How could an Illinois drop-shipper document a sale for resale to an unregistered out-of-state purchaser?

Plain-English summary

A survey publisher asked Illinois to update answers about third-party drop shipments. The assumed transaction involved an Illinois-registered seller shipping goods to an Illinois customer for an out-of-state purchaser that had no Illinois nexus or registration.

IDOR would not approve the survey but explained that the Illinois seller had to collect tax or document an exemption. To establish a sale for resale, it should obtain a signed Certificate of Resale containing the parties' names and addresses, a description of the goods, date, and a registration or resale number—or a statement that the out-of-state purchaser would sell only to customers outside Illinois. Form CRT-61 was available for this purpose.

A proper certificate with a valid number ended the seller's liability; later misuse was pursued against the purchaser. Without an active number and certification, the transaction was presumed not to be resale.

Other proof could rebut that presumption, such as the purchaser's invoice to its customer plus an explanation for lacking a resale number and certification that the Illinois purchase was for resale. IDOR warned that alternative documentation carried greater audit risk and likely required more evidence.

What this means for you

Drop-shippers should validate resale numbers and retain complete certificates before delivery. Alternative evidence may work, but it is less certain and more burdensome in an audit.

Common questions

Could an unregistered out-of-state purchaser give a resale certificate? The letter allowed the required statement about sales only to customers outside Illinois.

Was Form CRT-61 mandatory? It was the Department's standard form; the response described the required certificate contents.

Could other proof overcome a missing number? Potentially, but with greater audit risk.

Citations and references

• 86 Ill. Adm. Code 130.225 and 130.1405.
• Rock Island Tobacco & Specialty Co. v. IDOR, 87 Ill. App. 3d 476, 409 N.E.2d 136 (1980).

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2016.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2016/st-16-0008-gil.pdf

Original ruling text

ST 16-0008-GIL 02/04/2016

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.)

February 4, 2016

Dear Xxxxx:
This letter is in response to your letter dated January 5, 2016, 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, 2012, and 2014 to assist the Institute in its
publication of the SURVEY. Forty-five states and the District of Columbia
were each asked to respond to the 10 survey questions relating to thirdparty drop shipment transactions. All jurisdictions responded, and the
results were compiled and published in the same years as stated above.
Your office was sent a copy of each of the updated publications. An
additional 2014 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 2016 which
will be the Thirteenth Edition. Over 740 copies of the 2014 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 Twelth [sic] Edition
was released in June 2014.
Therefore, we are contacting all of the 46 taxing jurisdictions that
responded in 2014 to the questionnaire that appears on pages ii-iii of the
2014 Survey and are asking each of them to review their responses
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).
A reply by you no later than March 11, 2016, would be most gracious on
your part given the time schedule that we have allowed for information
gathering and printing of this new 2016 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
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.

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?

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 out-of-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 CRT-61 Certificate of Resale). This form can 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 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

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