What documentation supported an Illinois resale exemption for in-state, out-of-state, and auction buyers under ST 11-0040-GIL?

Plain-English summary

A valid resale certificate was the seller's primary proof that an Illinois sale was for resale. The certificate had to be signed by the purchaser and contain the seller's and purchaser's names and addresses, a description of the property, the authorized signature and date, and a registration number, resale number, or certification of resale to an out-of-state purchaser.

When the certificate was correct and the number was valid when given, the Department treated it as prima facie proof of resale. If the purchaser later used the property instead, the Department would proceed against the purchaser rather than the retailer when those conditions were met.

Without an active registration or resale number and a resale certification, the sale was presumed not to be for resale. The presumption could be rebutted with other evidence—for example, an invoice showing the purchaser actually resold the item, plus an explanation for lacking a resale number and a certification that the Illinois purchase was for resale. The letter warns that this route invites closer audit scrutiny.

The GIL also covered related situations:

• A business making exclusively resale sales did not have to register under the Retailers' Occupation Tax Act, while a business making both wholesale and retail sales had to register, file returns, and document wholesale exemptions.
• An auctioneer for an undisclosed principal was treated as the owner and owed tax on gross receipts. With a disclosed principal, the principal bore the tax, subject to an occasional-sale exception. When tax applied, commission was included in total selling price.
• Drop shipments were governed by Regulation 130.225.

The letter includes a 2011 registration discussion based on Quill and physical presence. That discussion is historical and noncurrent; it should not be used for present-day nexus decisions.

What this means for you

Collect and verify resale documentation for the transaction, including for out-of-state buyers taking delivery in Illinois. If the usual number and certificate are unavailable, preserve strong transaction-level evidence showing an actual resale. Auctioneers should document the principal's name and address in both customer disclosure and their own records.

Common questions

Q: Did an out-of-state buyer always need an Illinois resale number?
A: The certificate rules allowed a registration number, resale number, or certification of resale to an out-of-state purchaser, but the seller still needed proper documentation.

Q: Who owed tax at an auction?
A: An auctioneer for an undisclosed principal; a disclosed principal generally bore the tax instead, subject to the occasional-sale rule.

Q: Is the letter's physical-presence nexus discussion current?
A: No. Treat that Quill discussion as historical only.

Subject

Sale For Resale

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2011.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2011/st-11-0040.pdf

Original ruling text

ST 11-0040-GIL 05/26/2011 SALE FOR RESALE
This letter addresses sales for resale. See 86 Ill. Adm. Code 130.1405. (This is a GIL.)

May 26, 2011

Dear Xxxxx:
This letter is in response to your letter dated March 28, 2011, in which you request 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 am writing about the laws and regulations regarding sales tax and shipping TPP into
your state.
We are registered in the state of Illinois and collect and remit sales tax.
Please answer the following questions and provide the regulation or law where the
answer is derived from.
1.

We ship TPP to a client that is not a reseller in the state of Illinois, is the TPP
taxable or exempt?

2.

We ship TPP to a client that is registered in the state of Illinois and holds a resale
permit or license, what do we need to exempt the client from sales tax?

3.

An out of state dealer who holds a resale permit in their home state asks us to
ship TPP into Illinois. Is the sale exempt from Illinois sales tax? Does the out of
state dealer who holds a resale permit in their home state need to be registered
for sales tax in the state of Illinois to be exempt from sales tax? What
documentation does ABC need to exempt the out of state dealer who holds a
resale permit in their home state from sales tax?

4.

A foreign dealer who resells TPP from their home country asks us to ship TPP
into Illinois. Can we exempt the sale from sales tax? Does the foreign dealer
who resells TPP from their home country need to be registered for sales tax in
the state of Illinois to be exempt from sales tax? What documentation does ABC
need to exempt foreign dealer who resells TPP from their home country from
sales tax?

5.

We hold an auction in the state of Illinois and a client that is not a reseller that
resides in the state of Illinois takes possession of the TPP, are the items taxable?

6.

We hold an auction in the state of Illinois and a client that is registered in the
state and holds a resale permit or license takes possession of the TPP, what do
we need to exempt the client from sales tax?

7.

We hold an auction in the state of Illinois and an out of state dealer who holds a
resale permit in their home state takes possession of the TPP in the state of
Illinois, can we exempt the transaction from sales tax? Does the out of state
dealer who holds a resale permit in their home state be [sic] exempt from sales
tax? What documentation does ABC need to exempt the out of state dealer who
holds a resale permit in their home state from sales tax?

8.

We hold an auction in the state of Illinois and a foreign dealer who resells TPP
from their home country takes possession of the TPP in the state of Illinois, can
we exempt the sale from sales tax? Does the foreign dealer who resells TPP
from their home country need to be registered for sales tax in the state of Illinois
to be exempt from sales tax? What documentation does ABC need to exempt
the foreign dealer who resells TPP from their home country from sales tax?

9.

What is a drop shipment?

We would like written answers to our questions so we may rely on this for any future
audits and to properly apply the laws in our course of business.

DEPARTMENT’S RESPONSE:
Retailers’ Occupation Tax and Use Tax
The Retailers’ Occupation Tax is what is commonly referred to in other locales as “sales” tax.
However, the Retailers’ Occupation Tax is not a sales tax, but rather an occupation tax. The
Retailers’ Occupation Tax is imposed on persons engaged in the business of selling tangible personal
property at retail. The complement of the Retailers’ Occupation Tax is the Use Tax, which is
essentially a privilege tax imposed upon the privilege of using, in Illinois, tangible personal property
purchased anywhere at retail. The current tax rate is 6.25% plus any local taxes if applicable.
Sale for Resale
When a person purchases items of tangible personal property with the intention of reselling
them to purchasers for use or consumption, that person engages in making retail sales of tangible
personal property. This makes the initial purchase a purchase for resale, and the subsequent sale is
a taxable sale at retail subject to Illinois Retailers' Occupation and Use Tax liabilities. See 86 Ill. Adm.
Code 130.201 and 130.210.

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. See 86 Ill.
Adm. Code 130.101. The tax is measured by the seller's gross receipts from retail sales made in the
course of such business. "Gross receipts" means the total selling price or the amount of such sales.
The retailer must pay Retailers' Occupation Tax to the Department based upon its gross
receipts, or actual amount received, from the sale of the tangible personal property. In Illinois, Use
Tax is imposed on the privilege of using, in this State, any kind of tangible personal property that is
purchased anywhere at retail from a retailer. See 35 ILCS 105/3; 86 Ill. Adm. Code 150.101. These
taxes comprise what is commonly known as "sales" tax in Illinois. If the purchases occur in Illinois, the
purchasers must pay the Use Tax to the retailer at the time of purchase. The retailers are then
allowed to retain the amount of Use Tax paid to reimburse themselves for their Retailers' Occupation
Tax liability incurred on those sales. If the retailer does not collect the Use Tax from the purchaser for
remittance to the Department, the purchaser is responsible for remitting the Use Tax directly to the
Department. See 86 Ill. Adm. Code 150.130.
The resale exemption is applicable when making sales to a purchaser who will in turn sell the
tangible personal property. For general information regarding resale certificates, the Department’s
regulation for resale certificates, “Seller's Responsibility to Obtain Certificates of Resale and
Requirements for Certificates of Resale,” is found at 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. Provided that this statement is correct, the Department will accept Certificates of
Resale as prima facie proof that sales covered thereby were made for resale.
In addition to the statement, a Certificate of Resale must contain:
1)
2)
3)
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;
Registration Number, Resale Number, or Certification of Resale to out-of-State
purchaser.

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 companies in

accepting such a certification and the risk run by purchasers in providing such a certification 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.
Registration
Out-of-State sellers who fall under the definition of a “retailer maintaining a place of business in
this State” (see 86 Ill. Adm. Code 150.201(i)) must register to collect Illinois Use Tax from Illinois
customers and remit that tax to the Department. See 86 Ill. Adm. Code 150.801(c). Please note that
out-of-State sellers with any kind of agent in Illinois (not just sales or lease agents) are required to
register as out-of-State Use Tax collectors. If an out-of-state dealer has no contact with Illinois, it does
not fall within the definition of a “retailer maintaining a place of business in this State,” and it need not
register as an out-of-State Use Tax collector.
The United States Supreme Court in Quill Corp. v. North Dakota, 112 S.Ct. 1904 (1992), set
forth the current guidelines for determining what nexus requirements must be met before a person is
properly subject to a state’s sales tax laws. The Supreme Court has set out a two-prong test for
nexus. The first prong is whether the Due Process Clause is satisfied. Due Process will be satisfied if
the person or entity purposely avails himself or itself of the benefits of an economic market in a forum
state. Id. at 1910. The second prong of the Supreme Court’s nexus test requires that, if due process
requirements have been satisfied, the person or entity must have physical presence in the forum
state to satisfy the Commerce Clause.
A physical presence does not mean simply an office or other physical building. Under Illinois
tax law, it also includes the presence of any representative or other agent of the seller. The
representative need not be a sales representative and it is immaterial for tax purposes that the
representative’s presence is temporary.
Resale numbers are issued to persons who make no taxable sales in Illinois but who need the
wherewithal to provide suppliers with Certificates of Resale when purchasing items that will be resold.
So long as Purchasers do not act as Illinois retailers and, so long as they do not fall under the
definition of a “retailer maintaining a place of business in this State”, their sales to Illinois customers
are not subject to Illinois Retailers’ Occupation Tax liability, and they cannot be required to act as Use
Tax collectors. So long as this is true, Purchasers qualify for resale numbers that do not require the
filing of tax returns with the Illinois Department of Revenue. See 86 Ill. Adm. Code 130.1415.
Please note that the fact that Purchasers may not be required to act as Use Tax collectors for
Illinois does not relieve their Customers of Use Tax liability. Therefore, if Purchasers do not collect
Illinois Use Tax from their Customers, the Customers would have to pay their tax liability directly to
the Illinois Department of Revenue.
Lastly, note, if a person or entity makes sales that are exclusively (i.e., 100%) for resale, that
person or entity is not required to register under the Illinois Retailers' Occupation Tax Act when
making such sales. See Dearborn Wholesale Grocers, Inc. v. Whitler, 82 Ill.2d 471 (1980). However,
if a person or entity engages in making both wholesale and retail sales, they are required to register
under the Retailers' Occupation Tax Act and file monthly sales tax returns and document the exempt
status of their wholesale transactions. See Tri-America Oil Company v. Department of Revenue, 102
Ill.2d 234 (1984).
Auctions

For general information regarding auctioneers and agents, see the Department’s Regulation
entitled “Auctioneers and Agents” which can be found on the Department’s website at 86 Ill. Adm.
Code 130.1915. When auctioneers or agents are involved in selling activities, the person who is liable
for Retailers’ Occupation Tax will depend on whether the auctioneer or agent is working on behalf of
a disclosed or undisclosed principal. This rule applies to consignment transactions, as well. An
auctioneer or agent acting on behalf of an unknown or undisclosed principal is considered to be the
owner of the tangible personal property that will be sold and is responsible for paying Retailers’
Occupation Tax on the gross receipts from the sale, as well as filing a sales tax return.
However, if the auctioneer or agent is acting on behalf of a known or disclosed principal, the
sale of the tangible personal property is taxable to the principal and not the auctioneer or agent. A
principal is deemed to be disclosed to a purchaser for use or consumption only when the name and
address of such principal is made known to such purchaser at or before the time of the sale and when
the name and address of the principal appears upon the books and records of the auctioneer or
agent. See subsection (b) of Section 130.1915. Please be advised, however, that if the tangible
personal property sold would constitute an occasional sale by the disclosed principal, then the sale is
not taxable. See 86 Ill. Adm. Code 130.110 (“Occasional Sales”). If tax is due, it is based upon the
total selling price, including any commission.
Drop Shipments
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. For general information regarding drop
shipments, you may wish to review the Department’s drop shipment rules at 86 Ill. Adm. Code
130.225, which can be viewed on the Department’s website. These rules provide guidance in general
drop shipment situations.
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:msk