If a company buys equipment from an Illinois vendor and has a freight forwarder pick it up in Illinois and ship it to the company's own warehouse in a foreign country, is that sale exempt from Illinois Retailers' Occupation Tax as interstate/foreign commerce?

Plain-English summary

A company (COMPANY1) bought equipment from an Illinois vendor (COMPANY2) and paid Illinois sales/use tax on the purchase. It then hired a third-party logistics company (COMPANY3) to arrange for a freight carrier to pick the equipment up at the Illinois vendor's location and deliver it to COMPANY1's own warehouse in a foreign country. COMPANY1 argued this was an exempt interstate/foreign-commerce sale and that it had been wrongly charged Illinois tax, and asked the Department to confirm that so it could seek a refund from the vendor.

The Department explained the general rule rather than deciding this specific case. Illinois Retailers' Occupation Tax (ROT) is a tax on the seller's gross receipts from selling tangible personal property in Illinois. Under 86 Ill. Adm. Code 130.605(d), that tax does not apply to sales where the seller — by carrier or mail, under its agreement with the purchaser — delivers goods from a point in Illinois to a point outside Illinois, and the goods are not brought back. It doesn't destroy the exemption that the purchaser arranges or pays for the carrier, but it is critical that the seller (not the purchaser) is listed as the consignor/shipper on the bill of lading. Separately, under 86 Ill. Adm. Code 130.605(g), retailers who ship property to freight forwarders who take possession in Illinois and ship it to foreign countries (not to be returned to the U.S.) are making exempt foreign-commerce sales.

The catch: under 130.605(a)(1), the exemption disappears if the purchaser (or the purchaser's agent) actually receives or picks up the goods before they reach the freight forwarder — even if the purchaser later ships the goods abroad. The seller must also keep records proving there was an agreement and a bona fide delivery outside Illinois (130.605(f)). The Department noted the shipping paperwork here showed COMPANY2 as shipper, COMPANY1 as consignee, and two third parties (COMPANY3 for billing, plus the transportation company) — and said that "although your client may be able to claim the interstate commerce exemption," it could not make that specific determination in a General Information Letter, because GILs are non-binding guidance, not case-specific rulings.

What this means for you

Businesses buying goods in Illinois for export

If you buy equipment or goods from an Illinois vendor and want the sale to qualify as an exempt interstate/foreign-commerce sale, the paperwork matters as much as the destination. The seller (not you or your logistics company) needs to be the consignor/shipper of record, and the goods need to go directly from the seller to the carrier or freight forwarder — not to you or your agent first, even briefly — before heading out of Illinois.

Importers, exporters, and freight-forwarding arrangements

Using a third-party freight forwarder to arrange pickup and export doesn't by itself defeat the exemption, and it's fine for you (the purchaser) to arrange and pay for the carrier. But if your logistics company or agent takes physical possession of the goods in Illinois in a way that makes it look like you received them before export, the Department treats that as a taxable in-state sale, regardless of where the goods eventually end up.

Accountants and tax professionals

This is a useful illustration of how 86 Ill. Adm. Code 130.605 works in combination: subsection (d) is the general interstate-delivery exemption, subsection (g) extends it to freight-forwarder foreign-commerce sales, subsection (a)(1) is the trap for purchaser-possession-before-forwarding, and subsection (f) sets the recordkeeping bar. Note also that the Department declined to resolve the taxpayer's specific fact pattern here — a taxpayer wanting a binding, fact-specific answer needs a Private Letter Ruling request under 2 Ill. Adm. Code 1200.110, not a GIL.

Common questions

Q: Does hiring a freight forwarder automatically make my export sale exempt from Illinois sales tax?
A: Not automatically. The seller must ship the goods by carrier or mail under an agreement with the purchaser, deliver them from a point in Illinois to a point outside Illinois, and not have them returned to Illinois. If the goods go to a foreign country via a freight forwarder who takes possession in Illinois, that can independently qualify as an exempt foreign-commerce sale under 130.605(g).

Q: Can the purchaser arrange or pay for the shipping without losing the exemption?
A: Yes. The Department said the exemption isn't destroyed just because the purchaser arranges for the carrier or pays the carrier that delivers the goods. What matters is who is listed as consignor/shipper on the bill of lading — it needs to be the seller.

Q: What ruins the exemption?
A: If the purchaser (or the purchaser's agent) actually receives or picks up the goods before they are delivered to the freight forwarder, the sale is taxable — even if the purchaser then ships the property out of Illinois or uses it in foreign commerce.

Q: Why didn't the Department just say whether this particular sale was exempt?
A: Because this was a General Information Letter (GIL), not a Private Letter Ruling (PLR). A GIL only points taxpayers to the relevant regulations; it does not decide specific fact situations and is not binding on the Department. The Department told the taxpayer its client "may be able to claim the interstate commerce exemption" but that a binding, case-specific answer would require going through the PLR process instead.

Q: What records should a seller keep to support this exemption?
A: Under 86 Ill. Adm. Code 130.605(f), the seller must keep proof that satisfies the Department that there was an agreement with the purchaser and a bona fide delivery of the property outside Illinois.

Citations and references

Statutes and regulations:

• 86 Ill. Adm. Code 130.101 (ROT imposed on gross receipts from sales of tangible personal property)
• 86 Ill. Adm. Code 150.101 (Use Tax imposed on the privilege of using property purchased at retail)
• 86 Ill. Adm. Code 130.605(d) (exemption for seller-delivered interstate sales)
• 86 Ill. Adm. Code 130.605(g) (exempt foreign-commerce sales via freight forwarders)
• 86 Ill. Adm. Code 130.605(a)(1) (exemption lost if purchaser takes possession before forwarding)
• 86 Ill. Adm. Code 130.605(f) (recordkeeping to substantiate the exemption)
• 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/st21-0030-gil.pdf

Original ruling text

ST-21-0030 08/19/2021 INTERSTATE COMMERCE
Foreign commerce sales. Retailers' Occupation Tax does not apply where sellers
ship goods by carrier or by mail, according to the terms of agreements with
purchasers, and the seller delivers the goods from a point within Illinois to a point
outside Illinois and the goods are not to be returned to Illinois. See 86 Ill. Adm.
Code 130.605. (This is a GIL).
August 19, 2021
Dear NAME:
This letter is in response to your letter dated June 26, 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:
On behalf of our client, COMPANY1 (“COMPANY1”), we are submitting
this correspondence to seek guidance regarding the application of Illinois
sales and use tax for the transaction and circumstances noted below.
COMPANY1 purchases equipment from COMPANY2., a vendor located in
Illinois and pays Illinois sales and use tax to the vendor on these
transactions.
COMPANY1 then contracts with an independent third party, COMPANY3,
to arrange for the equipment to be picked-up via freight carrier at
COMPANY2 Illinois location and have that equipment subsequently
delivered to COMPANY1’s warehouse located in STATE, COUNTRY.
It is our understanding that the sale and export of goods to a foreign
country (e.g., COUNTRY) is not subject to tax in Illinois under certain
circumstances as noted in Illinois Reg. 86ILAC130.605(g), which in part
states:
“Retailers who ship property 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

NAME
FIRM
August 19, 2021
Page 2
making exempt sales in foreign commerce and do not incur
Retailers’ Occupation Tax liability on the gross receipts from
those sales.”
For clarity, we believe a freight forwarder, forwarder, or forwarding agent
is a company that organizes shipments for individuals or other companies
and may also act as a carrier.
Upon inspection of the relevant freight documentation (enclosed), it
displays that COMPANY2 is identified as the shipper, COMPANY1 is
shown as the consignee, COMPANY3 as a third party for billing purposes
and a named fourth party which is the transportation company being
utilized (this can differ between deliveries).
It is our belief that under the circumstances described above, such sales
transactions are considered interstate commerce and are exempt from
Illinois and local Retailers’ Occupation Tax and that COMPANY1 has
erroneously been charged tax.
We respectfully request that the Illinois Department of Revenue review the
enclosed documentation as COMPANY1 wishes to pursue relief from the
vendor for the tax charged on these transactions; however, to satisfy the
vendor’s requirements, COMPANY1 must first obtain clarification from the
Department of Revenue to determine if Illinois sales and use tax is
required to be paid on these transactions and under these circumstances.
Please find attached the relevant vendor invoices and related shipping
documentation as well as a Power of Attorney form.
If you have any questions, please contact the undersigned.
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. 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.
The Department’s regulation regarding Sales of Property Originating in Illinois, 86
Ill. Adm. Code 130.605(d) provides that tax does not apply to gross receipts from sales
in which the seller either by carrier (when the carrier is not also the purchaser) or by

NAME
FIRM
August 19, 2021
Page 3
mail, under the terms of his agreement with the purchaser, delivers the goods from a
point in this State to a point outside this State not to be returned to a point within this
State. The fact that the purchaser actually arranges for the common carrier or pays the
carrier that effects delivery does not destroy the exemption. However, it is critical that
the seller is shown as the consignor or shipper on the bill of lading. If the purchaser is
shown as either the consignor or the shipper, the exemption will not apply.
Please note that under Section 130.605(g), retailers who ship property 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.
The result would be different if the purchaser received or picked up the goods
prior to delivery to a freight forwarder. 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.
To establish that the gross receipts from any given sale are exempt because the
tangible personal property is delivered by the seller from a point within this State to a
point outside this State under the terms of an agreement with the purchaser, the seller
will be required to retain in his records, to support deductions taken on his tax returns
proof that satisfies the Department that there was an agreement and a bona fide
delivery outside this State of the property that is sold. See 86 Ill. Adm. Code 130.605(f).
Although your client may be able to claim the interstate commerce exemption, we
cannot provide you with the determination you seek in the context of a General
Information Letter.
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,
Thomas Grudichak
Associate Counsel