Is a purchase exempt from Illinois tax merely because the buyer takes the goods to Canada, and can the buyer claim a refund directly?

Plain-English summary

A foreign purchaser bought goods in Illinois for use in Canada, paid Illinois tax to the seller, and asked IDOR for reimbursement after also paying Canadian taxes.

IDOR explained that an out-of-state destination alone does not create an exemption. If the purchaser receives possession in Illinois, the sale remains taxable even when the purchaser immediately transports the property elsewhere. By contrast, a sale can be exempt when the agreement requires the seller to deliver the goods by carrier or mail from Illinois to a point outside Illinois, the goods will not return, and the seller is identified as consignor or shipper on the bill of lading. The seller must retain proof of the agreement and bona fide out-of-state delivery.

Shipments to an Illinois freight forwarder for export to a foreign country can also qualify, but delivery to a foreign vessel in an Illinois port is taxable because possession transfers in Illinois.

For any refund, only the person that remitted the tax to IDOR—the retailer in this situation—may file the claim. Whether the retailer refunds the purchaser and seeks credit is a private matter; IDOR said it cannot compel the retailer to file.

Common questions

Does later use in Canada erase Illinois tax? No. Delivery and possession terms control.

Can a buyer obtain the refund directly from IDOR? Not when the retailer remitted the tax. The retailer is the authorized claimant.

Citations and references

• 86 Ill. Adm. Code 130.101
• 86 Ill. Adm. Code 150.101
• 86 Ill. Adm. Code 130.605(a), (d), (f), and (g)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2013.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2013/st-13-0070.pdf

Original ruling text

ST 13-0070-GIL 11/26/2013 INTERSTATE COMMERCE
This letter discusses sales in interstate and foreign commerce that originate in Illinois. See 86 Ill.
Adm. Code 130.605. (This is a GIL.)
November 26, 2013

Dear Xxxxx:
This letter is in response to your letter dated October 4, 2013, 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:
COMPANY 1 is requesting reimbursement of Illinois State Tax of DOLLAR
AMOUNT which was paid to COMPANY 2 on DATE via bank wire transfer
from COUNTRY.
Please find attached the invoice together with the Bill of Ladings and other
supporting documentation.
These items were purchased in Illinois for use in Canada (not for resale).
We have also paid our Provincial (Manitoba) and Federal (Canada) Tax on these
items.
Please review and advise whether this Illinois State Tax paid qualifies for a refund
to COMPANY 1.
Thank you for your attention to this matter and we look forward to your response.

DEPARTMENT’S RESPONSE:

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.
The tax is measured by the seller’s gross receipts from such sales made in the course of such
business. See 86 Ill. Adm. Code 130.101. 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 86 Ill. Adm. Code 150.101. Mere possession in Illinois is considered a use.
Consequently, if the purchase occurs in Illinois, the purchaser must pay the Use Tax to the
retailer. Please note that a sale is taxable even though a purchaser that receives physical
possession of the property in this State immediately transports the property out of this State for
use outside the State. See 86 Ill. Adm. Code 130.605(a)(2). The State of Illinois has no specific
exemption for purchases by foreign or domestic travelers if the property is delivered and used in
Illinois. Section 130.605 identifies a number of exceptions to this rule.
The Department’s regulation regarding Sales of Property Originating in Illinois, 86 Ill.
Adm. Code 130.605(d) provides that tax does not apply to gross receipts from sales in which the
seller either by carrier (when the carrier is not also the purchaser) or by mail, under the terms of
his agreement with the purchaser, delivers the goods from a point in this State to a point outside
this State not to be returned to a point within this State. The fact that the purchaser actually
arranges for the common carrier or pays the carrier that effects delivery does not destroy the
exemption. However, it is critical that the seller is shown as the consignor or shipper on the bill
of lading. If the purchaser is shown as either the consignor or the shipper, the exemption will not
apply.
Please note that under Section 130.605(g), retailers who ship property to freight
forwarders who take possession of the property in Illinois and ship the property to foreign
countries, not to be returned to the United States, are making exempt sales in foreign commerce
and do not incur Retailers' Occupation Tax liability on the gross receipts from those sales.
However, there is no exemption for property delivered in Illinois to foreign vessels. If foreign
vessels purchase items of tangible personal property from Illinois retailers and have those items
delivered to the vessels in an Illinois port, the sale is made in Illinois, the purchaser takes
possession of the items in Illinois, and therefore, the sale is taxable. In order to reflect this
exemption on the ST-556 form, one should check the "other" box and note that the sale was
made into foreign commerce.
To establish that the gross receipts from any given sale are exempt because the tangible
personal property is delivered by the seller from a point within this State to a point outside this
State under the terms of an agreement with the purchaser, the seller will be required to retain in
his records, to support deductions taken on his tax returns proof that satisfies the Department that
there was an agreement and a bona fide delivery outside this State of the property that is sold.
See 86 Ill. Adm. Code 130.605(f).
Claims for credit and refunds are available when a taxpayer shows that he paid tax to the
Department as a result of a mistake of fact or law. Only the remitter of the tax erroneously paid
to the Department is authorized to obtain a refund. Consequently, in cases such as yours, only the
retailer who remitted the tax to the Department is able to file a claim for a refund. Under Illinois
sales tax laws, however, retailers are not required to file claims for credit. The Department has

no authority to compel sellers to file a claim for credit. Whether or not a seller refunds the taxes
paid and files a claim for credit with the Department is a private matter between the seller and
the purchaser.
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,

Cara Bishop
Associate Counsel