If an out-of-state seller ships goods into Illinois but the Illinois customer arranges the freight and title passes outside Illinois, who owes Illinois tax and at what rate?

Plain-English summary

This GIL answers a common "who owes the tax" question for remote sellers shipping into Illinois under the state's Leveling the Playing Field for Illinois Retail Act. The taxpayer, an out-of-state manufacturer, sells large items to an Illinois company. The Illinois buyer arranges its own common carrier to pick the items up at the seller's out-of-state plant, and title passes at that out-of-state location. The seller has no physical presence in Illinois, but had voluntarily registered and collected Illinois's 6.25% general merchandise use tax throughout 2020. The seller asked how "leveling the playing field" changes this analysis and what rate should apply.

The Department explains that since January 1, 2021, a "remote retailer" is liable for all applicable Illinois State and local Retailers' Occupation Taxes (not just the flat 6.25% state rate) if, over the preceding four quarters, it either (a) had $100,000 or more in cumulative gross receipts from sales to Illinois purchasers, or (b) made 200 or more separate transactions with Illinois purchasers. A remote retailer meeting either threshold is treated as engaged in business at the Illinois location where the property is shipped, delivered, or where the purchaser takes possession — which triggers destination-based local tax on top of the state rate.

Critically, the Department says the fact that the purchaser arranges the carrier, or that title passes at the seller's out-of-state location, does not by itself decide whether delivery or possession took place out of state. What matters is who is listed as consignor or shipper on the bill of lading. If the remote retailer (having met a threshold) is the consignor/shipper, it owes Illinois State and local Retailers' Occupation Tax on the sale. If the remote retailer does not meet either threshold, it isn't required to collect at all, though it may voluntarily collect and remit Use Tax as a courtesy. And if the purchaser is listed as consignor/shipper, possession is treated as having occurred in the seller's state, making the Illinois purchaser liable for Illinois Use Tax (with credit for tax properly paid to that other state). Because the letter didn't include the actual bill of lading, the Department could not say which scenario applied to this taxpayer's own facts.

What this means for you

Out-of-state and multistate sellers

If you sell into Illinois and meet the $100,000-receipts or 200-transactions thresholds, you're on the hook for Illinois's full destination-based tax structure (state rate plus applicable local rates) for the location where the item is delivered or possession is taken — even if your customer handles freight and takes title at your dock. Check your bill of lading: if you (not the purchaser) are listed as consignor/shipper, you're the one responsible for collecting and remitting. Keep the documentation described in 86 Ill. Admin. Code 130.605(f) to support any claimed interstate-commerce exemption.

Illinois purchasers buying from out-of-state vendors

If your out-of-state vendor doesn't meet Illinois's economic nexus thresholds, or if you (the purchaser) are the one listed as consignor/shipper on the bill of lading, the collection obligation can shift to you. In that scenario, you owe Illinois Use Tax on the purchase, though you get credit for any sales tax you properly paid to the seller's home state.

Accountants and tax professionals advising remote sellers

This letter is a good illustration of how the Leveling the Playing Field for Illinois Retail Act (Public Acts 101-31 and 101-604, amending 35 ILCS 120 and the Use Tax Act) shifted remote sellers from flat 6.25% Use Tax collection to full state-and-local Retailers' Occupation Tax collection once nexus thresholds are met. Note this is a GIL, not a PLR — it states general principles but does not resolve the taxpayer's specific bill-of-lading facts, so it isn't binding and doesn't answer the ultimate question definitively.

Common questions

Q: Does it matter that our Illinois customer, not us, arranges the common carrier?
A: Not by itself. The Department says the purchaser arranging the carrier, or title passing at the seller's out-of-state facility, isn't determinative of where delivery or possession occurs. The key fact is who is listed as consignor/shipper on the bill of lading.

Q: We don't meet the $100,000/200-transaction thresholds — do we still owe Illinois tax?
A: You aren't required to collect Illinois Retailers' Occupation Tax, but you can still voluntarily collect and remit Illinois Use Tax as a courtesy to your customer under 86 Ill. Adm. Code 131.115(d) and Section 150.805.

Q: If we meet the thresholds, do we charge the flat 6.25% rate or the local destination rate?
A: If you meet a threshold and are the consignor/shipper on the bill of lading, you're liable for Illinois State and locally imposed Retailers' Occupation Taxes at the destination — not just the flat 6.25% general merchandise rate.

Q: If the seller doesn't collect, does the Illinois purchaser owe use tax instead?
A: Yes, if the purchaser is listed as consignor/shipper, possession is treated as occurring in the seller's state, and the Illinois purchaser owes Illinois Use Tax, with credit for tax properly paid to that other state.

Citations and references

Statutes and rules:

• 35 ILCS 120/1 (definition of remote retailer)
• 35 ILCS 120/2(b) (economic nexus thresholds)
• 35 ILCS 120/2-12(6) (engaged in business at destination)
• 86 Ill. Admin. Code 130.605(a)(3), (d), (f) (interstate commerce exemption and recordkeeping)
• 86 Ill. Adm. Code 131.115(d) (voluntary Use Tax collection)
• 86 Ill. Adm. Code 130.150.805 and 130.150.310(a)(3) (courtesy collection; purchaser's Use Tax liability and credit)
• 2 Ill. Adm. Code 1200.120 (GIL 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/st21-0037-gil.pdf

Original ruling text

ST 21-0037 07/30/2021 INTERSTATE COMMERCE
This letter discusses the component of interstate commerce involving
shipment/delivery on sales by remote retailers to purchasers in Illinois. (86 Ill.
Admin. Code 130.605; 86 Ill. Adm. Code 131) (This is a GIL)
Dear NAME:
This letter is in response to your letter received March 15, 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:
Can I please give you a fact pattern and can you tell me how local tax
applies considering the new Level the Playing Field legislation?
We are an STATE headquartered company with a manufacturing plant
in STATE. We sell large items to an Illinois company. The Illinois
company arranges for a common carrier to pick up the items at our
manufacturing plant in STATE. Title passes in STATE. We do not
charge for freight on our invoice since the customer arranges and pays
for freight. We have no physical nexus with the State of IL. We would
have economic nexus if we shipped the items to Illinois, charged for
freight and title passed in IL. But we never arrange for shipping.
The customer wants us to voluntarily collect and remit Illinois tax on the
sales to this company. We are registered in Illinois and have voluntarily
collected and remitted the 6.25% out of state general merchandise tax
for the past year of 2020. Level the playing field has complicated the
issue since local tax based on destination could be due in the scenario
I have outlined above.
Questions:
1.

Since the Illinois customer arranges for freight and title passes in
STATE, should we voluntarily charge the destination tax rate where
the common carrier delivers the item in Illinois?

COMPANY/NAME
Page 2
September 23, 2021
2.
3.
4.

As a voluntary tax collector for the customer, should we simply
charge and collect 6.25% general merchandise tax for out of state
vendors?
Would the Illinois customer owe the additional local tax based on the
final destination since they pick up the item in STATE and have it
shipped to an Illinois destination?
Would the Illinois customer simply owe the 6.25% use tax on
purchase once they receive the item at the Illinois destination?

There was no issue or questions when the rate was 6.25% no matter
the shipping and title passage fact pattern but with Level the Playing
field and the intent behind the fairness of instate vs. out of state
vendors, we want to make sure the STATE seller and Illinois
purchaser do not have an exposure problem with collecting the
incorrect rate of tax.
Please email or mail the response to:
ADDRESS
E-MAIL
DEPARTMENT’S RESPONSE:
This GIL addresses your request for information concerning the responsibility of a
remote retailer for local taxes due to the enactment of the Leveling the Playing Field for
Illinois Retail Act, when a purchaser arranges for shipment.
Public Acts 101-31 and 101-604 amended the Retailers' Occupation Tax Act and
Use Tax Act, as well as enacted the Leveling the Playing Field for Illinois Retail Act. These
changes are intended to “level the playing field” between Illinois-based retailers and
remote retailers. As a result, beginning January 1, 2021, a remote retailer as defined in
[35 ILCS 120/1], is liable for all applicable State retailers' and locally imposed retailers'
occupation taxes, if either of the following thresholds was met during the preceding four
quarterly periods ending on the last day of March, June, September, and December:
A)

the cumulative gross receipts from sales of tangible personal property to
purchasers in Illinois are $100,000 or more; or

B)

the retailer enters into 200 or more separate transactions for the sale of
tangible personal property to purchasers in Illinois. 35 ILCS 120/1; 120/2(b).

A remote retailer that meets either of the two thresholds is engaged in the business of
selling at the Illinois location to which the tangible personal property is shipped or
delivered or at which possession is taken by the purchaser. 35 ILCS 120/2-12(6).

COMPANY/NAME
Page 3
September 23, 2021
In your statement of facts, the purchaser contracts with a common carrier to pick
up the tangible personal property at the remote retailer’s place of business in STATE, at
which time title to the property passes to the customer. Your letter states that the remote
retailer would have economic nexus in Illinois, but for this shipping arrangement.
The fact that a purchaser arranges for the common carrier or that title passes at
the remote retailer’s place of business is not material to a determination of whether
delivery or possession took place in STATE. See 86 Ill. Admin. Code 130.605(a)(3) and
(d). However, a remote retailer that meets either of the two thresholds; that makes a retail
sale to an Illinois purchaser and is listed as the consignor or shipper on the bill of lading
for that sale, would be responsible for Illinois State and local retailers’ occupation taxes
administered by the Department. Id. See also Section 130.605(f) which identifies the type
of documents a seller must retain to support the interstate commerce exemption.
A remote retailer who does not meet a threshold would not be liable for Illinois
State and local retailers’ occupation taxes on such a sale but could voluntarily collect and
remit Illinois Use Tax as a courtesy to its customer. See 86 Ill. Adm. Code 131.115(d),
and Section 150.805. Further, if the Illinois purchaser is listed as the consignor or shipper
on the bill of lading for that sale, possession would have taken place in STATE, and the
purchaser would be liable for Illinois Use Tax with credit for any sales tax properly due
and paid on the transaction to the State of STATE. See 86 Ill. Adm. Code 130.605(d) and
Section 150.310(a)(3).
From the information provided, we cannot make a determination as to whether
delivery or possession takes place in STATE. If you require additional information,
including registering as a remote retailer, the Department has created a dedicated
resource web page on the Leveling the Playing Field for Illinois Retail Act. Visit the
Department’s website at www.tax.illinois.gov and access the link Resource Page for the
"Leveling the Playing Field for Illinois Retail Act" - Sales Taxes.
Very truly yours,
Thomas Grudichak
TG:rkn

Associate Counsel