For goods sent to an Illinois consolidator or warehouse before a final store, is tax based on the interim ship-to location or the ultimate destination?

Plain-English summary

A registered multistate manufacturer sometimes shipped products by common carrier to a customer's third-party consolidator or warehouse before the goods moved to the customer's final store. It asked whether the taxable location was the interim ship-to point or the ultimate destination.

IDOR said the facts were insufficient to decide. It outlined several possibilities instead. An Illinois retailer delivering tangible personal property in Illinois generally owes tax unless an exemption is documented. A sale for resale may be supported by a properly completed resale certificate; without an active registration or resale number and certification, the sale is presumed not to be for resale, although other evidence may rebut that presumption.

The temporary-storage exception may apply when an out-of-state customer acquires property outside Illinois, stores it temporarily in Illinois, and then uses it solely outside Illinois. The Department also noted that separate drop-shipment rules might apply. It could not determine whether either rule covered these transactions.

Because the company said it was registered to collect Illinois Use Tax, the GIL concluded that, absent exemption documentation, it had to collect the 6.25% rate stated in the 2013 letter.

Common questions

Did IDOR choose the warehouse or final-store location? No. It lacked enough transaction details.

Does temporary storage always exempt an Illinois warehouse stop? No. The GIL's exception requires acquisition outside Illinois and sole use outside Illinois after temporary storage.

Citations and references

• 86 Ill. Adm. Code 150.201(i) and 150.801
• 86 Ill. Adm. Code 130.1405
• 86 Ill. Adm. Code 150.310(a)(4)
• 86 Ill. Adm. Code 130.225

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2013.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2013/st-13-0063.pdf

Original ruling text

ST-13-0063 – GIL 10/22/13 USE TAX
This letter discusses the obligations of registered out-of-state sellers to collect Use Tax. See 86
Ill. Adm. Code 150.801. (This is a GIL.)

October 22, 2013

Dear Xxxxx:
This letter is in response to your letter dated July 30, 2013, 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 doing a research project and request your help in this matter. We are a
manufacturing company with facilities based in STATE, STATE, and STATE.
We are sometimes asked to ship our product on common carriers to our
customer’s third party locations. Be it a consolidator, warehouse, etc.
I need to confirm the taxable location for these third party shipments. I know we
as the shipper are required to collect tax because we are registered in your
locations. Customers sometimes have us ship the product to a 3rd party location
where they consolidate or place in storage prior to their shipping the product onto
the final store location (as reference they may give us the final destination and
often our instruction is the product is to be marked for: final store location. This
could be in the same state or in separate states.
What we need to confirm with your state is which location would be the taxable
location? The location where the consolidation is occurring (which is our ship to
location) or the final destination where the product will ultimately end up??
Thanks in advance for your help in this matter.

DEPARTMENT’S RESPONSE:

We are not able to determine the exact nature of the transactions you are engaged in from
the information you have provided. Without further information, we can only provide general
information on the law that seems applicable to the sales outlined in your letter. In your letter
you mention that your company is registered in Illinois. Listed below are a few general
scenarios to help guide you.
An “Illinois Retailer” is one who either accepts purchase orders in the State of Illinois or
maintains an inventory in Illinois and fills Illinois orders from that inventory. The Illinois
Retailer is then liable for Retailers' Occupation Tax on gross receipts from sales and must collect
the corresponding Use Tax incurred by the purchasers.
Another type of retailer is the retailer maintaining a place of business in Illinois. The
definition of a “retailer maintaining a place of business in Illinois” is described in 86 Ill. Adm.
Code 150.201(i). This type of retailer is required to register with the State as an Illinois Use Tax
collector. See 86 Ill. Adm. Code 150.801. The retailer must collect and remit Use Tax to the
State on behalf of the retailer’s Illinois customers even though the retailer does not incur any
Retailers' Occupation Tax liability.
The final type of retailer is the out-of-State retailer that does not have sufficient nexus
with Illinois to be required to submit to Illinois tax laws. A retailer in this situation does not incur
Retailers’ Occupation Tax on sales into Illinois and is not required to collect Use Tax on behalf
of its Illinois customers. However, the retailer’s Illinois customers will still incur Use Tax
liability on the purchase of the goods and have a duty to self-assess and remit their Use Tax
liability directly to the State.
When an Illinois retailer sells tangible personal property and delivers it in Illinois, sales
tax is due unless an exemption can be documented. 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. If an electronic resale certificate is kept, it
should contain all of the information required under 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.

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 go behind a certificate of resale that does
not contain a signature and require that more information be provided as evidence that the
particular sale was, in fact, a sale for resale. We cannot determine from the limited information
you provide in your letter whether you are making sales for resale.
If the property is acquired by an out of state customer and a third party stores the property
in Illinois prior to shipping it outside of Illinois, the temporary storage exception may apply. A
temporary storage exemption from the imposition of use tax is available where tangible personal
property is “acquired outside this State and which, subsequent to being brought into this State
and stored here temporarily, is used solely outside this State or is physically attached to or
incorporated into other tangible personal property that is used solely outside this State, or is
altered by converting, fabricating, manufacturing, printing, processing or shaping, and, as
altered, is used solely outside this State.” See 86 Ill. Adm. Code 150.310(a)(4).
We also cannot determine from the limited information provided in your letter whether
you are engaging in Drop Shipments. The Department’s regulations regarding Drop Shipments
can be found at 86 Ill. Adm. Code 130.225.
In sum, since you indicate you are registered to collect Use Tax, absent documentation of
an exemption, you must collect Illinois Use Tax at the rate of 6.25%.
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,

Cara Bishop
Associate Counsel
CB:msk