Does a company that only 'cross-docks' already-Illinois-stamped cigarette packages (loading them onto pallets or trucks with other grocery items for delivery to retailers, without stamping, selling, warehousing, or repacking them) need a license under the Illinois Cigarette Tax Act?

Subject

Cigarette Tax Act

Plain-English summary

A tax professional wrote to the Illinois Department of Revenue about a client who held a secondary distributor license but was worried they had registered incorrectly. The client's actual business was 'cross-docking': a properly-licensed distributor ships Illinois-stamped cigarette packages to the client, who then loads those already-stamped packages onto pallets or into trucks together with other grocery products destined for various Illinois retailers. The client does not purchase Illinois-stamped cigarettes from licensed distributors for resale, does not sell Illinois-stamped packages, does not sell 75% or more of Illinois-stamped packages to retailers for resale, does not take the cigarettes into inventory, and does not open or repack the cigarette products.

The requester asked the Department to identify the proper license, if any, for this cross-docking activity, noting the client did not appear to fit the definitions of 'distributor,' 'manufacturer,' 'machine operator,' or 'other' distributor under Illinois law.

The Department's response was direct: if a person does not meet the definitions of 'distributor,' 'secondary distributor,' 'transporter,' or 'retailer' contained in the Cigarette Tax Act (35 ILCS 130/), that person is not required to obtain a license under the Act. Based on the limited information provided, the Department stated it did not appear the client would be required to obtain a license under the Act to provide the cross-docking services described in the letter.

As with all GILs, this letter is not a statement of Department policy and is not binding on the Department (2 Ill. Adm. Code 1200.120).

What this means for you

Businesses that handle already-stamped cigarettes without selling them

If your business's only role with respect to cigarette products is logistical — for example, consolidating already Illinois-stamped, tax-paid cigarette shipments with other goods for delivery to retail customers, without ever stamping, selling, warehousing as inventory, or repacking the cigarettes — this letter suggests such 'cross-docking' activity, standing alone, may not trigger a licensing requirement under the Cigarette Tax Act. However, the Department's answer was expressly limited to "the limited information you have provided," so any change in facts (for example, if you begin selling stamped packages to retailers, or handle 75% or more of Illinois-stamped packages for resale) could change the analysis.

Businesses that currently hold a secondary distributor license but don't fit the definition

The letter arose because the client held a secondary distributor license despite not actually performing the functions of a secondary distributor (purchasing Illinois-stamped packages from licensed distributors, selling Illinois-stamped packages, or selling 75% or more of such packages to retailers for resale). If your license doesn't match what your business actually does, you may want written confirmation from the Department, since holding the wrong license — or needing a different one — is a compliance question the Department did not fully resolve here beyond saying no license "appears" to be required.

Anyone relying on this letter for their own facts

This is a General Information Letter, not a Private Letter Ruling. It is not a statement of Department policy and is not binding on the Department. The Department's conclusion was hedged ("does not appear") and expressly based only on the limited facts recited in the requester's letter. A taxpayer who wants a binding answer on their own specific facts must request a Private Letter Ruling under 2 Ill. Adm. Code 1200.110.

Common questions

Q: Does cross-docking already-stamped cigarette packages require a Cigarette Tax Act license?
A: Based on the facts described in this letter, the Department said it did not appear the client would be required to obtain a license under the Act for cross-docking services — loading Illinois-stamped cigarette products with other grocery items onto pallets or trucks for delivery to retailers, without stamping, selling, inventorying, or repacking them.

Q: What is the legal test the Department applied?
A: The Department stated that if a person does not meet the definitions of 'distributor,' 'secondary distributor,' 'transporter,' or 'retailer' contained in the Cigarette Tax Act, that person is not required to obtain a license under the Act (35 ILCS 130/).

Q: Why did the client already hold a secondary distributor license if no license was needed?
A: The requester explained the client believed it may have registered incorrectly — it held a secondary distributor license but did not actually purchase Illinois-stamped packages from licensed distributors, sell Illinois-stamped packages, or sell 75% or more of Illinois-stamped packages to retailers for resale, which are the activities that define a secondary distributor.

Q: Is the Department's conclusion a guarantee that no license is ever required for this business?
A: No. The Department's answer was qualified: "Based on the limited information you have provided, it does not appear your client would be required to obtain a license." The ruling text does not state an unconditional guarantee, and the letter itself is not binding on the Department.

Q: Is this letter binding on the Illinois Department of Revenue?
A: No. It is a General Information Letter, which is not a statement of Department policy and is not binding on the Department. A taxpayer who wants a binding determination on their own specific facts must request a Private Letter Ruling under 2 Ill. Adm. Code 1200.110.

Q: Does the letter define what activities do trigger a Cigarette Tax Act license?
A: The letter does not spell out the full statutory definitions of 'distributor,' 'secondary distributor,' 'transporter,' or 'retailer' — it simply cites 35 ILCS 130/ and applies those undefined terms to the facts presented. Anyone needing the precise statutory definitions should consult the Cigarette Tax Act itself.

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-18-0029-gil.pdf

Original ruling text

ST 18-0029-GIL 11/19/2018

CIGARETTE TAX ACT

This letter discusses the licensing of cross-docking services. See 35 ILCS 130/. (This is a
GIL.)

November 19, 2018

Dear Xxxxx:
This letter is in response to your letter dated October 2, 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:
I have a client who I believe may have registered incorrectly with the state. They
currently hold a secondary distributor license. However, they do not purchase Illinois
stamped packages of cigarettes from licensed distributors, sell Illinois stamped cigarette
packages NOR sell 75% or more of Illinois stamped packages to retailers for resale.
Their primary function with respect to cigarette products is to load cigarette products
with other grocery products destined for third-party retail stores, a practice known as
cross-docking. For example, a properly-licensed distributor who pays applicable state
taxes ships Illinois-stamped tobacco/cigarettes to my client who then loads those
products onto pallets or into trucks with various other purchased items that go to various
Illinois customers. They are not stamping or selling any cigarette packages, nor are
they taking these cigarettes into inventory, nor are they opening or repacking the
cigarette products stamped and sold by the licensed distributor to the end retail
customer.
Can you please advise on proper license needed for my client, if there is one at all? It is
clear they are not secondary distributors, manufacturers, machine operators or even
“other” distributor as defined by Illinois law. My client wishes to be in full compliance
with state law so needs clarification if this cross-docking activity for cigarette products
requires any licensure under state Department of Revenue rules.

ST 18-0029-GIL
Page 2

DEPARTMENT’S RESPONSE:
If a person does not meet the meet the definitions of “distributor,” “secondary distributor,”
“transporter,” or “retailer” contained in the Cigarette Tax Act, the person is not required to obtain a
license under the Act. 35 ILCS 130/. Based on the limited information you have provided, it does not
appear your client would be required to obtain a license under the Act to provide the cross-docking
services identified in your letter.
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,

Richard S. Wolters
Associate Counsel

RSW:bkl