What does Illinois General Information Letter ST 18-0014-GIL conclude about Prepaid Sales Tax?

Plain-English summary

A motor fuel reseller wrote to the Illinois Department of Revenue asking two things: whether its certificate of resale exempted it from prepaid sales tax on motor fuel, and, if not, how it could get credits or a refund for prepaid sales tax it says it paid on gasoline purchases (and which was not allowed on its Form PST-1). Because the taxpayer's letter did not give enough specific facts, the Department could not issue a binding Private Letter Ruling and instead responded with this General Information Letter (GIL) — general guidance pointing to the relevant law rather than a decision on this taxpayer's actual liability or refund claim.

On the resale-certificate question, the Department explained that the answer depends on how the business is registered. A person registered under Section 2c of the Retailers' Occupation Tax Act exclusively as a reseller of tangible personal property, whose sales are in fact all nontaxable, owes no prepaid sales tax. But a person registered under Section 2a as a retailer who makes retail sales of motor fuel must prepay sales tax to its supplier — unless that retailer is also licensed as a motor fuel distributor or supplier. So a resale certificate alone does not automatically exempt a retailer from prepaid sales tax; registration status and the nature of the sales control the outcome.

On credits and refunds, the Department pointed to 35 ILCS 120/2d, which entitles a motor fuel retailer to a credit equal to the prepaid tax paid to its distributor, supplier, or reseller, and to 86 Ill. Adm. Code 130.1501, which governs claims for credit when tax was paid in error. A taxpayer must show it bore the burden of the tax (or unconditionally repaid it to the person from whom it collected the tax) and must file the claim on Department forms within the statute of limitations — roughly 3 to 3½ years from when the tax was erroneously paid, expiring in six-month blocks, regardless of when a return was filed. If a credit has already been established, the taxpayer can convert it to a refund using Form ST-6.

The Department also described the mechanics of the prepaid sales tax system: a distributor, supplier, or other reseller collects the prepayment and remits it on Form PST-1, attaching a Form PST-2 (Statement of Tax Paid) for each sale to a motor fuel retailer, with the retailer and reseller each keeping their own copies to let the Department cross-check the reporting.

What this means for you

Motor fuel retailers

If you are registered under Section 2a as a retailer and buy motor fuel for resale, you generally must prepay sales tax to your distributor, supplier, or reseller under 35 ILCS 120/2d — a resale certificate does not by itself excuse this unless you are also licensed as a distributor or supplier, or you are instead registered solely as a Section 2c reseller with entirely nontaxable sales. You are entitled to a credit against your Retailers' Occupation Tax liability equal to the prepaid tax you paid.

Resellers and distributors

You are responsible for collecting the prepaid sales tax from retailers, remitting it to the Department on Form PST-1, and attaching Form PST-2 for each retail-fuel sale. Keep your Copy D of Form PST-2 (and require the retailer to keep Copy B) so the Department can verify the reporting matches on both sides.

Business owners and accountants pursuing a refund

If tax was paid in error, you can file a claim for credit under 86 Ill. Adm. Code 130.1501, but you must document that you bore the economic burden of the tax or unconditionally repaid it to whoever you collected it from, and you must file within the applicable limitations period (about 3 to 3½ years, cut off in six-month increments, measured from when the tax was erroneously paid — not from when a return was filed). An established credit can be converted to a cash refund with Form ST-6.

Common questions

Q: Does having a certificate of resale automatically exempt a business from prepaid sales tax on motor fuel?
A: Not automatically. It depends on registration: a Section 2c reseller whose sales are entirely nontaxable owes no prepaid tax, but a Section 2a retailer making retail motor fuel sales must still prepay the tax to its supplier unless it is also licensed as a distributor or supplier.

Q: Did the Department decide whether this specific taxpayer owed prepaid sales tax or was owed a refund?
A: No. The Department expressly said it could not issue specific guidance based on the limited information provided and instead gave general information about how the statute and regulations work.

Q: How does a taxpayer claim credit for prepaid sales tax paid in error?
A: File a claim for credit under 86 Ill. Adm. Code 130.1501 on Department-provided forms, showing the taxpayer bore the burden of the tax or unconditionally repaid it, within the roughly 3-to-3½-year statute of limitations (which runs in six-month blocks from when the tax was erroneously paid).

Q: Can an established credit be turned into an actual refund check?
A: Yes. The taxpayer can file Form ST-6, Claim for Sales and Use Tax Overpayment/Request for Action on a Credit Memorandum, to convert an already-established credit into a refund request.

Citations and references

Statutes and rules:

• 35 ILCS 120/2d (prepayment of sales tax on motor fuel; retailer's credit for tax paid)
• 35 ILCS 120/2a (registration as a retailer)
• 35 ILCS 120/2c (registration as a reseller of tangible personal property)
• 86 Ill. Adm. Code 130.1501 (claims for credit; documentation and statute of limitations)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedure; not binding on the Department)

Forms referenced: Form PST-1 (prepaid sales tax return), Form PST-2 (Statement of Tax Paid), Form ST-6 (Claim for Sales and Use Tax Overpayment/Request for Action on a Credit Memorandum)

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-18-0014-gil.pdf

Original ruling text

ST 18-0014-GIL 04/09/2018 PREPAID SALES TAX
This letter describes the manner in which prepaid sales tax on motor fuel is collected and
remitted. See 35 ILCS 120/2d. (This is a GIL.)

April 9, 2018

Re:

COMPANY
Reseller #####

Dear Xxxxx:
This letter is in response to your letter dated October 11, 2017, 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:
I spoke with Nick from the IL Department of Revenue ##### regarding this matter. He
stated we needed to send this letter requesting the following information. We are in
need of something in writing which shows that certificate of resale exempts us from
prepaid sales tax. If it does not, we need to know how we can get credits for prepaid
sales tax from when we purchased gasoline or we need a refund in the amount of $$$.
It was not allowed on the PST-1.
If you have any questions or need to discuss this matter further, please contact me.

DEPARTMENT’S RESPONSE:
We are unable to issue specific guidance based on the limited information you provided.
However, we offer the following information.
PREPAID SALES TAX
Provisions regarding prepayment of sales tax on motor fuel are contained in Section 2d of the
Retailers’ Occupation Tax Act, which provides, in part, that

ST 18-0014-GIL
Page 2

“[a]ny person engaged in the business of selling motor fuel at retail, as defined in the
Motor Fuel Tax Law, and who is not a licensed distributor or supplier, as defined in the Motor
Fuel Tax Law, shall prepay to his or her distributor, supplier, or other reseller of motor fuel a
portion of the tax imposed under this Act if the distributor, supplier, or other reseller of motor
fuel is registered under Section 2a or Section 2c of this Act.” 35 ILCS 120/2d
The distributor, supplier, or other reseller then remits to the Department the prepaid sales tax
collected using Form PST-1. As indicated on the Form PST-1 instructions, if you are engaged in the
business of selling motor fuel to retailers, you must file Form PST-1 and pay the tax you have
collected. You must attach to your Form PST-1 a copy of Form PST-2, Statement of Tax Paid, for
each sale you made to a motor fuel retailer during the liability period. Form PST-2 is a four-part form,
which allows the Department to verify that the information reported by retailers and resellers matches.
The retailer is required to file Copy A with Form ST-1 and keep Copy B as a file copy. The reseller is
required to file Copy C with Form PST-1 and keep Copy D as a file copy.
You asked whether a certificate of resale exempts you from prepaid sales tax. If a person is
registered under Section 2c of the Retailers’ Occupation Tax Act as exclusively a reseller of tangible
personal property and, in fact, all of that person’s sales are not taxable under the Retailers’
Occupation Tax Act, then no prepaid sales tax is owed. If, however, a person is registered under
Section 2a of the Retailers’ Occupation Tax Act as a retailer and makes retail sales of motor fuel,
then that person must pay prepaid sales tax to his or her supplier, unless the retailer is also licensed
as a motor fuel distributor or supplier.

CLAIMS FOR CREDIT OR REFUND
Section 2d of the Retailers’ Occupation Tax Act provides that “[a]ny person engaged in the
business of selling motor fuel at retail shall be entitled to a credit against tax due under this Act in an
amount equal to the tax paid to the distributor, supplier, or other reseller.” See 35 ILCS 120/2d.
If a taxpayer pays an amount of tax under the Retailers' Occupation Tax Act that is not due,
either as a result of a mistake of fact or an error of law, the taxpayer may file a claim for credit with
the Department. No credit shall be given the taxpayer unless the taxpayer shows that he or she has
borne the burden of the tax or has unconditionally repaid the amount of the tax to the vendee from
whom it was collected. See 86 Ill. Adm. Code 130.1501. The claims for credit must be prepared and
filed upon forms provided by the Department containing the information listed in part (b) of Section
130.1501.
The statute of limitations for filing a claim for credit is described in part (a)(4) of Section
130.1501. The language is somewhat confusing but, boiled down, it means that the statute of
limitations is 3 to 3 1/2 years and expires in 6 month blocks. For example, on July 1, 2018, the statute
of limitations expires for claims to recover taxes that were erroneously paid in the first 6 months of
2015. Since the statute of limitations is based upon when the tax was erroneously paid and not when
a return was filed, the filing of an amended return will not affect the statute of limitations.
The taxpayer should keep a copy of the claim for credit and any supporting documentation on
file that evidences the basis for the claim and that the taxpayer bore the burden of the tax or has
unconditionally repaid the amount of the tax to the vendee from whom it was collected.

ST 18-0014-GIL
Page 3

If the credit at issue has already been established and the taxpayer wishes to convert the
credit to a request for a refund, the taxpayer must file Form ST-6, Claim for Sales and Use Tax
Overpayment/Request for Action on a Credit Memorandum.
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,

Samuel J. Moore
Associate Counsel

SJM:bkl