Illinois – Drop Shipments and Resale Certificates

SALT Report 1895 – The Illinois Department of Revenue issued a General Information Letter regarding drop-shipments and resale certificates.  The Taxpayer who requested the GIL is a distributor of manufacturing equipment who purchases its equipment from manufacturers around the country.  When a customer places an order, the Taxpayer generally arranges a drop shipment directly from its manufacturer to its customer.

The Taxpayer is located out of state and does not have an office, a sales person, a warehouse or any other form of presence in Illinois.  The Taxpayer requested guidance regarding whether its company is required to charge and collect sales tax in Illinois for a drop shipment to a customer who is not a reseller, but is taxable.

In their response, the Department notes that as a seller, a Manufacturer is required to either charge and collect tax, or document exemptions when making deliveries in Illinois.  In order to document the fact that its sale to the Taxpayer is a sale for resale, the Manufacturer must obtain a Certificate of Resale from the Taxpayer.

However, if the Taxpayer does not have nexus with Illinois, it is unlikely that they would be registered with Illinois. In that case, the Taxpayer should obtain a resale number which they could then provide to the Manufacturer along with a Certificate of Resale.  Resale numbers are issued to anyone who does not make taxable sales in Illinois but needs to provide its suppliers with Certificates of Resale when they are purchasing items that will be resold.

The Department notes that a registration or a resale number acquired from the Taxpayer on a Certificate of Resale is the preferred method for proving that the purchase is for resale.  However, in lieu of resale number, the Taxpayer can note on a Certificate of Resale, details of the drop-shipment with language that states that the Taxpayer has no contact with Illinois and chooses not to obtain an Illinois resale number.  This language would substantiate that this particular sale is a sale for resale, despite the fact that no registration number or resale number is provided.

For Further Information:

Illinois Department of Revenue – ST 12-0051-GIL