services patent-pending seervices around audio journaling, and I’m unclear if I need to charge sales tax (I live in Illinois).

My general understanding is that products get taxed, but services do not. This is a little bit of both…

The service is basically that somebody who has an event coming up (wedding, anniversary, birthday etc.) signs up on my web site, and I give them a toll-free number to provide to their guests.

To use a wedding example, the idea is that in the invitation to the event they include an insert that has the phone number, and the insert says that whether the guest can make it to the event or not, please call the toll-free number and leave your favorite story about you and the bride or groom.

All these stories and memories get collected as part of the service and are sent out to the bride and groom on CD as a keepsake.

For weddings, the tangible things I’m providing are copies of the CD, and if they pay a bit extra I’ll mail them printed inserts for them to include in their invitations. Otherwise, they can use Word document templates I’ll have on the web site and print their own inserts.

For other events, and for a separate personal audio journal service, folks have the option of paying less, and instead of getting a CD in the mail, they can download the journal entries into iTunes and burn their own CD’s.

This whole business seems more like a “service” to me than a “product”, and so my initial thought is that I don’t need to charge sales tax. Although I do mail out some tangible things, I also know that when I bought a washer and dryer, if I had it delivered I didn’t pay sales tax on the washer and dryer (because delivery was a service), but if I picked it up I did pay sales tax.

I’ve gone to the Illinois Department of Revenue site, to see what the definition of a “service” was, but I couldn’t easily find a definition.

I realize nobody here is my tax advisor or lawyer, but is the question of whether I’m offering a product or service fairly black and white or is there some greyness? If it’s grey, what (hopefully free or low-cost) resources can help me decide what to do?

Thanks in advance.

2

Sorry for the typos, by mistake I pressed submit instead of preview…

3

This site seems to answer your questions:
http://www.revenue.state.il.us/Businesses/TaxInformation/Sales/rot.htm

4

Thanks A.R. Cane.

I had already read that page, but it still left me confused. If I take this sentence at face value,

Then, the only thing about the service that’s tangible is the CD’s I’m mailing out and maybe the inserts. So let’s say I break out the costs, and charge $50 for the whole service, but $1 for the CD’s. Do I just charge tax on the $1?

When I bought my washer I didn’t have to pay sales tax when it was delivered because the installation service was bundled in. Is this the same type of thing?

If I don’t mail out any CD’s, and the customer listens to the journal entries via phone or download, and they print out their own inserts do I need to charge any sales tax?

Realize that I’m just providing back to them recordings that they or their guests left, I’m not selling them anything I created or bought, in my mind I’m just providing a service.

5

I think this section includes your service, but I can somewhat understand your confusion. The have a toll free number for questions.
"3) “Other general merchandise” includes sales of most tangible personal property including sales of:

soft drinks;

prepared food such as food purchased at a restaurant;

photo processing (getting pictures developed);

**prewritten and “canned” computer software;**

prepaid telephone calling cards and other prepaid telephone calling arrangements;

repair parts and other items transferred or sold in conjunction with providing a service under certain circumstances based on the actual selling price.
6

I would say for those cases where you do provide CD’s, inserts, paper copies, etc., tax should be charged for those items. It will be a service/materials split, as per your 49/1 example (this sort of thing is the norm in auto repair). Tax is charged only on materials you provide.

7

You then should get an sales tax license to purchase your materials tax free, right?

Are you kidding that you don’t have to pay sales tax on delivered items? That’s still a sale; installation and delivery are services and thus tax free. But they still should have nailed you on the tax for the washer and dryer.