What does Illinois General Information Letter ST 18-0007-GIL conclude about Sale For Resale?

Plain-English summary

This General Information Letter did not arise from an ordinary taxpayer question. A trade group asked the Illinois Department of Revenue to fill out a recurring "Third-Party Drop Shipment Survey" — a multi-state questionnaire it has circulated every two years since 1990 — asking Illinois to answer ten detailed questions about how it taxes drop-shipment transactions (where a seller ships goods directly to a buyer's customer in Illinois on the buyer's behalf).

The Department's response was blunt on the threshold point: it "cannot approve publications other than those issued by the Department of Revenue," so it would not fill out the survey. Instead of answering the ten questions one by one, it directed the requester to its own published rules and gave a general explanation of how Illinois treats drop shipments and resale documentation.

The substantive guidance is that a drop-shipment seller registered in Illinois must either collect Illinois tax on a sale or document that the sale is exempt as a sale for resale. The way to document that exemption is a valid Certificate of Resale (Form CRT-61) from the purchaser, containing the seller's and purchaser's names and addresses, a description of the goods, the purchaser's signature and date, and either a registration/resale number or a statement that the purchaser is an out-of-state reseller. Citing Rock Island Tobacco and Specialty Co. v. Department of Revenue, the Department explained that once a seller obtains a proper Certificate of Resale with a registration or resale number valid on the date given, the seller's liability ends — even if it later turns out the purchaser used the item itself rather than reselling it. In that case the Department pursues the purchaser, not the seller.

The letter also addresses what happens without a clean certificate: failing to get an active registration or resale number and certification creates a presumption the sale is not for resale, though that presumption can be rebutted with other evidence (e.g., an invoice showing the item was actually resold plus an explanation for the missing resale number) — with the caveat that Illinois auditors are more likely to scrutinize such alternative documentation closely.

What this means for you

Drop shippers and multistate sellers registered in Illinois

If you are registered to collect Illinois tax and you drop-ship goods to an Illinois customer on behalf of an out-of-state buyer who has no Illinois nexus, you need a valid Certificate of Resale (Form CRT-61) from that buyer to treat the sale as exempt. Get the registration or resale number verified through the Department's "Tax registration inquiry" tool, and keep the certificate on file — it is your primary protection if the buyer later fails to resell the item.

Accountants and tax professionals

This GIL is useful less for the drop-shipment "law" (which is fully spelled out in 86 Ill. Adm. Code 130.225 and 130.1405, both of which are cited but not reproduced here) and more as a reminder that the Department will not participate in private industry surveys or restate its position questionnaire-by-questionnaire. When advising clients on multistate drop-shipment exposure, go to the regulations and the Rock Island Tobacco case directly rather than relying on a survey response, since the Department expressly declined to give one here.

Buyers and resellers providing certificates

If you are the out-of-state buyer in a drop-shipment chain, this letter is a reminder that your registration/resale number must be active and valid on the date you give the certificate. An expired or invalid number undermines the seller's exemption documentation and can shift audit attention back onto the transaction.

Common questions

Q: Did the Illinois Department of Revenue answer the trade group's ten survey questions?
A: No. It expressly declined, stating it "cannot approve publications other than those issued by the Department of Revenue." It gave general information and citations instead of point-by-point answers.

Q: How does a seller document that a drop-shipment sale is exempt as a sale for resale?
A: With a valid Certificate of Resale (Form CRT-61) from the purchaser, containing the seller's and purchaser's names/addresses, a description of the property, the purchaser's signature and date, and a registration number, resale number, or a statement that the purchaser is an out-of-state reseller who sells only outside Illinois. See 86 Ill. Adm. Code 130.1405.

Q: If the buyer actually used the item instead of reselling it, is the seller on the hook for the tax?
A: Not if the seller obtained a proper Certificate of Resale with a valid registration or resale number at the time it was given. Under Rock Island Tobacco and Specialty Co. v. Department of Revenue, the seller's liability ends there, and the Department pursues the purchaser instead.

Q: What if the seller never gets a resale/registration number from the buyer?
A: The Department treats that as creating a presumption the sale is not for resale. The presumption can be rebutted with other evidence (such as an invoice showing the item was resold plus an explanation for the missing number), but the Department notes an Illinois auditor is more likely to demand additional proof in that situation.

Citations and references

• 86 Ill. Adm. Code 130.225 (Drop Shipments)
• 86 Ill. Adm. Code 130.1405 (Seller's Responsibility to Obtain Certificates of Resale and Requirements for Certificates of Resale)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedures, contrasted with GILs)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedures; not binding on the Department)
• Rock Island Tobacco and Specialty Co. v. Illinois Dep't of Revenue, 87 Ill. App. 3d 476, 409 N.E.2d 136, 42 Ill. Dec. 641 (3rd Dist. 1980)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2018.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2018/st-18-0007-gil.pdf

Original ruling text

ST 18-0007-GIL 03/27/2018

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.)

March 27, 2018

Dear Xxxxx:
This letter is in response to your letter dated January 4, 2018, in which you requested
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, 2010, 2012, 2014 and 2016 to assist the Institute in its publication of the ThirdParty Drop Shipment 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 the same years as stated above. Your office was sent a copy of each of the updated
publications. An additional 2016 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 2018 which will be the Fourteenth
Edition. Over 540 copies of the 2016 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 Thirteenth Edition
was released in June 2016.

ST 18-00007-GIL
Page 2
Therefore, we are contacting all of the 46 taxing jurisdictions that responded in 2016 to
the questionnaire that appears on pages ii-iii of the 2016 Third-Party Drop Shipment
Survey and are asking each of them to review their responses related thereto and to
respond anew to each of the 10 questions. If there are no changes, would you please
advise?
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.
PREFERABLY, at xxxx@xxx):
A reply by you no later than March 15, 2018, would be most gracious on your part given
the time schedule that we have allowed for information gathering and printing of this
new 2018 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

ST 18-00007-GIL
Page 3
accept as 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

ST 18-00007-GIL
Page 4
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). 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.
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.

ST 18-00007-GIL
Page 5
Very truly yours,

Debra M. Boggess
Associate Counsel

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