How could an Illinois supplier document resale when drop-shipping goods for an unregistered out-of-state purchaser to an Illinois customer?

Plain-English summary

A publisher asked IDOR to update a private multistate survey about third-party drop shipments. The scenario involved an Illinois-registered supplier shipping to an Illinois customer for an out-of-state purchaser that was not registered and had no Illinois nexus.

IDOR would not approve a private publication but described the general rules. The Illinois supplier had to collect tax on its Illinois delivery or document an applicable exemption.

To establish resale, the supplier generally needed a Certificate of Resale signed by the purchaser. The certificate had to identify seller and purchaser, describe the items, include signature and date, and provide the purchaser's registration or resale number or the specified qualifying out-of-state statement.

When the supplier obtained a proper certificate containing a registration or resale number valid on the date given, the supplier's liability ended. If the purchaser later consumed the property, IDOR would proceed against the purchaser rather than the supplier under the conditions described.

Without an active number and resale certification, the sale was presumed not to be for resale. The supplier could try to rebut that presumption with other evidence, such as the purchaser's invoice to its customer plus an explanation and resale certification, but IDOR warned that an auditor was likely to demand more proof.

What this means for you

In a drop shipment, the Illinois supplier's protection depended on documentation from its own purchaser, not simply on the final customer's role. A valid certificate was the strongest route; alternative proof carried greater audit risk.

Common questions

Did IDOR approve the private survey? No.

Did a valid resale certificate protect the supplier? Yes, under the stated conditions.

Could other evidence replace a missing number? Potentially, but with greater scrutiny.

Citations and references

• 86 Ill. Adm. Code 130.225.
• 86 Ill. Adm. Code 130.1405.
• Rock Island Tobacco & Specialty Co. v. Illinois Department of Revenue, 87 Ill. App. 3d 476 (1980).

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2014.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2014/st-14-0024.pdf

Original ruling text

ST 14-0024-GIL 04/24/2014 SALE FOR RESALE
This letter is a response to a survey regarding drop shipments. For information regarding drop
shipments, see the Department’s regulation entitled “Drop Shipments,” found at 86 Ill. Adm.
Code 130.225. (This is a GIL.)
April 24, 2014

Dear Xxxx:
This letter is in response to your letter dated January 2, 2014, 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:
Your office was contacted in 1990, 1992, 1994, 1996, 1998, 2000, 2002, 2004,
2006, 2008, 2010 and 2012 to assist the Institute in its publication of the ThirdParty Drop Shipment Survey. Forty-five states and the District of Columbia were
each asked to respond to the 10 survey questions relating to third-party drop
shipment transactions. All jurisdictions responded, and the results were compiled
and published in the same years as stated above. 1990, 1992, 1994, 1996, 1998,
2000, 2002, 2004, 2006, 2008, and 2010. Your office was sent a copy of each of
the publications. An additional 2012 copy is enclosed for your reference.
We have had continuing favorable reaction to this publication, so much so that the
Institute is going to completely reprint the survey for 2014 which will be the
Twelfth Edition. Over 775 copies of the 2012 survey were ordered by the
majority of the Fortune 500 corporations and the reaction to this monographic
study has been overwhelmingly favorable, with many requests for a complete
update that would reflect statute and administrative changes in the various states
since the Eleventh Edition was released in June 2012.
Therefore, we are contacting all of the 46 taxing jurisdictions that responded in
2012 to the questionnaire that appears on pages ii-iii of the 2012 Third-Party
Drop Shipment Survey and are asking each of them to review their responses

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April 24, 2014
related thereto and to respond anew to each of the 10 questions. If there are no
changes, would you please advise?
We would be most appreciative if you would take the time to respond to the ten
questions and furnish any updated respondent address information that is
appropriate (please include an e-mail address, if you wish). When all of the
states and the District of Columbia have replied, the information will be
republished in a new booklet and you will be sent, of course, a courtesy copy.
Please direct your replies to my attention at the following address where the
compilation will take place (or via email. PREFERABLY, at xxxxxxxxxxx:
xxxxxxxxxxxxx
xxxxxxxxxx
xxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxx

A reply by you no later than March 7, 2012, would be most gracious on your part
given the time schedule that we have allowed for information gathering and
printing of this new 2014 survey. If you have questions, do give me a call. My
direct dial number is: xxx-xxx-xxxx
Your Survey reads as follows:
FACTS...
SHIPS PRODUCTS
Seller
Corporation

SELLS
PRODUCTS

Other Corporation (Located
in your State – STATE B)

Buyer
Corporation
(Located in
STATE A)

RE-SELLS [sic]
PRODUCTS

Buyer Corporation is a registered wholesaler or retailer in State A.
Buyer Corporation has no nexus in your state and is not required to collect
sales/use tax in your state (State B).
Seller Corporation has a valid exemption certificate from Buyer Corporation for
State A.

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April 24, 2014

Seller Corporation is required to collect sales/use tax in your state (State B).
SURVEY QUESTIONS...
1.

Given that Buyer Corporation is not registered in, and has no nexus with,
your state (State B), will your state recognize the sale from Seller
Corporation to Buyer Corporation as a sale for resale not subject to sales
or use tax in your state? (‘Yes’ or ‘No’) If the answer is yes, what
documentation will your state accept to evidence that the sale from Seller
Corporation to Buyer Corporation is a sale for resale?

2.

Does it matter if Seller Corporation delivers in its own equipment, rather
than by common carrier?

3.

Do the FOB terms of sale matter in the taxation of this type of transaction?
If so, please explain.

4.

Does it matter if Seller Corporation ships from an inventory pool in your
state as opposed to an inventory pool in another state?

5.

What if Seller Corporation has a Direct Pay Certificate from Buyer
Corporation instead of a resale certificate from State A?

6.

If Other Corporation is a consumer, would the execution of an affidavit
(see Exhibit A) from Other Corporation to Buyer Corporation, furnished
to Seller Corporation, be sufficient to relieve Seller Corporation from
further responsibility or liability for your state’s tax?

7.

Does it matter if Other Corporation is reselling as opposed to consuming?
Does it matter that other Corporation is an exempt or immune entity or
purchasing for an exempt purpose other than for resale?

8.

What if Other Corporation is installing the items shipped in the
performance of a construction contract with an exempt agency in your
state?

9.

If Seller Corporation is required to remit or collect and remit the tax, is the
tax measured by the price paid by Buyer Corporation, or by the price paid
by Other Corporation? If measured by the price paid by Other
Corporation, what is Seller Corporation required to do if it does not know,
and has no right to know, the price paid by the Other Corporation?

10.

What is the code section the state relies on to reach its conclusion in each
answer?

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April 24, 2014

DEPARTMENT’S RESPONSE:
The Department cannot approve publications other than those issued by the Department
of Revenue. However, we can provide the following general information and cites to the relevant
sections of the Illinois Administrative Code that apply to the questions in your survey. For
example, the Department’s regulations entitled “Drop Shipments”, found at 86 Ill. Adm. Code
130.225, and “Seller’s Responsibility to Obtain Certificates of Resale and Requirements for
Certificates of Resale”, found at 86 Ill. Adm. Code 130.1405, explain in greater detail the
Department’s position on the acceptance of Certificates of Resale by sellers from out-of-State
purchasers.
A drop-shipment situation is normally one in which out-of-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 out-of-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;
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 outof-State purchaser who will sell only to purchasers located outside the State of
Illinois.

The Department provides a standard form for documenting sales for resale (Form CRT61 Certificate of Resale, copy enclosed). This form can also be obtained from the Department’s
website.
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

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April 24, 2014
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 a retailer in accepting such other documentation and the risk run by purchasers in providing
such other documentation 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.
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