What proof did Illinois require for a sale-for-resale exemption, and could a seller recover tax remitted before receiving that proof?

Plain-English summary

A seller should obtain a complete resale certificate with a valid registration or resale number when making a tax-free sale for resale. The certificate had to identify the seller and purchaser, describe the property, carry an authorized signature and date, and include the purchaser's registration or resale number or an out-of-state certification.

If that documentation was missing, Illinois presumed the sale was not for resale. The presumption could be rebutted with other evidence, such as an invoice showing an actual resale plus the purchaser's explanation and certification, but the Department warned that an auditor would likely demand more proof.

If the retailer had already remitted tax that was not due, only the remitter could claim a credit. The retailer also had to show it bore the burden of the tax—normally by returning the collected tax to the customer.

The Department did not decide whether the seed-treatment equipment was exempt for agricultural use or whether a dealer with no tax liability had to register.

What this means for you

Collect resale documentation before treating a dealer sale as exempt, verify the number, and retain evidence of the actual resale. If tax was collected and remitted by mistake, refunding the customer is part of the retailer's credit claim.

Common questions

Q: Did a resale certificate conclusively protect the seller?
A: A proper certificate with a number valid when given ended the seller's liability under the rule and case discussed in the GIL, assuming the stated conditions were met.

Q: Could a seller prove resale without a certificate?
A: Potentially, but the seller faced a presumption against resale and a heavier evidentiary burden.

Q: Did the GIL approve an agricultural exemption for the equipment?
A: No.

Subject

Sale For Resale

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2010.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2010/st-10-0099.pdf

Original ruling text

ST 10-0099-GIL 10/27/2010 SALE FOR RESALE
This letter addresses sales for resale. See 86 Ill. Adm. Code 130.1405. (This is a GIL.)

October 27, 2010

Dear Xxxxx:
This letter is in response to your letter dated June 7, 2010, in which you requested a Private
Letter Ruling. The Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are
issued by the Department in response to specific taxpayer inquiries concerning the application of a
tax statute or rule to a particular fact situation. A PLR is binding on the Department, but only as to the
taxpayer who is the subject of the request for ruling and only to the extent the facts recited in the PLR
are correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in
the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information
Letter (“GIL”) is to direct taxpayers to Department regulations or other sources of information
regarding the topic about which they have inquired. A GIL is not a statement of Department policy
and is not binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website
at www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to
your inquiry.
The nature of your inquiry and the information you have provided require that we respond with
a GIL. In your letter you have stated and made inquiry as follows:
I am writing this letter on the behalf of COMPANY and our dealer network to request
clarification and a private letter ruling from the State of Illinois on collecting Illinois Sales
Tax on our equipment shipped into Illinois.
COMPANY manufactures seed handling equipment including a seed treater unit. The
seed treater unit applies chemical to seed prior to the seed being planted. COMPANY
does not sell chemical or seed. Our customers are our dealer network who will then
resell this equipment to coops, seed dealers, farm service supply companies, and
farmers.
We have three questions in need of clarification.
1)

What documentation is required between COMPANY and our dealers to provide
tax exemption to our dealers at time of purchase?

2)

We currently have invoiced our dealer for $$ worth of Illinois sales tax that the
dealer would be exempt for once proper documentation is provided. It is the
understanding of COMPANY that this amount is due immediately to the state of
Illinois and we will be submitting on our next return. Once this is paid in, should
the dealer provide an exemption form in the coming weeks, is this sales tax
refundable from the State?

3)

Is the above listed equipment for exempt for Ag purposes and if so, is the dealer
required to register with the State of Illinois if no tax liability exists?

The website for our company is ADDRESS and I will be happy to answer any question
you may have in regards to this matter.

DEPARTMENT’S RESPONSE:
The Department’s regulation “Public Information, Rulemaking and Organization” provides that
“[w]hether to issue a private letter ruling in response to a letter ruling request is within the discretion of
the Department. The Department will respond to all requests for private letter rulings either by
issuance of a ruling or by a letter explaining that the request for ruling will not be honored.” 2 Ill. Adm.
Code 1200.110(a)(4). The Department has decided to respond with a GIL.
Although we cannot give you a specific answer in the form of a General Information Letter, we
hope you find the following helpful. Your inquiry appears to involve a sale for resale to dealers who
sell to customers for use or consumption. Note, when a person purchases items of tangible personal
property with the intention of reselling them to purchasers for use or consumption, that person
engages in making retail sales of tangible personal property. This makes the initial purchase a
purchase for resale, and the subsequent sale is a taxable sale at retail subject to Illinois Retailers'
Occupation and Use Tax liabilities. See 86 Ill. Adm. Code 130.201 and 130.210.
The Illinois 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. See 86 Ill.
Adm. Code 130.101. The tax is measured by the seller's gross receipts from retail sales made in the
course of such business. "Gross receipts" means the total selling price or the amount of such sales.
The retailer must pay Retailers' Occupation Tax to the Department based upon its gross receipts, or
actual amount received, from the sale of the tangible personal property.
In Illinois, Use Tax is imposed on the privilege of using, in this State, any kind of tangible
personal property that is purchased anywhere at retail from a retailer. See 35 ILCS 105/3; 86 Ill. Adm.
Code 150.101. These taxes comprise what is commonly known as "sales" tax in Illinois. If the
purchases occur in Illinois, the purchasers must pay the Use Tax to the retailer at the time of
purchase. The retailers are then allowed to retain the amount of Use Tax paid to reimburse
themselves for their Retailers' Occupation Tax liability incurred on those sales. If the retailer does not
collect the Use Tax from the purchaser for remittance to the Department, the purchaser is responsible
for remitting the Use Tax directly to the Department. See 86 Ill. Adm. Code 150.130.
The resale exemption is applicable when making sales to a purchaser who will in turn sell the
tangible personal property. For general information regarding resale certificates, the Department’s
regulation for resale certificates, “Seller's Responsibility to Obtain Certificates of Resale and
Requirements for Certificates of Resale,” is found at 86 Ill. Adm. Code 130.1405.
A Certificate of Resale is a statement signed by the purchaser that the property purchased by
him is purchased for purposes of resale. Provided that this statement is correct, the Department will
accept Certificates of Resale as prima facie proof that sales covered thereby were made for resale.
In addition to the statement, a Certificate of Resale must contain:
1)
2)
3)

the seller's name and address;
the purchaser's name and address;
a description of the items being purchased for resale;

4)
5)

purchaser's signature, or the signature of an authorized employee or agent of the
purchaser, and date of signing;
Registration Number, Resale Number, or Certification of Resale to out-of-State
Purchaser.

The obligations of a seller with respect to accepting a Certificate of Resale were addressed in
Rock Island Tobacco and Specialty Company v. Illinois Department of Revenue, 87 Ill.App.3d 476,
409 N.E.2d 136, 42 Ill. Dec. 641 (3rd Dist. 1980). The Rock Island court held that when a retailer
obtains a proper Certificate of Resale that contains a registration or resale number that is valid on the
date it is given, the retailer’s liability is at an end. If the purchaser uses that item himself or herself
(i.e., it was not purchased for resale), the Department will proceed against the purchaser, not the
retailer, provided the above stated conditions are met. The purchaser’s registration or reseller number
can be verified at the Department’s website by clicking on the “Tax registration inquiry” box.
Failure to present an active registration number or resale number and a certification to the
seller that a sale is for resale creates a presumption that a sale is not for resale. This presumption
may be rebutted by other evidence that all of the seller’s sales are sales for resale, or that a particular
sale is a sale for resale. For example, other evidence that might be used to document a sale for
resale, when a registration number or resale number and certification to the seller are not provided,
could include an invoice from the purchaser to his customer showing that the item was actually
resold, along with a statement from the purchaser explaining why it had not obtained a resale number
and certifying that the purchase was a purchase for resale in Illinois. The risk run by companies in
accepting such a certification and the risk run by purchasers in providing such a certification is that an
Illinois auditor is more likely to require that more information be provided as evidence that the
particular sale was, in fact, a sale for resale.
Where a taxpayer under the Retailers' Occupation Tax Act pays to the Department an amount
of tax or penalty or interest not due under the provisions of the Act, either as the result of a mistake of
fact or an error of law, such taxpayer may file a claim for credit with the Department. See 86 Ill. Adm.
Code 130.1501. Only the remitter of the tax erroneously paid to the Department is authorized to
obtain a refund or credit. In order to obtain a credit, one must first demonstrate that he or she has
borne the burden of the tax erroneously paid. In other words, the retailer must give his or her
customer back the tax he or she has collected from him or her or the retailer is not entitled to the
credit or refund. Claims for credit shall state the requirements that are contained in subpart (b) of the
regulation. The repayment of the tax to the customer will satisfy the requirement of Section
130.1501(a)(2).
We cannot provide you with specific information regarding subsequent sales of the equipment
by the dealers referred in your letter. The dealers may want to review the information on the
Department’s website regarding the different exemptions that might be claimed by some of their
customers.
I hope this information is helpful. If you require additional information, please visit our website
at www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.
Very truly yours,

Debra M. Boggess
Associate Counsel
DMB:msk