When a company drop-ships goods into Illinois, are those sales exempt from Illinois sales tax if the goods are being resold or exported out of the country?

Plain-English summary

A registered Illinois seller wrote to the Department asking about a specific fact pattern: the seller has an out-of-state, Illinois-unregistered customer who buys goods and has the seller drop-ship those goods to Illinois so they can be exported out of the U.S. The seller asked what documentation is needed, and whether a customer's Certificate of Resale (Form CRT-61) by itself is enough.

The Department's answer covers two separate, independent exemptions that can apply to a drop shipment, and stresses that each one requires its own proof:

• Sale for resale. If the sale is genuinely a resale, the seller must obtain a valid Certificate of Resale from the purchaser. A valid certificate must include the seller's name/address, the purchaser's name/address, a description of the resold items, the purchaser's signature and date, and either a registration/resale number or a statement that the purchaser is an out-of-state buyer who will resell and deliver only to customers located outside Illinois. Without a valid certificate, the sale is presumed taxable (though the presumption can be rebutted with other evidence).
• Interstate commerce/export sale. Separately, a sale is exempt as interstate commerce if the seller is contractually obligated to deliver the property from a point in Illinois to a point outside Illinois, never to return, and delivery is actually made. This exemption also covers deliveries made in Illinois to a freight forwarder who arranges for the property to leave the U.S. for good. This exemption has its own documentation requirements, separate from a resale certificate.

The Department notes the letter didn't have enough facts to say whether the arrangement was a "true drop shipment" under its drop-shipment rule, but it lays out both possible paths to exemption and what's needed to support each one.

What this means for you

Sellers who drop-ship into Illinois

If you drop-ship goods to (or through) Illinois for an out-of-state customer, don't assume one piece of paperwork covers you. A Certificate of Resale supports the "sale for resale" exemption; it does not, by itself, document an export/interstate-commerce exemption. If your customer's real intent is export out of the U.S. rather than domestic resale, you should also keep the delivery/export documentation described in the Department's interstate commerce rule (86 Ill. Adm. Code 130.605), such as records showing the seller was obligated to deliver the goods out of the state (or to a freight forwarder bound for a foreign destination) and that the delivery actually happened.

Accountants and tax professionals

Advise clients that Illinois treats "sale for resale" and "interstate commerce/export" as two distinct, independently documented exemptions, even though both can apply to the same drop-shipment fact pattern. A client relying solely on a CRT-61 with the out-of-state-purchaser box checked has documented a resale, not necessarily an export sale. If a Certificate of Resale is missing or incomplete, the sale is presumed taxable under 86 Ill. Adm. Code 130.1405(d), though the presumption is rebuttable.

Businesses selling for export or through freight forwarders

If your buyer intends to export the goods out of the United States permanently, review 86 Ill. Adm. Code 130.605(f) for the specific records you need to retain, and note that the exemption extends to deliveries made to a freight forwarder in Illinois who arranges the property's onward shipment out of the U.S., not just to direct shipments across the border yourself.

Common questions

Q: Is a drop shipment to Illinois automatically taxable?
A: Not necessarily. It can be exempt either as a sale for resale (with a valid Certificate of Resale) or as an interstate-commerce/export sale (with delivery documentation), but the seller must document whichever exemption applies.

Q: If my customer gives me a CRT-61 marked as an out-of-state purchaser, do I still need export documents?
A: The GIL doesn't give a flat yes/no because the requester's facts weren't complete enough to confirm a "true drop shipment." The Department states that either exemption "may be used when appropriate," but each one requires its own documentation — a resale certificate supports the resale exemption, while a properly documented export/interstate delivery supports that separate exemption.

Q: What happens if the purchaser doesn't provide a Certificate of Resale?
A: The sale is presumed not to be for resale, and the seller would owe Retailers' Occupation Tax and be required to charge Use Tax to the purchaser, unless the seller rebuts that presumption with other evidence under 86 Ill. Adm. Code 130.1405(d).

Q: Does it matter if the goods pass through a freight forwarder instead of going straight to the foreign buyer?
A: No. The exemption under 86 Ill. Adm. Code 130.605(g) applies when a seller delivers property in Illinois to a freight forwarder who arranges for it to be delivered outside the United States, not to be returned, just as it applies to direct interstate deliveries.

Q: Is this letter binding on the Department?
A: No. This is a General Information Letter (GIL), which only points the taxpayer to relevant regulations. It is not a statement of Department policy and is not binding, unlike a Private Letter Ruling (PLR).

Citations and references

Statutes and rules:

• 86 Ill. Adm. Code 130.101 (imposition of Retailers' Occupation Tax)
• 86 Ill. Adm. Code 150.101 (Use Tax on property purchased at retail)
• 86 Ill. Adm. Code 130.605 (interstate commerce/export delivery exemption, including freight-forwarder deliveries under 130.605(g) and documentation under 130.605(f))
• 86 Ill. Adm. Code 130.225 (drop shipment regulations)
• 86 Ill. Adm. Code 130.1405 (Certificate of Resale requirements; presumption of taxability under 130.1405(d))
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedures)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedures)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2021.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2021/st-21-0004-gil.pdf

Original ruling text

ST 21-0004 01/28/2021 INTERSTATE COMMERCE/SALE FOR RESALE
Under the Retailers’ Occupation Tax Act, a seller’s drop shipment to a freight forwarder who
arranges for property to be delivered outside of the United States not to return to the United
States, and a seller’s drop shipment of property to a customer in Illinois for resale are not
subject to sales tax. Appropriate documentation must be obtained in support of either
applicable exemption. See 86 Ill. Adm. Code 130.605 and 86 Ill. Adm. Code 130.1405. (This is
a GIL.)

January 28, 2021
Dear Xxxx:
This letter is in response to your letter, 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 customer (COMPANY1), located in the state of STATE and is not registered in
the state of Illinois, who is purchasing items from us (COMPANY2). We are registered
for Illinois sales tax and are drop shipping our customer’s orders to the state of Illinois
for export out of the US.
•
•

What is required to document sales for export out of the US? Do I need to obtain
bills of ladings or air waybills as described under publication 104?
Customer has provided CRT-61 Certificate of Resale and has selected option
“The purchaser is authorized to do business out-of-state and will resell and
deliver property only to purchaser’s located outside the state of Illinois.” If the
customer furnishes the CRT-61 and selects that option, do they not have to
provide me with any export documents?

Please provide a written response to my questions above.
DEPARTMENT’S RESPONSE:
The Illinois Retailers’ Occupation Tax Act imposes a tax upon persons engaged in this State in
the business of selling tangible personal property to purchasers for use or consumption. The tax is
measured by the seller’s gross receipts from such sales made in the course of such business. See 86
Ill. Adm. Code 130.101. In Illinois, Use Tax is imposed on the privilege of using, in this State, any kind

ST-21-0004
Page 2
January 28, 2021
of tangible personal property that is purchased anywhere at retail from a retailer. See 86 Ill. Adm.
Code 150.101. Mere possession in Illinois is considered a use. Consequently, if the purchase occurs
in Illinois, the purchaser must pay the Use Tax to the retailer. Please note that a sale is taxable even
though a purchaser that receives physical possession of the property in this State immediately
transports the property out of this State for use outside the State. See 86 Ill. Adm. Code
130.605(a)(2). The State of Illinois has no specific exemption for purchases by foreign or domestic
travelers if the property is delivered and used in Illinois. Section 130.605 identifies several exceptions
to this rule.
Your letter does not contain sufficient information for us to determine whether your company is
engaging in a true drop shipment. However, if your company’s conduct constitutes a true drop
shipment, the Department’s regulations regarding Drop Shipments can be found at 86 Ill. Adm. Code
130.225. A drop-shipment situation is normally one in which an out-of-State purchaser makes a
purchase for resale from a company which is registered with Illinois and has that company drop-ship
the property to the purchaser’s customer located in Illinois. The company, as a seller required to
collect Illinois tax, must either charge and collect tax or document appropriate exemptions when
making deliveries in Illinois. You have raised two possible exemptions in your letter.
In order to document the fact that its sale to a purchaser is a sale for resale, a 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) the seller's name and address;
2) the purchaser's name and address;
3) a description of the items being purchased for resale;
4) the purchaser's signature, or the signature of an authorized employee or agent of the
purchaser, and date of signing; and
5) 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.
If purchasers fail to provide Certificates of Resale, the sales are presumed to not be for resale and
sellers would incur Retailers' Occupation Tax and would be required to charge the corresponding Use
Tax to the purchasers. See Section 130.1405(d). It is possible to rebut this presumption with other
evidence as set out in Section 130.1405(d).
Your letter has also raised the possibility that you are inquiring about a direct sale to a
customer that will be made into international commerce. If so, please review 86 Ill. Adm. Code
130.605 for more information regarding these types of transactions. Section 130.605(d) states that
the gross receipts from such sales are not subject to tax when a sale is conducted in which the seller
is obligated, under the terms of an agreement with the purchaser, to make delivery of the property
from a point in this State to a point outside this State, not to be returned to this State, provided that
such delivery is actually made. Such sales are sales in interstate commerce and are exempt from
Illinois and local Retailers' Occupation Tax. The exemption also would apply when a seller makes
delivery in Illinois to a freight forwarder who handles the arrangements for the property to be delivered
outside the United States, not to be returned to the United States. 86 Ill. Adm. Code 130.605(g).

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January 28, 2021
Section 130.605(f) identifies the type of documents a seller must retain in his or her records to
support such an exemption.
Either of these exemptions may be used when appropriate, and a seller must document each
and obtain necessary supporting documentation as discussed above and in the Department’s
applicable regulations. See 86 Ill. Adm. Code 130.605(f) and 86 Ill. Adm. Code 130.1405.
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,
Alexis K. Overstreet
Associate Counsel
AKO:rkn