Illinois Administrative Code › Title 86 - REVENUE › Part 130 - RETAILERS' OCCUPATION TAX › Subpart B - SALE AT RETAIL › Section 130.225 - Drop Shipments

Current through Register Vol. 48, No. 28, July 12, 2024
a) A
				drop-shipment situation is one in which out-of-State purchasers (purchasers)
				that are not registered with the State of Illinois and that do not have
				sufficient nexus with Illinois to require them to collect Illinois Use Tax or
				remit Retailers' Occupation Tax make purchases for resale from companies
				(companies) that are registered with Illinois and have those companies
				drop-ship the property to purchasers' customers (customers) located in
				Illinois. As sellers required to collect Illinois tax, companies must either
				charge tax or document exemptions when they make deliveries in Illinois. In
				order to document the fact that their sales to purchasers are sales for resale,
				companies are obligated by Illinois to obtain valid Certificates of Resale from
				purchasers. (See 86 Ill. Adm. Code
				130.1405 for information on what
				is required for a Certificate of Resale to be valid.)
b) If purchasers have no nexus with Illinois,
				it is unlikely that purchasers would be registered with Illinois. If that is
				the case, and if purchasers have no contact with Illinois that would require
				them to be registered as remote retailers or out-of-State Use Tax collectors
				for Illinois, then purchasers could obtain resale numbers, which would provide
				them the wherewithal to supply required numbers to companies in conjunction
				with Certificates of Resale. Resale numbers are issued to persons who make no
				taxable sales in Illinois but who need the wherewithal to provide suppliers
				with Certificates of Resale when purchasing items that will be resold. So long
				as purchasers (including remote retailers) do not act as Illinois retailers
				and, so long as they do not fall under the definition of a "retailer
				maintaining a place of business in this State", their sales to Illinois
				customers are not subject to Illinois Retailers' Occupation Tax liability and
				they cannot be required to act as Use Tax collectors. So long as this is true,
				purchasers qualify for resale numbers that do not require the filing of tax
				returns with the Illinois Department of Revenue (the Department). (See 86 Ill.
				Adm. Code 130.1415 for information on
				resale numbers.) To determine if a purchaser is a "retailer maintaining a place
				of business in this State" or a "remote retailer" required to register with the
				Department, see 86 Ill. Adm. Code
				150.201 or 86 Ill. Adm. Code
				131.115, respectively.
c) The fact that purchasers may not be
				required to remit Retailers' Occupation Tax or act as Use Tax collectors for
				Illinois does not relieve their customers of Use Tax liability. Therefore, if
				purchasers do not collect Illinois Use Tax from their customers, the customers
				would have to pay their tax liability directly to the Department.
d) While active registration or resale
				numbers on Certificates of Resale are still preferred, the Illinois Retailers'
				Occupation Tax Act provides that
failure to present an active
				registration number or resale number and a certification to the seller that a
				sale is for resale creates a presumption that a sale is not for resale. This
				presumption may be rebutted by other evidence that all of the seller's sales
				are sales for resale or that a particular sale is a sale for resale
[35 ILCS
				120/2c ]. In light of this statutory language,
				certifications from purchasers on Certificates of Resale in lieu of resale
				numbers that described the drop-shipment situation and the fact that purchasers
				have no contact with Illinois that would require them to be registered and that
				they choose not to obtain Illinois resale numbers would constitute evidence
				that this particular sale is a sale for resale despite the fact that no
				registration number or resale number is provided. The risk run by companies in
				accepting such a certification and the risk run by purchasers in providing such
				a certification is that an Illinois auditor is much more likely to go behind a
				Certificate of Resale that does not contain a valid resale number and require
				that more information be provided by companies as evidence that the particular
				sale was, in fact, a sale for resale.