Does an out-of-state seller owe Illinois sales tax on a sale that is drop-shipped to an Illinois customer if the out-of-state buyer never gave a resale certificate?

Plain-English summary

This Illinois General Information Letter answers a question from an out-of-state computer data storage company about a drop-shipment transaction. The company sold tangible personal property to an out-of-state buyer, but shipped the goods directly to that buyer's own customer in Illinois. The company charged and collected Illinois sales tax on the sale, and the out-of-state buyer then asked for the tax to be refunded, apparently believing the sale should have been treated as a tax-exempt sale for resale.

The Department explained that a drop-shipped sale to an out-of-state purchaser can be a tax-exempt sale for resale, but the seller must document it properly. Under 86 Ill. Adm. Code 130.1405, the seller is obligated to get a valid Certificate of Resale from the purchaser — a signed statement identifying both parties, describing the property, and including the purchaser's registration number, resale number, or a statement that the purchaser is an out-of-state reseller who sells only outside Illinois. If the seller obtains a proper certificate, its liability ends there under the Rock Island Tobacco case, and the Department will instead pursue the purchaser if the goods were not actually resold.

Here, the out-of-state buyer never provided a Certificate of Resale. Under Illinois rules, failing to present an active registration or resale number and certification creates a presumption that the sale is not for resale — a presumption that can only be rebutted with other strong evidence (like an invoice showing the item was actually resold, plus an explanation for why no resale number was given). Because that evidence wasn't in the record, the Department concluded the seller properly charged and collected the tax, and there was no basis to refund it.

The letter also walks through Illinois's use tax nexus rules for remote (out-of-state) retailers, both the older physical-presence standard and the post-Wayfair economic nexus threshold ($100,000 in sales or 200 transactions annually) adopted effective October 1, 2018. It notes that sales for resale don't count toward those economic nexus thresholds.

What this means for you

Out-of-state sellers shipping into Illinois

If you sell to another business that resells the goods, and you drop-ship directly to that business's Illinois customer, you need a valid Certificate of Resale from your buyer before treating the sale as exempt. Without one, Illinois presumes the sale is taxable, and you (the seller) bear that risk — as this taxpayer learned when its buyer's refund request was properly denied.

Buyers who resell goods bought from an out-of-state supplier

If you're the reseller in a drop-shipment chain, provide your seller with a Certificate of Resale containing your name and address, the seller's name and address, a description of the goods, your signature and date, and either your registration/resale number or a statement that you're an out-of-state reseller selling only outside Illinois. If you don't, expect the seller to charge you tax, and don't expect an automatic refund just because the goods were shipped to your own customer.

Remote sellers evaluating nexus

If you're determining whether you must register and collect Illinois Use Tax as a remote retailer, remember that sales for resale are excluded when calculating whether you've crossed the $100,000/200-transaction economic nexus thresholds under 86 Ill. Adm. Code 150.803. However, if you make both taxable and nontaxable sales into Illinois (other than resales), those other nontaxable sales still count toward the threshold.

Common questions

Q: Can a drop-shipped sale to an out-of-state buyer ever be exempt from Illinois tax?
A: Yes. If the out-of-state buyer is purchasing for resale and provides the seller with a valid Certificate of Resale under 86 Ill. Adm. Code 130.1405, the sale can be treated as a tax-exempt sale for resale even though the goods are shipped straight to the buyer's customer in Illinois.

Q: What happens if the buyer never gives a Certificate of Resale?
A: Illinois presumes the sale is not for resale, meaning it's taxable. That presumption can be rebutted only with other solid evidence, such as proof the item was actually resold plus an explanation for why no resale number was provided.

Q: If the seller already collected the tax, does the Department require a refund to the buyer?
A: Not in this scenario. Because the buyer didn't provide a Certificate of Resale or other adequate proof of resale, the Department found the seller properly charged and collected the tax, so there was no requirement to refund it.

Q: Does this ruling decide whether the company actually had to collect tax based on economic nexus?
A: The Department noted it lacked enough facts to make that specific determination, but it explained the relevant framework: post-Wayfair Illinois requires remote retailers with no physical presence to register and collect Use Tax once they exceed $100,000 in annual Illinois sales or complete 200 or more separate transactions, calculated quarterly, with sales for resale excluded from that count.

Q: Is this letter binding on the Department?
A: No. This is a General Information Letter (GIL), not a Private Letter Ruling. A GIL merely points to relevant regulations and other sources of information; it does not bind the Department and is not a statement of Department policy.

Citations and references

• 86 Ill. Adm. Code 130.1405 (Seller's Responsibility to Obtain Certificates of Resale and Requirements for Certificates of Resale)
• 86 Ill. Adm. Code 130.225 (Drop Shipments)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedures)
• 2 Ill. Adm. Code 1200.120 (General Information Letters)
• 35 ILCS 105/2 (Use Tax Act — definition of "retailer maintaining a place of business in this State")
• 86 Ill. Adm. Code 150.801 and 150.802 (physical-presence nexus regulations for remote retailers)
• 86 Ill. Adm. Code 150.803 (Wayfair/economic nexus rules, including the resale-sale exclusion at 150.803(c)(3)(E)(i))
• 86 Ill. Adm. Code 150.101 et seq. (Service Occupation Tax)
• 86 Ill. Adm. Code 160.101 et seq. (Service Use Tax)
• Rock Island Tobacco and Specialty Company v. Illinois Department of Revenue, 87 Ill. App. 3d 476, 409 N.E.2d 136 (3rd Dist. 1980)
• Scripto v. Carson, 362 U.S. 207 (1960); National Bellas Hess v. Department of Revenue of the State of Illinois, 386 U.S. 753 (1967); Quill Corporation v. North Dakota, 504 U.S. 298 (1992); Brown's Furniture v. Wagner, 171 Ill. 2d 410 (1996); South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018)
• Illinois Public Act 100-587 (enacted Wayfair/economic nexus standards, effective October 1, 2018)

Subject

Sale For Resale

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2020.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2020/st20-0024-gil.pdf

Original ruling text

ST 20-0024-GIL 10/06/2020

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.)

October 6, 2020

Dear Xxxx:
This letter is in response to your letter dated January 22, 2020 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:
We are writing to ask you if COMPANY should charge sales tax on the attached invoice.
COMPANY is a computer data storage solutions business located in STATE. In the
attached invoice, COMPANY made a taxable sale of $$$ to a STATE buyer,
COMPANY1, but shipped directly to the end customer, COMPANY2, in Illinois in
September 20XX. COMPANY charges sales tax of $$$ on the invoice. See attached
invoice.
In August 20XX COMPANY made another taxable sale of $$$ to another Illinois
customer and collected sales tax of $$$. With both taxable sales to Illinois customers,
COMPANY made more than $$$ in annual taxable sales to Illinois customers during
2019 ($$$ + $$$=$$$). With the annual sales exceeding the economic nexus
thresholds, and Illinois adopting the Wayfair decision on October 1, 2018, and
COMPANY having collected sales tax from the sales in August, COMPANY registered
for sales tax recently.
The buyer in STATE, COMPANY1, requested COMPANY to refund them sales tax of
$$$ charged on the attached invoices. We informed COMPANY1 based on the above

ST 20-0024-GIL
Page 2

reasons COMPANY needs to collect tax but COMPANY1 insisted COMPANY to refund
them the tax amount.
We would like to ask you to determine if COMPANY should collect tax on the attached
invoice and submit it to Illinois department of revenue or should refund the tax to
COMPANY1.
Thank you for your attention on this matter!
DEPARTMENT’S RESPONSE:
Your letter does not contain sufficient information for the Department to determine whether the
tangible personal property that COMPANY1 purchased from your company and was drop shipped to
the end customer was a purchase for resale by COMPANY1. Based on the language in your letter,
however, you state that the purchase from COMPANY was “shipped directly to the end customer,”
which makes it appear that the purchase was a purchase for resale. If that was the case, I hope the
following information is helpful.
Drop Shipments
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 an 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 the 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)l
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.

ST 20-0024-GIL
Page 3

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.
As indicated earlier, it appears that the transaction between your company and COMPANY1
was a purchase from your company for resale by COMPANY1. COMPANY1, however, did not
provide a Certificate of Resale. Failure to present an active registration number or resale number and
a certification to the seller that a sale is for resale, or other evidence that all of the seller’s sales are
sales for resale or that a particular sale is a sale for resale creates a presumption that a sale is not for
resale. As such, tax was properly charged and collected.
Out-of-State Retailer
An out-of-State retailer (a “remote retailer”) making sales to Illinois purchasers from locations
outside Illinois is required to register with the Department and collect and remit Use Tax on those
sales if it falls within the definition of a “retailer maintaining a place of business in this State” in
Section 2 of the Use Tax Act, 35 ILCS 105/2. The Department is authorized to require these retailers
to act as tax collectors because they have established sufficient contacts, or nexus, with Illinois.
There are two groups of remote retailers that must collect Use Tax on sales to Illinois purchasers:
1)
Remote retailers with a physical presence in Illinois. Prior to October 1, 2018, remote
retailers had to have a physical presence in Illinois before they could be required to
collect Use Tax. The types of activities constituting a physical presence, as limited by
the series of court cases described below, are found in Section 2 of the Use Tax Act’s
definition of a “retailer maintaining a place of business” in Illinois. See, 35 ILCS 105/2.
The physical presence requirement was established in a series of United States
Supreme Court decisions. See, for example, Scripto v. Carson, 362 U.S. 207 (1960);
National Bellas Hess v. Department of Revenue of the State of Illinois, 386 U.S. 753

ST 20-0024-GIL
Page 4

2)

(1967); Quill Corporation v. North Dakota, 504 U.S. 298 (1992). In 1996, the Illinois
Supreme Court ruled that remote retailers need only “more than the slightest” physical
presence to be required to collect Use Tax. See Brown’s Furniture v. Wagner, 171 Ill.2d
410 (1996). Any remote retailer that currently has a physical presence in Illinois will
continue to be required to act as a Use Tax collector. Regulations describing these
types of retailers are found at 86 Ill. Adm. Code 150.801 and 150.802.
Remote retailers without a physical presence in Illinois. In South Dakota v. Wayfair, Inc.,
138 S. Ct. 2080, the U.S. Supreme Court upheld a South Dakota statute that imposed
tax collection obligations on remote retailers that met specific selling thresholds but had
no physical presence in the state. This decision abrogated the longstanding physical
presence requirement of Quill, deeming it “unsound and incorrect.” Illinois Public Act
100-587 enacted nexus standards, effective October 1, 2018, that are virtually identical
to those upheld in Wayfair. This non-physical presence nexus we will call “Wayfair
nexus.”

Following are the requirements for Wayfair nexus in Illinois. Public Act 100-587 (adding item
(9) to the definition of “retailer maintaining a place of business in this State” at 35 ILCS 105/2)
requires remote retailers with no physical presence in Illinois to register and collect and remit Use
Tax, as provided below (see emergency and proposed rules found at 86 Ill. Adm. Code 150.803):
1)
Beginning October 1, 2018, a retailer making sales of tangible personal property to
purchasers in Illinois from outside of Illinois must register with the Department and
collect and remit Use Tax if:
a) The cumulative gross receipts from sales of tangible personal property to purchasers
in Illinois are $100,000 or more; or
b) The retailer enters into 200 or more separate transactions for the sale of tangible
personal property to purchasers in Illinois.
2)
A retailer shall determine on a quarterly basis, ending on the last day of March, June,
September, and December, whether he or she meets either of the criteria of paragraph
(1) for the preceding 12-month period. If the retailer meets either of the criteria of
paragraph (1) for a 12-month period, he or she is considered a retailer maintaining a
place of business in Illinois and is required to collect and remit the Use Tax and file
returns for one year. a) At the end of that one-year
a)
At the end of that one-year period, the retailer shall determine whether he or she
met either of the criteria of paragraph (1) during the preceding 12-month period.
If the retailer met either of the criteria in paragraph (1) for the preceding 12month period, he or she is considered a retailer maintaining a place of business
in Illinois and is required to collect and remit Use Tax and file returns for the
subsequent year.
b)
If at the end of a one-year period a retailer that was required to collect and remit
the Use Tax determines that he or she did not meet either of the criteria in
paragraph (1) during the preceding 12-month period, the retailer shall
subsequently determine on a quarterly basis, ending on the last day of March,
June, September, and December, whether he or she meets either of the criteria
of paragraph (1) for the preceding 12-month period.
In determining whether a remote retailer meets the thresholds above, sales for resale are
excluded. See 86 Ill. Adm. Code 150.803(c)(3)(E)(i). In addition, if a remote retailer makes exclusively

ST 20-0024-GIL
Page 5

nontaxable sales, he or she is not subject to the Wayfair nexus requirements. See 86 Ill. Adm. Code
150.803(c)(2). If, however, the remote retailer makes both taxable and nontaxable sales into Illinois,
all sales are included, including the nontaxable sales (other than sales for resale and other sales
specified at 86 Ill. Adm. Code 150.803(c)(3)(E)). See 86 Ill. Adm. Code 150.803(c)(3)(E)(v). Illinois
taxes tangible personal property transferred incident to a service under the Service Occupation Tax
and the Service Use Tax (see 86 Ill. Adm. Code 150.101 et seq. and 160.101 et seq.), but does not
tax services per se.
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,

Debra M. Boggess
Associate Counsel
DMB:bkl