My company ships products to third-party distributor warehouses that then reship them elsewhere -- for Illinois sales-factor purposes, do I source the sale to where I deliver the goods, or to wherever the distributor eventually sends them?

Plain-English summary

A publicly traded manufacturer of consumer products (referred to as "COMPANY1" and its subsidiaries, filing an Illinois unitary combined report with "COMPANY2" as lead filer) asked the Department to confirm, in a requested Private Letter Ruling, how sales of its products should be sourced for the Illinois sales factor when the products pass through third-party distributor warehouses on their way to retailers. Because of the nature and volume of information involved, the Department responded with a GIL instead of a PLR.

Under the taxpayer's current distribution system, the manufacturer ships products from its own facilities or public warehouses to designated third-party "distributor locations." Title and risk of loss transfer to the distributor at shipment (FOB shipping point). The distributor then independently decides where to further ship or sell the products -- sometimes to locations in the same state, sometimes across state lines, with the manufacturer having no further control and only delayed, secondhand information about where the goods ultimately end up.

The taxpayer was also rolling out a new "Alternative Product Distribution Platform": large new manufacturer-arranged warehouses ("COMPANY7 STOREROOM1s") that ship to large distributor-operated hub warehouses ("STOREROOM2s") in the same states, rather than shipping directly to many smaller distributor locations. Under this new model, title, possession, custody, and control of the goods transfer to the distributor at or before arrival at the STOREROOM2 hub, after which the manufacturer has no involvement in further distribution.

The taxpayer asked the Department to confirm two things: (1) that delivery to a distributor's Illinois warehouse (whether an existing distributor location or a new STOREROOM2 hub) makes that sale an Illinois sale for sales-factor purposes, even if the distributor later ships the goods out of state; and (2) that delivery to a distributor's out-of-state warehouse makes that sale a non-Illinois sale, even if the distributor later ships the goods into Illinois.

The Department's ruling agreed with the taxpayer on both points, applying Illinois's "destination rule." Under IITA Section 304(a)(3)(B)(i) and 86 Ill. Adm. Code 100.3370(c)(1)(C), property is "delivered or shipped to a purchaser" within Illinois if the shipment terminates in Illinois -- even if the property is later moved by the purchaser to another state. The Department had already adopted this destination rule in an earlier GIL (IT 03-0034-GIL), relying on decisions from other states using the same Uniform Division of Income for Tax Purposes Act (UDITPA)-based sourcing language. Applying that rule here, and assuming the taxpayer's factual representations were true: sales delivered to a distributor's Illinois location (existing distributor location or new STOREROOM2) are Illinois sales includible in the sales-factor numerator, regardless of where the distributor later reships the goods; and sales delivered to a distributor's out-of-state location are not Illinois sales, regardless of whether the distributor later reships the goods into Illinois.

What this means for you

Manufacturers selling through independent distributors

What matters for sourcing is where your delivery to the purchaser (the distributor) terminates -- not what the distributor does with the goods afterward. If you ship FOB shipping point and hand off title, risk, and control to a distributor at a warehouse in a given state, that state is where the sale is sourced, even though you may have no say over (and only limited visibility into) where the distributor ultimately sends the product next.

Companies redesigning distribution networks (new hub warehouses, consolidated shipping)

Restructuring your logistics -- for example, moving from many small distributor drop-off points to fewer, larger hub warehouses -- does not change the underlying sourcing rule. The same destination analysis applies to a new hub warehouse as to an existing distributor location: sales are sourced to wherever delivery to the distributor terminates.

Anyone relying on a GIL for a specific, complex fact pattern

This taxpayer asked for a binding Private Letter Ruling but received a GIL instead because of "the nature of your request and the information you have provided." A GIL is explicitly non-binding general information, not Department policy -- and the ruling itself repeatedly qualifies its conclusions with "assuming these facts are true." If your fact pattern differs even slightly (for instance, in when and where title and control actually transfer), the destination-rule outcome could differ too.

Common questions

Q: If I ship goods to a distributor's warehouse in Illinois, does it matter that the distributor later reships some of those goods out of state?
A: No. Under the destination rule, the sale is sourced to Illinois because delivery to the purchaser (the distributor) terminated in Illinois. What the distributor does with the goods afterward doesn't change the sourcing of your sale.

Q: What if I ship to a distributor's warehouse outside Illinois, but the distributor later ships some of those goods into Illinois?
A: The sale is still not an Illinois sale. Delivery terminated outside Illinois, so the sale is sourced outside Illinois regardless of the distributor's subsequent shipments into the state.

Q: Does it matter whether I ship directly to the distributor's location or through a new consolidated "hub" warehouse arrangement?
A: No. The Department applied the same destination-rule analysis to both the taxpayer's existing distributor-location shipments and its new large hub-warehouse ("STOREROOM2") shipments. The sourcing test is where delivery to the distributor terminates, regardless of the particular logistics structure used to get there.

Q: Why did the taxpayer get a GIL instead of the Private Letter Ruling it requested?
A: The Department explained that "the nature of your request and the information you have provided require that we respond with a General Information Letter" rather than a binding PLR. A GIL provides general information but is not a statement of Department policy and is not binding on the Department.

Citations and references

Statutes, regulations, and prior rulings cited:

• 35 ILCS 5/304(a), (h) (business income apportionment; single sales factor)
• 35 ILCS 5/304(a)(3)(A) (sales factor defined as Illinois sales over everywhere sales)
• 35 ILCS 5/304(a)(3)(B)(i) (sourcing sales of tangible personal property delivered/shipped within Illinois)
• 86 Ill. Adm. Code 100.3370(c)(1)(B) and (C) (destination-of-shipment sourcing rule and central-warehouse example)
• 2 Ill. Adm. Code 1200.120(b), (c) (GIL is non-binding general information, not Department policy)
• IT 03-0034-GIL (Nov. 3, 2003) (Department's earlier adoption of the destination rule under Section 304(a)(3)(B)(i))

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/income-tax/2024.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/income-tax/2024/IT24-0008-GIL.pdf

Original ruling text

IT 24-0008-GIL 9/17/2024 APPORTIONMENT-SALES FACTOR
The destination of products to a third-party warehouse or distribution location is
reviewed under the provisions of IITA Section 304(a)(3)(B)(i). (This is a GIL.)

September 17, 2024
NAME
TITLE
PARTNERSHIP
ADDRESS
Re:

Request for Private Letter Ruling – Sourcing Sales of Tangible Personal Property
COMPANY1
FEIN: ##-#######
Tax Year Ended: MM/DD/YEAR

Dear NAME:
This is in response to your letter dated April 19, 2024, in which you requested a Private
Letter Ruling on behalf of COMPANY1, and certain of its subsidiaries seeking
confirmation as to whether the sale of certain tangible personal property will be within
Illinois for purposes of 35 ILCS Section 5/304(a). The nature of your request and the
information you have provided require that we respond with a General Information
Letter, which is designed to provide general information, is not a statement of
Department policy, and is not binding on the Department. See 2 Ill. Adm. Code Section
1200.120(b) and (c), which may be found on the Department’s website at tax.illinois.gov.
The facts and analysis as you have presented them are as follows:
COMPANY2 (“COMPANY2”), acting as lead filer of the combined unitary group
that includes COMPANY1 (“COMPANY1”) and certain of its subsidiaries
(collectively, the “Taxpayer”), 1 hereby requests a Private Letter Ruling seeking
confirmation as to whether the sale of certain tangible personal property will be
within Illinois for purposes of 35 ILCS section 5/304(a). The tax period at issue
begins with the YEAR tax period.
Neither the issues raised in this ruling request, nor any substantially related
issues, are being or have been previously considered by Illinois or federal
authorities under audit or examination of, or in litigation concerning, the Taxpayer
or any related party. To the best of the knowledge of both of the Taxpayer and
1 As of the date of this filing, the members of the combined group are: COMPANY2 (EIN: ##-#######),

COMPANY1 (EIN: ##-#######), COMPANY3 (EIN: ##-#######), COMPANY4 (EIN: ##-#######),
COMPANY1 COMPANY5 (EIN: ##-#######), COMPANY1 COMPANY6 (EIN: ##-#######), COMPANY7
(EIN: ##-#######), COMPANY1 COMPANY8 (EIN: ##-#######), COMPANY1 COMPANY9 (EIN: #########), COMPANY10 (EIN: ##-#######), COMPANY11 (EIN: ##-#######), COMPANY12 (EIN: #########), COMPANY13 (EIN: ##-#######), and COMPANY1 COMPANY14 (EIN: ##-#######).
COMPANY2 is located at the following address: ADDRESS C/O Tax Department CITY, STATE ZIP

the Taxpayer’s representatives, the Illinois Department of Revenue has not
previously ruled on the same or a similar issue for the taxpayer or a predecessor,
and the neither the Taxpayer nor any representatives of the Taxpayer have
previously submitted the same or a similar issue to the Illinois Department of
Revenue but withdrawn it before a letter ruling was issued.
PARAGRAPH REDACTED
A. Facts
COMPANY1 is the publicly traded parent company of COMPANY2, US
COMPANY15 (“COMPANY15”), COMPANY16 (“COMPANY16”) and various
other subsidiaries that manufacture, purchase and/or import PRODUCTS.
Collectively, these COMPANY1 subsidiaries are referred to in this submission
as the “COMPANY17” or “COMPANY17s,” and the various PRODUCTS they
manufacture, purchase and import are collectively referred to as the
“COMPANY17 Products.” COMPANY1, the COMPANY17s, COMPANY7
(defined below), and various additional subsidiaries file an Illinois unitary
combined report.
The distribution of the COMPANY17 Products in the United States is managed
by COMPANY7 (“COMPANY7”). The COMPANY17s and COMPANY7 do not
sell COMPANY17 Products to LOCATIONS. The COMPANY17s sell
COMPANY17 Products to various third-party distributors. These distributors
then sell COMPANY17 Products to either other distributors or to retail stores. In
addition to arranging for distribution, COMPANY7 employs representatives
throughout the United States who visit retailers and distributors to (i) ensure
compliance with COMPANY1’s sales and distribution requirements, and (ii)
provide information about the COMPANY17 Products and PROGRAMS, and
COMPANY7 will continue to employ these representatives under the Alternative
COMPANY17 Product Distribution Platform (as discussed below).
After purchasing the COMPANY17 Products, the third-party distributors resell
them to retailers across the country, including in Illinois. The COMPANY17s have
arrangements with approximately ### distributors throughout the United States.
The top ## distributors by volume are responsible for distributing approximately

percent of COMPANY17 Products. It is expected that the distributors initially

implementing the Alternative COMPANY17 Product Distribution Platform will
include some members of the top ## distributors by volume.
Current COMPANY17 Product Distribution Platform
COMPANY17 Products are ultimately sold by retailers in STATES, and so must
be distributed TO STATES. To accomplish this, COMPANY7 uses CARRIERS to
manage transportation and warehousing of the COMPANY17 Products.
Specifically, COMPANY7 SHIPS from the place of manufacture, purchase or
import to ## public warehouses located in ## states, including Illinois.
2

COMPANY7 does not own the public warehouses. Instead, COMPANY7
contracts with third-party logistics providers to use public warehouse space.
These facilities typically also store GOODS made by other manufacturers. In
some cases, COMPANY7 uses CARRIERS to ship directly to third-party
distributors.
Third-party distributors order COMPANY17 Products from the COMPANY17s.
For a few third-party distributors, COMPANY7 provides support in placing
orders based on DATA. After an order is placed, COMPANY7 SHIPS the
relevant COMPANY17 Products. These products are shipped from
WAREHOUSE and delivered to designated third-party distributor locations
(known as “DISTRIBUTOR LOCATIONS”) at which the distributors regularly
receive COMPANY17 Products. The third-party distributors currently use
approximately ### DISTRIBUTOR LOCATIONS in STATES to accept delivery
of COMPANY17 Products, including approximately ## DISTRIBUTOR
LOCATIONS in Illinois.
On a typical day, COMPANY7 receives orders for COMPANY17 Products from
approximately ### DISTRIBUTOR LOCATIONS. These orders are shipped by
CARRIERS, and the majority are sent to DISTRIBUTOR LOCATIONS.
COMPANY7 occasionally arranges for expedited delivery of COMPANY17
Products by CARRIERS when required by business exigencies. Some products
are shipped directly from COMPANY1-owned warehouses in STATE1 and
STATE2 to DISTRIBUTOR LOCATIONS. Irrespective of how the product is
shipped, title to the COMPANY17 Products passes from the COMPANY 17s to
the third-party distributor on shipment (FOB shipping point).
On shipment (FOB shipping point) to the third-party distributor, control of and
responsibility for the future sale and distribution of the COMPANY17 Products
are transferred to the relevant third-party distributor. After the COMPANY17
Products are received by a third-party distributor, the products are shipped
and/or sold by the third-party distributor to: (a) one or more other warehouses
owned by the third-party distributor or the distributor’s affiliates; and/or (b) the
third-party distributor’s customers.
Although COMPANY7 and the COMPANY17s have no involvement in or control
over the distribution and sales of COMPANY17 Products once they are shipped
and sold to a third-party distributor, they may obtain some information about
such activities. For instance, information regarding shipments from
DISTRIBUTOR LOCATIONS is provided to COMPANY7 approximately TIME
after-the-fact by a third-party data service company. This information is
useful to the COMPANY17s in estimating DATA. The COMPANY17s provide
BENEFITS to distributors and retailers that are primarily based on ACTIVITIES.
COMPANY17 Products are shipped and sold to DISTRIBUTOR LOCATIONS
both inside and outside of Illinois. COMPANY1 understands that COMPANY17
Products shipped to a DISTRIBUTOR LOCATION in Illinois are further
3

distributed and shipped by the distributor to locations both inside and outside of
Illinois. Similarly, COMPANY1 understands that some of the COMPANY17
Products shipped to a DISTRIBUTOR LOCATION located outside of Illinois are
further distributed and shipped by the distributor to locations inside of Illinois.
For Illinois state income tax purposes, sales of COMPANY17 Products that are
shipped to a third-party distributor warehouse located in Illinois are sourced to
Illinois irrespective of whether the third-party distributor further distributes and
ships the product to a location outside of Illinois. Similarly, for Illinois state
income tax purposes, sales of COMPANY17 Products that are shipped to a
third-party distributor warehouse located outside of Illinois are not sourced to
Illinois irrespective of whether the third-party distributor further distributes and
ships the product to a location inside of Illinois.
Alternative COMPANY17 Product Distribution Platform
In recent years, certain COMPANY17s have increasingly focused on
PRODUCTS (“OTHER PRODUCTS”). As part of this change, those
COMPANY17s have INTRODUCED multiple OTHER PRODUCTS (with more
on the way), some of which are expected to come with CHALLENGES AND
COMPLEXITIES attributable to the large number of DISTRIBUTOR
LOCATIONS. Additionally, the COMPANY17s and other PRODUCTS
companies have recently been experiencing difficulty in AREAS.
To help address these challenges and to supplement its existing distribution
platform, COMPANY7 has initiated a plan to consolidate and streamline
portions of its distribution system by enhancing its network to include the use of
large warehouses with increased capability (“COMPANY7 STOREROOM1s”)
expected to be in the same states as large and modern facilities that distributors
have established or are expected to establish (the “STOREROOM2”). The
warehouse space in the first COMPANY7 STOREROOM1 is currently
operational in STATE3. The warehouse space in the STATE3 COMPANY7
STOREROOM1 was first utilized by COMPANY1 in MM/YEAR for strategic
business reasons to support current and future product distribution.
COMPANY7 was the ## tenant in the building, which was AGE at the time
COMPANY7 first occupied it.
STATES were selected due to market factors, including large volumes of
COMPANY17 Products delivered in STATE and surrounding areas, the location
of existing nearby DISTRIBUTOR LOCATIONS, economic development tax
incentives, and real estate and other financial considerations. These
COMPANY7 STOREROOM1s will be capable of storing large quantities of
COMPANY17 Products and will be equipped with FACILITIES that may be
required for the OTHER PRODUCTS. COMPANY7 will require SYSTEMS in the
COMPANY7 STOREROOM1s. The STATE3 COMPANY7 STOREROOM1 is
already equipped with these SYSTEMS. COMPANY7 will contract with thirdparty logistics providers to arrange for space in the COMPANY7 STOREROOM1
4

and will also manage and operate the COMPANY7 STOREROOM1 through
contracts with third-party logistics providers.
The new COMPANY7 STOREROOM1s are expected to be in the same states
as STOREROOM2s that distributors have established or will establish in
STATES. These STOREROOM2s will be capable of storing large quantities of
COMPANY17 Products.
NOW, under the alternative structure, COMPANY7 will initially ship some, and
plans to eventually ship approximately ## % of the COMPANY17 Products from
the new COMPANY7 STOREROOM1s to STOREROOM2s in STATES. The
remainder of the COMPANY17 Products will go to WAREHOUSES. Once fully
implemented, the establishment of the COMPANY7 STOREROOM1 and the
STOREROOM2, in conjunction with the revisions to COMPANY7’s distribution
network, is expected to decrease the number of SHIPMENTS required by
COMPANY7 as compared to the existing system. This will, in turn, increase
COMPANY7’s efficiency by reducing the number of SHIPMENTS, shortening
the distance of many shipments, and simplifying the network for the largest
distributors and produce net cost savings.
As a result of the new system, COMPANY1 understands that participating
distributors will eventually benefit from increased profit margins, lower net
product costs, decreased uncertainty, and increased efficiency of asset
utilization.
The operational logistics and related features of the alternative distribution
model will be as follows:
1.

COMPANY7 will generally use contracted CARRIERS to ship
COMPANY17 Products from ORIGIN to a COMPANY7
STOREROOM1 (or, in some cases, first to STATE1 or STATE2
and then to a COMPANY7 STOREROOM1). Some products will be
shipped directly from the place of manufacture or import to a
STOREROOM2.

2.

The COMPANY17 Products that are shipped to the COMPANY7
STOREROOM1 will be stored at the COMPANY7 STOREROOM1
until the products are ordered by a third-party distributor.

3.

After an order is received from a distributor, CARRIERS will ship
the ordered product from COMPANY7 STOREROOM1 to a
STOREROOM2.

4.

Title to the COMPANY17 Products will pass from the
COMPANY17s to the distributor at or before arrival to the
STOREROOM2.

5

5.

In addition to transferring title to the distributor at or before arrival to
the STOREROOM2, possession, custody, and control of the
COMPANY17 Products will also fully transfer to the distributor at or
before arrival to the STOREROOM2. After this delivery,
COMPANY7 will not be involved in any aspect of the future
shipment and/or distribution of the products and will not know the
subsequent destination of the COMPANY17 Products beyond the
inventory and/or shipment information available to COMPANY7, as
outlined above. At or before delivery to the STOREROOM2,
responsibility for the future sale of the COMPANY17 Products is
transferred to the distributor.

6.

Upon receipt by the distributor, COMPANY1 understands that the
COMPANY17 Products will be unloaded, sorted, and then stored to
maintain adequate inventory levels. Distributors are expected to
maintain sufficient inventory to ensure uninterrupted flow of
COMPANY17 Product to retailers. COMPANY7 will require
distributors to ship product on a “first-in-first-out” basis and
understands that the duration of the storage will be determined by,
among other things, a product’s shelf life, the distributor’s inventory
strategy, variations in market demand, and logistical constraints.

7.

COMPANY1 understands that the distributor will then distribute the
COMPANY17 Products from the STOREROOM2. COMPANY1
understands that this distribution activity will generally entail (1)
creating new pallets of various COMPANY17 Products or pallets of
COMPANY17 Products and products from other
manufacturers; (2) packaging and labeling the pallets for shipment;
(3) re-packaging damaged cases and re-casing; and (4) shipping
the product.

8.

COMPANY1 understands that the distributor will ship the
COMPANY17 Products from a STOREROOM2 using either its own
trucks or a third-party carrier arranged by the distributor to
DISTRIBUTOR LOCATIONS. The distributor will be responsible for
all aspects of shipping, including security.

In addition to the COMPANY7 STOREROOM1s, COMPANY7 will continue to
utilize WAREHOUSES as per the current system, WITH MODIFICATIONS.
Shipments that are not fulfilled by a COMPANY7 STOREROOM1 and shipments
to non-participating distributors will be shipped directly to DISTRIBUTOR
LOCATIONS both inside and outside of Illinois. Some COMPANY17 Products
shipped to DISTRIBUTOR LOCATIONS in Illinois will be further distributed and
shipped by the distributor to locations both inside and outside of Illinois. Similarly,
some COMPANY17 Products shipped to STOREROOM2 and DISTRIBUTOR
LOCATIONS located outside of Illinois will be further distributed and shipped by
the distributor to locations both inside and outside of Illinois.
6

B. Applicable Law
Corporations doing business in Illinois or deriving income from sources within
Illinois are subject to a corporate income tax based on net income. 2 Income is
apportioned using a single sales factor formula. 3 The sales factor is a fraction,
the numerator of which is the total sales in Illinois during the taxable year, and
the denominator of which is the total sales everywhere during the taxable year. 4
Sales of tangible personal property are assigned to Illinois if the property is
“delivered or shipped to a purchaser, other than the United States government,
within [Illinois] regardless of the f.o.b. point or other conditions of the sale.” 5
Property is “deemed to be delivered or shipped to a purchaser within [Illinois]” if
“the recipient is located in [Illinois]” or “the shipment terminates in [Illinois].” 6 This
is true irrespective of whether the property “is subsequently transferred by the
purchaser to another state.”7
Conversely, it follows that receipts are not sourced to Illinois if the seller delivers
product to the purchaser in another state, even though the purchaser may
subsequently ship the product to Illinois.
The Illinois regulations in 86 Ill. Admin. Code § 100.3370(c)(1)(C) provide an
example in which:
The taxpayer makes a sale to a purchaser who maintains a central
warehouse in [Illinois] at which all merchandise purchases are received.
The purchaser reships the goods to its branch stores in other states for
sale. All of the corporation’s products shipped to the purchaser’s
warehouse in [Illinois] is property “delivered or shipped to a purchaser
within [Illinois].”8
We have not identified any authorities contrary to the views expressed herein.
C. Application to the Sale of the COMPANY17 Products
The COMPANY17s must apportion their income to Illinois. The question
presented is whether sales by the COMPANY17s (1) to the STOREROOM2s
located outside of Illinois are considered sales outside of Illinois for purposes of

2
3
4
5
6
7
8

35 ILCS 5/304(a).
35 ILCS 5/304(h).
35 ILCS 5/304(a)(3).
35 ILCS 5/304(a)(3)(B)(i). “F.o.b.” stands for “free on board,” the point at which a buyer or seller
assumes ownership and liability for goods being transported.
86 Ill. Admin. Code § 100.3370(c)(1)(B) and (C).
86 Ill. Admin. Code § 100.3370(c)(1)(C).
Id.
7

calculating the sales factor, and (2) sales to DISTRIBUTOR LOCATIONS located
inside of Illinois are considered sales in Illinois for purposes of calculating the
sales factor.
Under the alternative platform:
•

The COMPANY17s will sell their products to both the STOREROOM2s
and other DISTRIBUTOR LOCATIONS of unrelated third parties.

•

In the case of sale to the STOREROOM2s, COMPANY17 Products will be
purchased by distributors and shipped by common carrier to the
STOREROOM2s.

•

In both cases, title and risk of loss pass to the distributor at or before
arrival to the STOREROOM2s or DISTRIBUTOR LOCATIONS, as the
case may be.

•

The COMPANY17s do not maintain control over the further distribution of
the products.

•

In the case of sale to the STOREROOM2s, the distributors receive the
COMPANY17 Products at their STOREROOM2s and will store, sort, and
aggregate the COMPANY17 Products in order to prepare them for
distribution and resale.

Accordingly, the sale of the COMPANY17 Products should be sourced to the
location of the STOREROOM2 or DISTRIBUTOR LOCATIONS at which delivery
by COMPANY7 occurs. Once title has been transferred and the assumption of
risk has occurred, the COMPANY17s no longer maintain control of the products.
They cannot dictate to which location the products must be shipped. The sale of
the products should be sourced to the location at which transfer of title and
assumption of risk occur.
D. Ruling Requested
We request that you rule as follows:
Issues:

1. For purposes of 35 ILCS 5/304(a), does the delivery of goods by
   COMPANY7 to third-party distributor warehouses within Illinois terminate
   in Illinois, and are such deliveries sales within Illinois, regardless of
   whether the third-party distributor subsequently moves the goods to
   locations outside the state?

8

2. For purposes of 35 ILCS 5/304(a), does the delivery of goods by
COMPANY7 to third-party distributor warehouses outside of Illinois
terminate outside of Illinois, and are such deliveries sales outside of Illinois,
regardless of whether the third-party distributor subsequently moves the
goods to locations inside Illinois?
Conclusions:

1. For purposes of 35 ILCS 5/304(a), delivery of goods by COMPANY7 to
   distributor warehouses within Illinois terminate in and are sales in Illinois,
   regardless of whether the distributor subsequently moves the goods to
   locations outside the state.
2. For purposes of 35 ILCS 5/304(a), delivery of goods by COMPANY7 to
   distributor warehouses located outside of Illinois terminate outside of Illinois
   and are not sales in Illinois, regardless of whether the distributor
   subsequently moves the goods to locations inside the state.
   We greatly appreciate your consideration of this ruling request and would be
   happy to provide any additional information that may help with a determination.
   Please contact COMPANY1, at PHONE if you have any questions, or send mail
   to:
   COMPANY1
   ADDRESS
   RULING
   Section 304 of the Illinois Income Tax Act (“IITA”; 35 ILCS 5/304) contains
   apportionment rules that determine the amount of business income of a nonresident
   that is taxable in Illinois where the income is derived from Illinois and one or more
   other states. Under IITA Section 304(a) and (h), the general apportionment rule
   requires a taxpayer to multiply its business income for the taxable year by its sales
   factor. IITA Section 304(a)(3)(A) defines the “sales factor” as the fraction consisting of
   the taxpayer’s total sales in Illinois during the taxable year over its total sales
   everywhere during the taxable year. The apportionment required under IITA Section
   304(a) is to be performed following the close of the taxpayer’s taxable year. The
   taxpayer determines its total business income for the taxable year, and then
   apportions to Illinois that part of such income that bears the same ratio as the
   taxpayer’s Illinois sales for the taxable year bears to total taxable year sales.
   IITA Section 304(a)(3)(B) provides various rules for determining whether sales are
   sourced to Illinois for sales factor purposes. IITA Section 304(a)(3)(B)(i) provides that
   sales of tangible personal property are sourced to Illinois if:

9

The property is delivered or shipped to a purchaser, other than the United States
government, within this State regardless of the f.o.b. point or other conditions of
the sale.
With regard to this section, 86 Ill. Adm. Code Section 100.3370(c)(1)(C) states:
Property is delivered or shipped to a purchaser within this State if the
shipment terminates in this State, even though the property is
subsequently transferred by the purchaser to another state.
Example: A corporation makes a sale to a purchaser who maintains a
central warehouse in this State at which all merchandise purchases are
received. The purchaser reships the goods to its branch stores in other
states for sale. All of the corporation’s products shipped to the
purchaser’s warehouse in this State is property “delivered or shipped to
a purchaser within this State”.
The Department, relying on decisions of courts in other UDITPA-based states,
determined that the “destination rule” shall apply for purposes of applying IITA Section
304(a)(3)(B)(i) [See IT 03-0034-GIL (Nov. 3, 2003)]. Under this rule, even though a
taxpayer’s customer may receive physical possession of the property outside Illinois, a
sale may nonetheless constitute an Illinois sale where the destination of the property
sold is Illinois.
In the instant case, the destination of COMPANY17 Products sold under the Alternative
Product Distribution Platform to a third-party distributor’s Illinois DISTRIBUTOR
LOCATIONS or Illinois STOREROOM2 remains the purchaser’s Illinois place of
business. It is the destination of the sale that is dispositive of the Illinois sales factor.
Your petition represents that the control of and responsibility for the future sales and
distribution of COMPANY17 Products is transferred to the third-party distributor. Your
petition indicates the COMPANY17s will cease to be involved in the sales process once
the products are ordered by a third-party distributor and shipped to a STOREROOM2.
Your petition represents COMPANY7 will not be involved in any aspect of the future
shipment and/or distribution of the products. The third-party distributor will create new
pallets of COMPANY17 Products (which may be combined with products from other
manufacturers), package and label the pallets for shipment, re-package damaged
cases, and ship the products using its own trucks or a third-party carrier arranged by the
third-party distributor. Your petition represents the third-party distributor is responsible
for the shipment and/or sale of the products to its own customers and/or to warehouses
owned by that third-party distributor or its affiliates. COMPANY7 will not know the
subsequent destination of the COMPANY17 Products beyond the inventory and/or
shipment information provided at a future date by a third-party data service company for
the purpose of COMPANY17s estimating DATA.
Assuming these facts are true, the sale of COMPANY17 Products which are delivered
to DISTRIBUTOR LOCATIONS or STOREROOM2s located within Illinois would be a
sale that terminates in Illinois and be within this State under the provisions of IITA
10

Section 304(a)(3)(B)(i), regardless of whether the third-party distributor subsequently
moves the goods to locations outside the State. Therefore, those COMPANY17
Product sales must be included in the numerator of the Illinois sales factor. Again,
assuming the above facts are true, the sale of COMPANY17 Products which are
delivered to third-party distributor’s DISTRIBUTOR LOCATIONS or STOREROOM2s
located outside of Illinois, would be a sale that terminates outside of Illinois and would
not be a sale within this State under the provisions of IITA Section 304(a)(3)(B)(i),
regardless of whether the third-party distributor subsequently moves the goods to
locations inside the State.
As stated above, this is a General Information Letter. A General Information Letter does
not constitute a statement of Department policy that applies, interprets or prescribes the
tax laws, and it is not binding on the Department.
Sincerely,
Jennifer Uhles
Associate Counsel (Income Tax)

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