How could an Illinois-registered drop shipper document a resale sale to an out-of-state purchaser that lacked Illinois nexus and registration?

Plain-English summary

An institute asked ten survey questions about a typical drop shipment: an out-of-state purchaser without Illinois nexus bought from an Illinois-registered company, which delivered directly to the purchaser's Illinois customer.

IDOR did not approve the survey or answer every question separately. It explained that the Illinois seller had to collect tax or document an exemption for its Illinois delivery.

To establish resale, the seller needed a valid certificate from the out-of-state purchaser. The certificate had to identify seller and purchaser, describe the property, carry an authorized signature and date, and include a registration or resale number or the rule's statement for an out-of-state purchaser that would sell only to customers outside Illinois. IDOR pointed to Form CRT-61.

A proper certificate with a valid number generally ended the seller's liability. Without an active number and certification, the sale was presumed not for resale. Other evidence—such as the purchaser's resale invoice plus an explanation and certification—could rebut the presumption, but IDOR warned it was more likely to draw requests for additional audit proof.

Common questions

Did an out-of-state purchaser's lack of Illinois nexus automatically exempt the drop shipment? No. The Illinois seller still had to collect tax or document resale.

What form did IDOR identify? Form CRT-61, Certificate of Resale.

Could other evidence replace a resale number? Potentially, but with greater audit risk.

Citations and references

• 86 Ill. Adm. Code 130.225 and 130.1405
• Rock Island Tobacco & Specialty Co. v. IDOR, 87 Ill. App. 3d 476 (1980)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2012.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2012/st-12-0004.pdf

Original ruling text

ST 12-0004-GIL 01/20/2012 SALE FOR RESALE
This letter is a response to a survey regarding drop shipments. For information regarding drop
shipments, see the Department’s regulation entitled “Drop Shipments,” found at 86 Ill. Adm.
Code 130.225. (This is a GIL.)

January 20, 2012

Dear Xxxxx:
This letter is in response to your letter received by the Legal Services Office on January 5,
2012, in which you request information. 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:
Your office was contacted in 1990, 1992, 1994, 1996, 1998, 2000, 2002, 2004, 2006,
2008 and 2010 to assist the Institute in its survey. Forty-five states and the District of
Columbia were each asked to respond to the 10 survey questions relating to third-party
drop shipment transactions. All jurisdictions responded, and the results were compiled
and published in 1990, 1992, 1994, 1996, 1998, 2000, 2002 , 2004, 2006, 2008, and
2010. Your office was sent a copy of each of the publications. An additional 2010 copy
is enclosed for your reference.
We have had continuing favorable reaction to this publication, so much so that the
Institute is going to completely reprint the survey for 2012. Over 850 copies of the 2010
survey were ordered by the majority of the Fortune 500 corporations and the reaction to
this monographic study has been overwhelmingly favorable, with many requests for a
complete update that would reflect statute and administrative changes in the various
states since the Tenth Edition was released in June 2010.
Therefore, we are contacting all of the 46 taxing jurisdictions that responded in 2010 to
the questionnaire that appears on pages ii-iii of the survey and are asking each of them
to review their responses related thereto and to respond anew to each of the 10
questions.

We would be most appreciative if you would take the time to respond to the ten
questions and furnish any updated respondent address information that is appropriate
(please include an e-mail address, if you wish). When all of the states and the
District of Columbia have replied, the information will be republished in a new booklet
and you will be sent, of course, a courtesy copy. Please direct your replies to my
attention at the following address where the compilation will take place (or via email),
A reply by you no later than March 9, 2012, would be most gracious on your part given
the time schedule that we have allowed for information gathering and printing of this
new 2012 survey. If you have questions, do give me a call.
Your Survey reads as follows:
FACTS...
SHIPS PRODUCTS
Seller
Corporation

SELLS
PRODUCTS

Other Corporation (Located
in your State – STATE B)

Buyer
Corporation
(Located in
STATE A)

RE-SELLS [sic]
PRODUCTS

Buyer Corporation is a registered wholesaler or retailer in State A.
Buyer Corporation has no nexus in your state and is not required to collect sales/use tax
in your state (State B).
Seller Corporation has a valid exemption certificate from Buyer Corporation for State A.
Seller Corporation is required to collect sales/use tax in your state (State B).
SURVEY QUESTIONS...
1.

Given that Buyer Corporation is not registered in, and has no nexus with, your
state (State B), will your state recognize the sale from Seller Corporation to
Buyer Corporation as a sale for resale not subject to sales or use tax in your
state? (‘Yes’ or ‘No’) If the answer is yes, what documentation will your state
accept to evidence that the sale from Seller Corporation to Buyer Corporation is
a sale for resale?

2.

Does it matter if Seller Corporation delivers in its own equipment, rather than by
common carrier?

3.

Do the FOB terms of sale matter in the taxation of this type of transaction? If so,
please explain.

4.

Does it matter if Seller Corporation ships from an inventory pool in your state as
opposed to an inventory pool in another state?

5.

What if Seller Corporation has a Direct Pay Certificate from Buyer Corporation
instead of a resale certificate from State A?

6.

If Other Corporation is a consumer, would the execution of an affidavit (see
Exhibit A) from Other Corporation to Buyer Corporation, furnished to Seller
Corporation, be sufficient to relieve Seller Corporation from further responsibility
or liability for your state’s tax?

7.

Does it matter if Other Corporation is reselling as opposed to consuming? Does
it matter that other Corporation is an exempt or immune entity or purchasing for
an exempt purpose other than for resale?

8.

What if Other Corporation is installing the items shipped in the performance of a
construction contract with an exempt agency in your state?

9.

If Seller Corporation is required to remit or collect and remit the tax, is the tax
measured by the price paid by Buyer Corporation, or by the price paid by Other
Corporation? If measured by the price paid by Other Corporation, what is Seller
Corporation required to do if it does not know, and has no right to know, the price
paid by the Other Corporation?

10.

What is the code section the state relies on to reach its conclusion in each
answer?

DEPARTMENT’S RESPONSE:
The Department cannot approve publications other than those issued by the Department of
Revenue. However, we can provide the following general information and cites to the relevant
sections of the Illinois Administrative Code that apply to the questions in your survey. For example,
the Department’s regulations entitled “Drop Shipments”, found at 86 Ill. Adm. Code 130.225, and
“Seller’s Responsibility to Obtain Certificates of Resale and Requirements for Certificates of Resale”,
found at 86 Ill. Adm. Code 130.1405, explain in greater detail the Department’s position on the
acceptance of Certificates of Resale by sellers from out-of-State purchasers.
A drop-shipment situation is normally one in which out-of-State purchaser (Purchaser) makes
a purchase for resale from a company (Company) which is registered with Illinois and has that
Company drop-ship the property to Purchaser’s customer (Customer) located in Illinois. For
purposes of this discussion, it is assumed that Purchaser is an out-of-State company that is not
registered with the State of Illinois and does not have sufficient nexus with Illinois to require it to
collect Illinois Use Tax.
Company, as a seller required to collect Illinois tax, must either charge and collect tax or
document appropriate exemptions when making deliveries in Illinois. In order to document the fact
that its sale to Purchaser is a sale for resale, Company is obligated by Illinois to obtain a valid
Certificate of Resale from Purchaser. See 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. In addition to the statement that the property is being purchased for resale, a Certificate of
Resale must contain:
1)
2)
3)
4)
5)

The seller's name and address;
The purchaser's name and address;
A description of the items being purchased for resale;
Purchaser's signature, or the signature of an authorized employee or agent of the
purchaser, and date of signing; and
Registration Number, Resale Number, or a statement that the purchaser is an out-ofState purchaser who will sell only to purchasers located outside the State of Illinois.

The Department provides a standard form for documenting sales for resale (Form CRT-61
Certificate of Resale, copy enclosed). This form can also be obtained from the Department’s website.
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 a retailer in
accepting such other documentation and the risk run by purchasers in providing such other
documentation 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.
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