How could an out-of-state seller document an Illinois drop shipment as a sale for resale without Illinois nexus?

Plain-English summary

An out-of-state distributor with no Illinois office, salesperson, warehouse, or other stated presence sold a hoist to an Illinois end user and had its supplier ship the hoist directly to the customer. The supplier wanted Illinois resale documentation instead of charging tax.

IDOR explained the standard drop-shipment structure. The Illinois-registered supplier had to collect tax or document that its sale to the distributor was for resale.

The preferred documentation was a signed resale certificate containing the required transaction details and an active Illinois registration or resale number. A no-nexus out-of-state reseller could obtain a resale number for this purpose without being required to file tax returns, so long as it did not become an Illinois retailer or retailer maintaining a place of business in Illinois.

Section 2c also allowed other evidence to rebut the presumption of a retail sale. A certificate explaining the drop shipment, the distributor's lack of Illinois contacts, and its choice not to obtain a resale number could be evidence of resale—but IDOR warned that an auditor was more likely to look behind a certificate lacking a valid number.

If the distributor had no Illinois collection duty and did not collect Use Tax, the Illinois end user still had to pay the tax directly to IDOR.

Common questions

Did the supplier need documentation? Yes. It had to collect tax or document the resale exemption.

Could a no-nexus reseller get an Illinois resale number? Yes, under the conditions described.

Was a certificate without a number impossible? No, but it carried greater audit risk.

Citations and references

• 86 Ill. Adm. Code 130.225, 130.1405, and 130.1415
• 35 ILCS 120/2c

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2012.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2012/st-12-0051.pdf

Original ruling text

ST 12-0051-GIL 09/20/2012 SALE FOR RESALE
This letter describes the standard drop-shipment scenario and certificates of resale. See
86 Ill. Adm. Code 130.225. (This is a GIL.)
September 20, 2012
Dear:
This letter is in response to your letter dated September 10, 2012, 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:
We are a STATE1 distributor of overhead manufacturing equipment. We purchase
equipment from manufacturers around the country and typically drop ship directly from
our manufacturers to our customers who are primarily in STATE1 and STATE2.
Recently an Illinois business found our website, called us and ordered a hoist. We are
going to ship this hoist directly from our supplier (manufacturer) to this business in
Illinois. Our supplier is going to charge us sales tax on this item unless we can provide
them with documentation to show them we are not taxable in Illinois.
It is important to note that we do not have any presence in Illinois. We do not have an
office, a sales person, a warehouse or any other form of presence in Illinois nor do we
have any plans to have any.
It is important to note that this particular Illinois customer is not a reseller and is taxable.
My question is: are we required to charge and collect sales tax in Illinois for this drop
shipment? I have read Revenue Title 86 Part 130.225 regarding Drop Shipments but I
am looking for a legally binding statement detailing my responsibilities in this instance.
Please respond as soon as possible.

DEPARTMENT’S RESPONSE:
The Department’s regulations regarding Drop Shipments can be found at 86 Ill. Adm. Code 130.225
and Seller’s Responsibility to Obtain Certificates of Resale and Requirements for Certificates of
Resale at 86 Ill. Adm. Code 130.1405. A drop-shipment situation is normally one in which out-of-

ST 12-0051-GIL
September 20, 2012
Page 2
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 Purchaser’s customer
(Customer) located in Illinois. For purposes of this discussion, it is assumed that Purchaser is an outof-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)
4)
5)

the seller's name and address;
the purchaser's name and address;
a description of the items being purchased for resale;
the 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-of-State purchaser who will sell only to purchasers located outside the State
of Illinois.

If Purchaser has no nexus with Illinois, it is unlikely that Purchaser would be registered with Illinois. If
that is the case, and if Purchaser has no contact with Illinois which would require it to be registered as
out-of-State Use Tax collector for Illinois, then Purchaser could obtain a resale number which would
provide it the ability to supply the required number to Company in conjunction with a Certificate of
Resale.
Resale numbers are issued to persons who make no taxable sales in Illinois but who need the ability
to provide suppliers with Certificates of Resale when purchasing items that will be resold. So long as
Purchaser does not act as an Illinois retailer (see 86 Ill. Adm. Code 130.605(a)), and so long as it
does not fall under the definition of a “retailer maintaining a place of business in this State” (see 86 Ill.
Adm. Code 150.801(c)), it sales to Illinois customers are not subject to Illinois Retailers’ Occupation
Tax liability, and it cannot be required to act as a Use Tax collector. So long as this is true, Purchaser
qualifies for a resale number that does not require the filing of tax returns with the Illinois Department
of Revenue. See 86 Ill. Adm. Code 130.1415. The fact that Purchaser may not be required to act as
a Use Tax collector for Illinois does not relieve Customer of Use Tax liability. Therefore, if Purchaser
does not collect Illinois Use Tax from Customer, Customer would have to pay its tax liability directly to
the Illinois Department of Revenue.
Active registration or placing resale numbers on Certificates of Resale are still the preferred methods.
However, the Illinois Retailers’ Occupation Tax Act leaves open the possibility of other options to
document the resale nature of the sale:
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.

ST 12-0051-GIL
September 20, 2012
Page 3
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. 35 ILCS 120/2c.
Again, including a registration or a resale number from Purchaser on a Certificate of Resale is the
preferred method for documenting that the purchase from Company is a purchase for resale.
However, in light of this statutory language, a certification from Purchaser on a Certificate of Resale in
lieu of resale number which described the drop-shipment situation and the fact that Purchaser has no
contact with Illinois which would require it to be registered and that it chooses not to obtain an Illinois
resale number would constitute evidence that this particular sale is a sale for resale, despite the fact
that no registration number or resale number is provided. The risk run by Company in accepting such
a certification, and the risk run by Purchaser in providing such a certification, is that an Illinois auditor
may be more likely to go behind a Certificate of Resale which does not contain a valid resale number
and require that more information be provided by Company as evidence that the particular sale was,
in fact, a sale for resale.
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