Is a sale exempt from Illinois sales tax as a sale in foreign commerce when the goods are delivered in Illinois to a freight forwarder for export, rather than directly to the purchaser?

Plain-English summary

An accounting/advisory firm asked the Illinois Department of Revenue about a specific e-commerce export fact pattern: a foreign purchaser buys goods from a US online retailer that won't ship directly to the purchaser's country, so the purchaser has the goods delivered instead to a US warehouse run by "Company A," a freight forwarder and export packer. Company A inspects and repackages the goods, then ships them (often consolidated with other orders) through "Company B" to the foreign purchaser abroad. Neither Company A nor Company B is a party to the original sale, and the original US retailer typically doesn't even know the goods will end up overseas.

The Department's answer turns entirely on who takes physical possession of the goods in Illinois first. Under 86 Ill. Adm. Code 130.605(g), a sale is exempt as a sale in foreign commerce when the retailer delivers the goods in Illinois directly to a freight forwarder who then ships them to a foreign country, not to be returned to the United States. In that scenario, the retailer owes no Retailers' Occupation Tax on the sale.

But if the purchaser (or the purchaser's own representative) physically receives the goods in Illinois before they go to a freight forwarder, the exemption does not apply — the sale is taxable even though the purchaser later ships the goods out of state or out of the country. The Department noted there is no special Illinois exemption just because a buyer is a foreign traveler or the goods are ultimately used abroad; what matters is the delivery chain, not the buyer's location or intent.

To document an exempt sale, the retailer should get a statement from the purchaser that the property will be used exclusively outside the United States and should keep the shipping document showing that the goods were delivered directly to the freight forwarder in Illinois — not to the purchaser or an agent of the purchaser.

What this means for you

E-commerce retailers and marketplace sellers

If your customer arranges for a freight forwarder to receive goods on their behalf in Illinois for export, you can treat the sale as exempt from Retailers' Occupation Tax — but only if your shipping records show delivery went straight to the forwarder, not to the customer or an agent of the customer first. Keep the forwarder's proof of delivery and a purchaser statement that the goods will be used exclusively outside the US. Marketplace facilitators have these same documentation duties under 86 Ill. Adm. Code 131.145(m).

Freight forwarders and export packers

Your role as the direct recipient of the goods in Illinois is what makes the exemption available at all. If you inspect, repackage, and consolidate shipments before sending them abroad (as described in this ruling), that doesn't disqualify the exemption — but you should retain your own intake and shipping documentation, since the retailer will likely rely on it to support the deduction under 86 Ill. Adm. Code 130.810.

Accountants and tax professionals

The dividing line in 86 Ill. Adm. Code 130.605(a) vs. 130.605(g) is possession, not ultimate use: a sale is taxable if the purchaser or the purchaser's representative physically receives the goods in Illinois, even if they immediately re-export them — but exempt if a freight forwarder receives them directly for shipment abroad, never to return to the US. There is no blanket foreign-traveler or foreign-buyer exemption in Illinois; each transaction needs to be traced through the actual delivery chain and documented under 130.605(f) and 130.810.

Common questions

Q: Does it matter that the foreign purchaser never set foot in Illinois?
A: Not by itself. The exemption depends on whether the freight forwarder — rather than the purchaser or the purchaser's agent — took physical possession of the goods in Illinois. The purchaser's location or nationality isn't the test.

Q: What if the purchaser had picked up the goods and then shipped them to the freight forwarder?
A: Then the sale would be taxable. The Department is explicit that a sale is not in foreign commerce if the purchaser or the purchaser's representative receives physical possession in Illinois, even if the purchaser later sends the property out of state for use abroad.

Q: What paperwork supports the exemption?
A: A statement from the purchaser that the goods will be used exclusively outside the United States, plus a shipping document showing physical delivery of the goods directly to the freight forwarder in Illinois. Sellers should also comply with the recordkeeping rule at 86 Ill. Adm. Code 130.810.

Q: Are there special rules for online marketplace facilitators?
A: Marketplace facilitators have the same documentation and exemption duties as any other retailer for sales made through the marketplace, per 86 Ill. Adm. Code 131.145(m).

Q: Can I rely on this GIL for my own business?
A: No. A General Information Letter is not a statement of Department policy and is not binding on the Department for anyone, including the requester. It only points to the relevant regulations. If you need a binding answer for your specific facts, you must request a Private Letter Ruling under 2 Ill. Adm. Code 1200.110.

Citations and references

Statutes and rules:

• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax on gross receipts from sales)
• 86 Ill. Adm. Code 150.101 (Use Tax on the privilege of using property in Illinois)
• 86 Ill. Adm. Code 130.605(a)(1)-(2) (possession by purchaser defeats foreign-commerce exemption)
• 86 Ill. Adm. Code 130.605(g) (exemption for delivery to a freight forwarder for export)
• 86 Ill. Adm. Code 130.605(f) (documentation for the exemption)
• 86 Ill. Adm. Code 130.810 (records required to support deductions)
• 86 Ill. Adm. Code 131.145(m) (marketplace facilitator documentation duties)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure)
• 2 Ill. Adm. Code 1200.120 (General Information Letters, non-binding)

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/st21-0024-gil.pdf

Original ruling text

ST-21-0024 07/08/2021 INTERSTATE COMMERCE
This letter discusses sales into foreign commerce.
130.605. (This is a GIL.)

See 86 Ill. Adm. Code

July 8, 2021
Dear NAME:
This letter is in response to your e-mail dated May 26, 2021, 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:
I hope all is well. We have a client fact pattern that we are hoping to
run by you regarding goods purchased in Illinois or delivered into
Illinois for export outside of the country. Please let us know if it would
be helpful to get on a quick call to discuss this further. Your thoughts in
this regard are greatly appreciated.
Background
Company A operates in Illinois as a freight forwarder/export packer,
managing transportation and warehousing for e-commerce
international exports from the United States. Company A contracts with
Company B (a non-US company) to provide Company B with freight
forwarding/export packing services for goods purchased by Company
B's non-US customers from US e-commerce vendors.
For example, COUNTRY Purchaser would like to purchase goods from
BUSINESS in the US that BUSINESS does not ship to COUNTRY.
COUNTRY Purchasers can sign up with Company B to obtain a
delivery address in the US for the purpose of receiving the goods
purchased from BUSINESS. Company A provides Company B with
this warehouse location. COUNTRY Purchaser purchases goods in
his/her name from BUSINESS and enters Company A's location in
Illinois as the delivery address. Company A receives the goods,
inspects the contents, and packages the goods for export to

BUSINESS
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July 8, 2021
COUNTRY. Often, many individual orders are packaged together for
the purposes of export to COUNTRY. Once Company B approves the
items, Company A coordinates with a common carrier to ship the
goods to Company B in COUNTRY, who then delivers the items to the
individual purchasers.
Neither Company A nor Company B are a party to the transaction
between COUNTRY Purchaser and BUSINESS. Similarly, BUSINESS
has no contractual relationship with either Company A or Company B
and BUSINESS currently does not know at the time of purchase or
delivery that the goods will be exported outside the US.
Question
In the above scenario, can the transaction between COUNTRY
Purchaser and BUSINESS for delivery to Company A in IL prior to
exportation be made exempt from tax as a sale in foreign commerce?
Our understanding is that, under Ill. Admin. Code 130.605(g), goods
delivered to a freight forwarder in Illinois and then shipped to a foreign
country, not to be returned to Illinois, can be purchased exempt from
tax. In this scenario, what documentation should be provided to
BUSINESS and/or retained by Company A to support the tax exempt
status of the transaction? We are hoping that language in the terms
and conditions between Company B and its customers asserting that
the goods purchased will not be used in the US will be sufficient.
Please let us know if you have any further questions or are available
later this week or early next for a call to discuss.
DEPARTMENT’S RESPONSE:
The Illinois Retailers’ Occupation Tax Act imposes a tax upon persons engaged
in this State in the business of selling tangible personal property to purchasers for use
or consumption. The tax is measured by the seller’s gross receipts from such sales
made in the course of such business. See 86 Ill. Adm. Code 130.101. In Illinois, 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. 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 travelers
where the property is delivered and used in Illinois. However, retailers who ship property

BUSINESS
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July 8, 2021
to freight forwarders who take possession of the property in Illinois and ship the property
to foreign countries, not to be returned to the United States, are making exempt sales in
foreign commerce and do not incur Retailers' Occupation Tax liability on the gross
receipts from those sales. For example, the exemption would apply when a seller
makes delivery in Illinois to a freight forwarder who handles the arrangements for the
property to be delivered outside the United States, not to be returned to the United
States. 86 Ill. Adm. Code 130.605(g). However, there is no exemption for property
delivered in Illinois to foreign vessels.
The result would be different if the purchaser received or picked up the goods
prior to delivery to a freight forwarder. A sale is not deemed to be in foreign commerce if
the purchaser or his representative receives the physical possession of the property in
this State. 86 Ill. Adm. Code 130.605(a)(1). If the property were delivered to the
purchaser, or an agent of the purchaser, and not directly to the freight forwarder, then
the sale would be subject to Illinois sales tax. This is so notwithstanding the fact that the
purchaser may, after receiving physical possession of the property in this State,
transport or send the property out of the State for use outside the State or for use in the
conduct of foreign commerce.
If the sale is exempt, the seller should document the exemption by obtaining a
statement from the purchaser that the property will be used exclusively outside the
United States. The seller should also retain the shipping document showing physical
delivery of the property to a freight forwarder in Illinois as evidence that it delivered the
property directly to the international freight forwarder. See e.g. Section 130.605(f).
Further, the seller should review and comply with 86 Ill. Adm. Code 130.810 - Records
Required to Support Deductions. Marketplace facilitators are subject to the same duties
and modes of procedure, including documenting exemptions, as all other retailers with
respect to sales made over the marketplace. 86 Ill. Adm. Code 131.145(m).
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