If an Illinois business buys goods from an out-of-state supplier and has them shipped to customers or locations both inside and outside Illinois, who owes Illinois sales or use tax?

Plain-English summary

An Illinois business that distributes range hood filters bought from an out-of-state supplier asked the Illinois Department of Revenue who owes sales or use tax in five different shipping scenarios — for example, shipping straight from the out-of-state supplier to an out-of-state restaurant customer, versus shipping to the Illinois business's own home office first and then out to various restaurant locations in and out of state.

The Department didn't give a scenario-by-scenario yes/no (that level of detail requires a binding Private Letter Ruling, not a GIL). Instead, it laid out the general framework in 86 Ill. Adm. Code 130.605:

• Illinois Retailers' Occupation Tax (the seller-side "sales tax") applies when tangible personal property is located in Illinois (or produced there) at the time of sale and is delivered to the purchaser in Illinois. Where the contract was signed, where title passes, and where the purchaser lives don't matter.
• Use Tax is the purchaser-side tax on using property in Illinois that was bought at retail anywhere. If the purchase happens in Illinois, the purchaser pays Use Tax to the retailer, who can credit it against the Retailers' Occupation Tax owed on the same sale.
• A sale is still taxable even if the purchaser takes physical possession in Illinois and then immediately hauls the goods out of state — mere possession in Illinois counts as a taxable "use."
• The one key exception: if the seller is contractually obligated to deliver the property from a point in Illinois directly to a point outside Illinois, and it is not brought back into Illinois, that sale is treated as exempt interstate commerce and is not subject to Illinois Retailers' Occupation Tax (local tax included).

Applied loosely to the filter-distributor's fact pattern, this means the deciding question in each scenario is where the goods physically land when the sale is completed — not the invoicing path, not who requested the shipment, and not whether the Illinois business is already registered for sales tax in other states.

What this means for you

Businesses that drop-ship or resell goods across state lines

If you're an Illinois-based distributor or reseller buying from an out-of-state supplier, don't assume the transaction is automatically exempt just because it crosses state lines. Trace the actual delivery: does the property land in Illinois before going anywhere else? If your supplier ships directly out of state to your out-of-state customer, and you never take possession in Illinois, that's the strongest case for the interstate-commerce exemption in 130.605(d). If the goods first arrive at your Illinois office or warehouse and are then shipped onward, the initial sale to you (or from you) may already be Illinois-taxable, since delivery occurred in Illinois.

Multi-location or multi-state operators

Where the home office is located, where invoices are sent, and where payment originates are all immaterial to this analysis — the ruling flags this repeatedly. What matters is the physical delivery point of each individual sale. Being separately registered for sales/use tax in other states also doesn't change the Illinois analysis of a given shipment; each state applies its own sourcing rules to the delivery in question.

Accountants and tax professionals

This GIL is a good refresher on 86 Ill. Adm. Code 130.605's structure but stops short of applying it to the taxpayer's five numbered scenarios — that's a deliberate GIL limitation, not an oversight. If a client needs a binding answer for a specific shipping chain, the next step is a Private Letter Ruling request under 2 Ill. Adm. Code 1200.110, which requires a complete and accurate recitation of the facts.

Common questions

Q: Does shipping goods out of Illinois automatically make the sale exempt from Illinois sales tax?
A: No. Exemption under 86 Ill. Adm. Code 130.605(d) requires that the seller be contractually obligated to deliver the property from a point in Illinois to a point outside Illinois, and that the property not be returned to Illinois. Simply crossing state lines eventually isn't enough.

Q: If my customer picks up the goods in Illinois and immediately drives them out of state, is that sale tax-free?
A: No. Per 130.605(a)(2), mere possession in Illinois is treated as a taxable use, even if the purchaser leaves the state right away with the property.

Q: Does it matter where the contract was signed, where title transfers, or where the purchaser lives?
A: No. 130.605(a)(3) says all three are immaterial to whether the Retailers' Occupation Tax applies.

Q: Does being registered for sales tax in other states change how Illinois taxes a shipment?
A: The letter doesn't say registration elsewhere changes the Illinois analysis; the Department's response focuses solely on where the property is delivered under 130.605, not on the business's multi-state registration status.

Q: Why doesn't this letter just answer the taxpayer's five numbered scenarios directly?
A: Because it's a General Information Letter, not a Private Letter Ruling. A GIL points to the applicable regulations (here, 86 Ill. Adm. Code 130.605) rather than applying them to specific facts; only a PLR, requested under 2 Ill. Adm. Code 1200.110, is binding on a particular taxpayer's specific fact pattern.

Citations and references

Statutes and rules:

• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax imposed on retail sales in Illinois)
• 86 Ill. Adm. Code 130.605 (sourcing rules and interstate commerce exemption)
• 86 Ill. Adm. Code 130.605(a) (tax applies when property delivered to purchaser in Illinois)
• 86 Ill. Adm. Code 130.605(a)(2) (taxable even if property immediately removed from Illinois)
• 86 Ill. Adm. Code 130.605(a)(3) (contract location, title transfer, and purchaser residence immaterial)
• 86 Ill. Adm. Code 130.605(d) (interstate commerce exemption for direct out-of-state delivery)
• 86 Ill. Adm. Code 150.101 (Use Tax on property used in Illinois)
• 86 Ill. Adm. Code 150.130 (Use Tax remittance and Retailers' Occupation Tax credit)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedure)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2021.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2021/st21-0012-gil.pdf

Original ruling text

ST 21-0012-GIL 03/11/2021 INTERSTATE COMMERCE
This letter discusses sales in interstate commerce that originate in Illinois. See 86
Ill. Adm. Code 130.605. (This is a GIL.)

March 11, 2021
Dear NAME:
This letter is in response to your letter dated December 24, 2019, in which you
requested 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 looking for some guidance on sales/use tax issues in the following
circumstances.
IL business is a distributor of range hood filters from out of state supplier
and sells to restaurants as follows:
1.
2.
3.
4.
5.

If sells filter to an out of state restaurant and has supplier ship filters
directly to purchaser.
If sells filters to and [sic] IL home office that has restaurants both in
state and out of state. Supplier ships filters directly to IL home office.
Same as number 2 above except supplier ships directly to the
restaurants. Also, does it matter where the payment is made from –
home office in IL vs from each restaurant location?
Same as all three above except has filter shipped to IL business who
then ships to the various locations outside of IL.
If IL business is already registered in several states for sales tax and
transacts business with purchases from any of those states does that
matter if filters are shipped directly to purchaser from the out of state
supplier.

Questions – Who is liable for what type of tax and to what state?

NAME
Page 2
March 11, 2021

Thank you for your assistance in this matter.
DEPARTMENT’S RESPONSE:
The Retailers' Occupation Tax Act imposes a tax upon persons engaged in this
State in the business of selling tangible personal property at retail to purchasers for use
or consumption. See 86 Ill. Adm. Code 130.101. 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 86 Ill. Adm. Code 150.101. These taxes comprise what is
commonly known as “sales tax” in Illinois.
Where tangible personal property is located in Illinois or subsequently produced in
Illinois at the time of its sale, and then delivered to the purchaser in Illinois, the seller is
taxable if the sale is at retail. 86 Ill. Adm. Code 130.605(a). The place at which the
contract of sale or contract to sell is negotiated and executed and the place at which title
to the property passes to the purchaser are immaterial. Further, the place at which the
purchaser resides is also immaterial. 86 Ill. Adm. Code 130.605(a)(3).
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 reduce the amount of
Use Tax they must remit by the amount of Retailers' Occupation Tax liability which they
are required to and do pay to the Department with respect to the same sales. See 86 Ill.
Adm. Code 150.130. The retailers are then allowed to retain the amount of Use Tax paid
to reimburse themselves for Retailers' Occupation Tax which they are required to and do
pay to the Department with respect to the same sale. 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.
Mere possession in Illinois is considered a use. Consequently, if the purchase
occurs in Illinois, the purchaser must pay the Use Tax to the retailer. Please note that a
sale is taxable even though a purchaser that receives physical possession of the property
in this State immediately transports the property out of this State for use outside the State.
See 86 Ill. Adm. Code 130.605(a)(2). The State of Illinois has no specific exemption for
purchases by foreign or domestic travelers if the property is delivered and used in Illinois.
Section 130.605 identifies several exceptions to this rule, none of which appear to be
applicable to the activities described in your letter.
Section 130.605(d) states that the gross receipts from such sales are not subject
to tax when a sale is conducted in which the seller is obligated, under the terms of an
agreement with the purchaser, to make delivery of the property from a point in this State
to a point outside this State, not to be returned to this State, provided that such delivery

NAME
Page 3
March 11, 2021
is actually made. Such sales are sales in interstate commerce and are exempt from
Illinois and local Retailers' Occupation Tax.
For further information and guidance on these issues, please review Section
130.605 of Title 86 of the Illinois Administrative Code, which discusses sales of property
originating in Illinois and questions of interstate commerce.
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,

Alexis K. Overstreet
Associate Counsel

AKO:rkn