Does Illinois use tax apply to inventory given away for free, can tax paid to another state be credited, and does marketplace-held inventory create nexus?

Plain-English summary

This GIL answered an accounting firm's questions about Illinois use tax on inventory that is purchased tax-free, given away, or held across state lines, and about whether marketplace-held inventory creates nexus. The Department gave three answers:

1. Giving inventory away is a taxable "use." When a donor possesses or can exercise control over tangible personal property in Illinois and gives it away for free, the donor has made use of the property in Illinois and owes Use Tax on its cost price (86 Ill. Adm. Code 150.305(c)).
2. You can credit tax paid to another state. When tax is properly due and paid in another state on property shipped into Illinois and Illinois use tax is also due, the taxpayer may credit the tax paid to the other state on its return in computing its Illinois Use Tax liability (86 Ill. Adm. Code 150.310(a)(3)). This is how Illinois avoids double taxation rather than by claiming "priority" over the other state.
3. Marketplace-fulfillment inventory is not, by itself, nexus. A remote retailer whose Illinois inventory sits only at a marketplace facilitator's location and is used solely to fulfill sales through a marketplace that meets the tax-remittance threshold does not have physical-presence nexus based on that inventory (86 Ill. Adm. Code 131.105).

What this means for you

Businesses running promotions or giveaways

If you pull tangible personal property you control in Illinois and give it away — samples, promotional items, prizes — expect to owe Illinois Use Tax on what the property cost you, even though no sale occurred and you collected nothing.

Multistate sellers moving inventory across state lines

If another state's tax was properly paid on the same property and Illinois use tax is also due, keep the documentation: you can credit the other state's tax against your Illinois liability instead of paying twice.

Remote sellers using marketplace facilitators

Storing goods at a marketplace facilitator's Illinois warehouse solely to fill marketplace sales that meet the remittance threshold does not, by itself, give you physical-presence nexus in Illinois.

Common questions

Q: I give away free product in Illinois. Do I owe anything?

A: Yes. Giving away tangible personal property you control in Illinois is a taxable use, and you owe Use Tax on the property's cost price.

Q: I already paid another state's tax on goods now taxable in Illinois. Do I pay full Illinois tax too?

A: No. You may credit the tax properly paid to the other state against your Illinois Use Tax liability.

Q: My only Illinois presence is inventory at a marketplace facilitator's fulfillment center. Is that nexus?

A: No, not by itself, if the inventory is only used to fulfill sales through a marketplace meeting the tax-remittance threshold.

Citations and references

• 86 Ill. Adm. Code 150.305(c) — donor's giveaway of property is a taxable use; use tax on cost price
• 86 Ill. Adm. Code 150.310(a)(3) — credit for tax properly paid to another state
• 86 Ill. Adm. Code 131.105 — remote retailers; marketplace-fulfillment inventory and physical-presence nexus

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2026.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2026/st26-0024-gil.pdf

Original ruling text

ST 26-0024-GIL 06/12/2026 MISCELLANEOUS
When a donor possesses or has the ability to exercise control over tangible
personal property in Illinois and gives the property away for free, the donor has
made use of the property in Illinois and is subject to Use Tax on the cost price of the
property. See 86 Ill. Adm. Code 150.305(c). When tax is properly due and paid in
another state on tangible personal property shipped into Illinois and tax is also due
in Illinois, the taxpayer may credit the amount of the tax paid in the other state on its
return in determining its Illinois Use Tax liability. See 86 Ill. Adm. Code
150.310(a)(3). Remote retailers who maintain inventory at the location of a
marketplace facilitator in Illinois that is only used to fulfill sales through a
marketplace that meets the tax remittance threshold do not have physical presence
nexus based on that inventory being in Illinois. See 86 Ill. Adm. Code 131.105. (This
is a GIL).
June 12, 2026
NAME
COMPANY
ADDRESS
EMAIL
Dear NAME:
This letter is in response to your letter dated April 8, 2026, 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
https://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.
INQUIRY:

COMPANY/NAME
Page 2
June 12, 2026
COMPANY respectfully requests guidance regarding the application of
Illinois’ use tax rules involving inventory purchased free of sales tax that is
withdrawn and given away across state lines. We also request guidance on
Illinois’ consideration of physical nexus involving inventory owned by a remote
seller, but held and controlled by third-party marketplace facilitators.
COMPANY is a private accounting firm specializing in sales and use tax
compliance and consulting. Our clients are located throughout the United
States, and the majority engage in interstate commerce. While we have
reviewed available resources and informal guidance, we have encountered
varying interpretations concerning the issues outlined below. To ensure
accurate compliance and proper advice to our clients, we seek official
guidance directly from Illinois.
Specifically, we request clarification regarding the following matters:

1. If inventory is withdrawn from within Illinois and shipped to another state
   for promotional or giveaway purposes (i.e. not sold), does Illinois consider
   the use tax due to Illinois?
2. If inventory is withdrawn from another state and is shipped into Illinois for
   promotional or giveaway purposes, does Illinois consider use tax due to
   Illinois?
3. If Illinois determines that use tax is due to Illinois, but the use tax has
   already been paid to the other state that the inventory was shipped-to or
   withdrawn from, would Illinois allow a credit for use tax legally paid to the
   other jurisdiction?
4. In the event that both states assert that use tax is due and no tax has yet
   been remitted, how does Illinois determine which state gets priority?
   Would Illinois consider themselves to have priority, or would Illinois
   consider the other state to have priority?
5. Does inventory owned by a remote seller but stored and controlled within
   Illinois by a third-party marketplace facilitator create physical nexus for
   the remote seller in Illinois?
   We do not propose any redactions should Illinois elect to publish this
   correspondence and any related response, other than the removal of names
   and addresses as appropriate.

COMPANY/NAME
Page 3
June 12, 2026
We appreciate your time and consideration of these questions and look
forward to the Department’s written guidance. For any questions, please
contact NAME at EMAIL or NAME1 at EMAIL1.
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. See 35 ILCS 120/2; 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 35 ILCS 105/3; 86 Ill. Adm. Code 150.101.
These taxes comprise what is commonly known as “sales” tax in Illinois. If the purchases
occur in Illinois, the purchasers must pay the Use Tax to the retailer at the time of purchase.
See 35 ILCS 105/3-45; 86 Ill. Adm. Code 150.401. The retailers are then allowed to retain the
amount of Use Tax paid to reimburse themselves for their Retailers’ Occupation Tax liability
incurred on those sales. See 86 Ill. Adm. Code 150.130(b). If the purchases occur outside
Illinois, purchasers must self-assess their Use Tax liability and remit it directly to the
Department. See 35 ILCS 105/3-45; 86 Ill. Adm. Code 150.701(a).
Questions 1 and 2
Donors who purchase tangible personal property and give it away in Illinois make a
taxable use of the donated property, even though the donation was not a sale at retail. See
86 Ill. Adm. Code 150.305(c). “Use” is defined as the exercise by any person of any right or
power over tangible personal property incident to the ownership of that property. See 35
ILCS 105/2; 86 Ill. Adm. Code 150.201. The donee in a gift situation is not a taxable user, the
donor who purchases the property and gives it away makes a taxable use of the property
when making such a gift. See 86 Ill. Adm. Code 150.305(c).
If the donor’s use occurs in Illinois, the donor incurs Use Tax liability on the cost price
of the gifted property. A donor who ships or mails tangible personal property from Illinois to
another State may incur Use Tax liability. If a donor possesses tangible personal property in
Illinois for gift purposes, the donor has made a taxable use of the property in Illinois and is
subject to Use Tax on the cost price of the property, even if the donor ships or mails that
tangible personal property from Illinois to its agent in another State to give away or directly
to a donee in another State. See 86 Ill. Adm. Code 150.305(c). When the donor ships or mails
the tangible personal property to its agent in another State to give away, the donor may also
be subject to use tax imposed by the receiving State. In that case, because Illinois’s Use Tax
was incurred when the donor purchased and possessed the property in Illinois, before the
use tax was incurred in the other State, the donor could offset its use tax liability in the
receiving State with its Illinois Use Tax. However, if the donor does not possess the tangible

COMPANY/NAME
Page 4
June 12, 2026
personal property in Illinois prior to shipping or mailing it to its agent in another State to give
away or directly to a donee in another State, e.g., the donor purchases the tangible personal
property but never takes possession in Illinois and instead instructs the seller to ship or mail
the tangible personal property to its agent in the receiving State or directly to a donee in the
receiving State, the donor has not made use of the tangible personal property in Illinois, and
is not subject to Illinois Use Tax on the donation of the property.
If tangible personal property is shipped or mailed into Illinois from an out-of-State
location and the donor retains any control of the property in Illinois, e.g., the donor ships or
mails the property to its agent in Illinois to give away to donees or the donor ships or mails
the property directly to donees in Illinois but retains the power to recall the property after it
has entered Illinois, the donor has made a taxable use of the property in Illinois, and is
subject to Use Tax liability on the cost price of the property. See 86 Ill. Adm. Code 150.305(c).
Converse to the scenario above where tangible personal property is shipped or mailed from
Illinois to another State, the donor could offset its Illinois Use Tax liability with any use tax
incurred in the other State before Illinois Use Tax was incurred. See 86 Ill. Adm. Code
150.310(a)(3). However, if the donor does not retain any control over the property in Illinois,
e.g., when a donor ships or mails tangible personal property directly to a donee in Illinois
without retaining the power to recall the property after it has entered Illinois, even though it
is donating the tangible personal property to Illinois recipients, it has exercised no power or
control over the property in Illinois, and has not made any taxable use of the property in
Illinois. Thus, the donor is not subject to Illinois Use Tax liability.
Questions 3 and 4
When tax is properly due and paid in another state on tangible personal property
shipped into Illinois and tax is also due in Illinois, the taxpayer may credit the amount of the
tax paid in the other state on its return in determining its Illinois Use Tax liability. See 86 Ill.
Adm. Code 150.310(a)(3). For other exemptions to avoid multi-state taxation, see 35 ILCS
105/3-55 and 86 Ill. Adm. Code 150.310. The Commerce Clause of the U.S. Constitution
prohibits states from taxing interstate commerce. Illinois’s Use Tax is a tax on the use of
tangible personal property in Illinois. As such, Illinois’s Use Tax cannot apply on the same
use of tangible personal property as the use tax of another State; nor could another State’s
use tax apply on the use of tangible personal property in Illinois. If two states attempted to
assert use tax liability on the same use of tangible personal property, one would necessarily
be wrong. However, two states could tax the use of the same tangible personal property in
their respective states. In that case, neither state is able to claim “priority” over the other,
because each state is taxing a different thing, i.e., the use of tangible personal property in
that state. In order to avoid multistate taxation, states’ statutes and rules authorize
deductions or credits for tax paid to another state on a given piece of tangible personal
property. See 86 Ill. Adm. Code 150.310(a)(3).

COMPANY/NAME
Page 5
June 12, 2026
Question 5
A marketplace is a physical or electronic place, forum, platform, application, or other
method by which a marketplace seller sells or offers to sell items. See 86 Ill. Adm. Code
131.105. A marketplace seller is a person who makes sales through a marketplace operated
by an unrelated third-party marketplace facilitator. Id. A marketplace facilitator is:
a person who, pursuant to an agreement with an unrelated third-party
marketplace seller, directly or indirectly through one or more affiliates,
facilitates a retail sale by an unrelated third-party marketplace seller by:
A) Listing or advertising for sale by the marketplace seller in a marketplace,
tangible personal property that is subject to tax under [the Retailers’
Occupation Tax Act]; and
B) Either directly or indirectly, through agreements or arrangements with
third parties, collecting payment from the customer and transmitting that
payment to the marketplace seller, regardless of whether the marketplace
facilitator receives compensation or other consideration in exchange for its
services.
35 ILCS 120/1; 86 Ill. Adm. Code 131.130(a)(1).
Beginning January 1, 2026, a marketplace facilitator, as defined above, is considered
a retailer engaged in the occupation of selling at retail in Illinois for purposes of the Retailers’
Occupation Tax Act if, during the previous 12-month period, the cumulative gross receipts
from sales of tangible personal property to purchasers in Illinois made through the
marketplace by the marketplace facilitator and marketplace sellers are $100,000 or more.
See 35 ILCS 120/2(c-5). A marketplace facilitator meeting the threshold is required to
register with the Department, file returns, and remit all applicable State and local retailers’
occupation taxes administered by the Department for all sales made through the
marketplace to Illinois purchasers, including its own sales and sales made on behalf of
marketplace sellers. See 86 Ill. Adm. Code 131.145(a), (c). A marketplace seller is generally
not liable for State and local retailers’ occupation taxes for sales of tangible personal
property sold to Illinois purchasers through a marketplace. See 86 Ill. Adm. Code
131.145(b), 131.150(a).
A remote retailer is:
a retailer that does not maintain within this State, directly or by a subsidiary,
an office, distribution house, sales house, warehouse or other place of
business, or any agent or other representative operating within this State

COMPANY/NAME
Page 6
June 12, 2026
under the authority of the retailer or its subsidiary, irrespective of whether that
place of business or agent is located in Illinois permanently or temporarily or
whether the retailer or subsidiary is licensed to do business in this State.
86 Ill. Adm. Code 131.105.
Remote retailers are subject to the same $100,000 tax remittance threshold as
marketplace facilitators for their own sales outside of a marketplace. When a remote retailer
meets the tax remittance threshold, the remote retailer is engaged in the occupation of
selling at retail in Illinois for the purposes of the Retailers’ Occupation Tax Act and is liable
for all applicable State and local retailers’ occupation taxes administered by the
Department on all retail sales shipped or delivered to Illinois purchasers. See 86 Ill. Adm.
Code 131.110(a). A retailer that fulfills any orders from its inventory in Illinois is not a remote
retailer and has physical presence nexus in Illinois. See 86 Ill. Adm. Code 131.105. However,
as of January 1, 2021, a remote retailer’s inventory at the location of a marketplace facilitator
in Illinois does not create a physical presence nexus when used exclusively to fulfill orders
made over the marketplace that meets the tax remittance threshold because the
marketplace facilitator is considered the retailer with respect to sale over the marketplace.
See 86 Ill. Adm. Code 131.105.
I hope this information is helpful. If you require additional information, please visit
our website at https://tax.illinois.gov/ or contact the Department’s Taxpayer Information
Division at 800-732-8866.
Very truly yours,

EM:slc

Edward Mroczkowski
Associate Counsel
(217) 782-7055

Printed by the authority of the State of Illinois
Electronic Only - One Copy
Issued 06/12/2026, Redacted 06/29/2026