Was downstream reseller documentation enough for an out-of-state seller drop shipping directly to an Illinois customer?

Plain-English summary

An out-of-state electronics manufacturer sold to an out-of-state customer with no Illinois resale number. That customer resold to a second company holding an Illinois number, which resold to an Illinois end customer. The manufacturer was asked to drop ship directly to the end customer and received a document package instead of a standard resale certificate.

IDOR said the seller making the Illinois delivery had to collect tax or document an exemption. To prove its sale was for resale, it generally needed a valid certificate signed by its own purchaser.

The certificate had to include seller and purchaser names and addresses, a description of the resale items, purchaser signature and date, and a registration or resale number—or a qualifying statement that an out-of-state purchaser would sell only to customers outside Illinois.

The package supplied here did not appear to contain all required information. Other evidence, such as the purchaser's invoice to its customer plus an explanation and resale certification, could rebut the presumption that the sale was taxable, but an auditor could demand additional support.

When a seller accepted a proper certificate containing a number valid when given, the cited case placed later misuse risk on the purchaser rather than the seller.

What this means for you

A downstream reseller's Illinois number did not replace complete documentation from the seller's direct purchaser. Multilevel drop shipments should be documented at each relevant sale rather than relying on the final customer's chain alone.

Common questions

Was the provided document package sufficient? It appeared not to be.

Could alternate proof be used? Yes, but with greater audit risk.

What best protected the seller? A complete, valid resale certificate from its purchaser.

Citations and references

• 86 Ill. Adm. Code 130.225 and 130.1405.
• Rock Island Tobacco & Specialty Co. v. Illinois Department of Revenue, 87 Ill. App. 3d 476, 409 N.E.2d 136 (3d Dist. 1980).

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2015.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2015/st-15-0010.pdf

Original ruling text

ST 15-0010-GIL 01/12/2015 SALE FOR RESALE
This letter addresses sales for resale and drop shipments. See 86 Ill. Adm. Code
130.1405 and 86 Ill. Adm. Code 130.225. (This is a GIL.)

January 12, 2015

Dear XXXX:
This letter is in response to your letter dated October 23, 2014, 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:
We are a manufacturer of electronic products and in the normal course of
business request a resale certificate from customers. One customer sent
us a package of documents (which I have enclosed) in lieu of a resale
certificate and we needed to know if this is an acceptable documentation
of sales tax exemption for our customer.
Basically the situation is that we (an out of state seller)- are selling our
products to COMPANY in [STATE 1] (they do not have a Illinois resale
number). They are reselling to ABC in [STATE 2] (they do have an Illinois
resale # which we have verified) who is then reselling to XYZ in Illinois.
Our customer, COMPANY, has asked us to drop ship our products directly
to XYZ in Illinois.
I spoke to the Illinois Department of Revenue call center and while they
thought that under 130.225 we would not need to collect sales tax from
our customer as ultimately it would be the responsibility of the second
reseller, ABC (with a Illinois resale number) to collect sales tax. They
could not provide us with anything in writing however, so suggested we

write your office. I appreciate your response letting us know whether that
is the case and that the documentation we received is sufficient.
DEPARTMENT’S RESPONSE:
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 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-of-State purchaser who will sell only to purchasers located outside
the State of Illinois.

The Department provides a standard form for documenting sales for resale. This
form can 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.
In sum, a valid resale certificate must contain all of the information required in 86
Ill. Adm. Code 130.1405. For your reference, this information is also listed above. It
appears that the certificate that the purchaser provided to you does not have all of the
required information filled in. If you choose to accept alternate documentation as proof
that the sale is for resale, it is possible that an auditor could require additional
information to rebut the presumption that the sale is not 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,

Cara Bishop
Associate Counsel

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