Illinois – Agency Agreements for Reporting Sales by Distributors

SALT Report 2740 – The Illinois Department of Revenue issued a general information letter regarding whether a manufacturer, whose products are sold by distributors in Illinois, can assume the responsibility of collecting and remitting Retailers’ Occupation Tax for the sales made by its distributors under the provisions of 86 Ill. Adm. Code 130.550.

In this case, the Taxpayer is a direct sales company who uses independent consultants to sell its products.  The products are sold either on a cash and carry basis or through the Taxpayer’s website.  When the consultants place an order with the Taxpayer, they purchase the items at a discounted price, but they are taxed on the full retail value of the item.  The consultants in turn collect sales tax from their clients at the time of purchase, using the rate in effect at the client’s location.

Due to the complicated nature of its sales tax returns, the Taxpayer requested guidance as to whether they would be eligible to enter into an agency agreements with the Department.

In its response, the Department referred to 86 Ill. Adm. Code 130.550 – Filing of Returns for Retailers by Suppliers Under Certain Circumstances. This regulation states that manufacturers, importers and wholesalers can enter into an “agency agreement” with the Department, so long as they meet certain criteria.  If eligible, this type of agreement would authorize a manufacturer to register, file returns and remit Retailers’ Occupation Tax on behalf of their distributors.

Taxpayers who wish to enter into an agency agreement must have approval by the Department. Once approved, manufacturers, importers and wholesalers who sell products to local distributors can collect tax from their distributors based on the selling price to the ultimate consumer. The tax that must be collected includes all State and local taxes that are in effect at the location where the purchase order is accepted from the ultimate customer.

In this case, the Department stated that if the Taxpayer operates under an agency agreement, its local distributors would be relieved of their obligation to register with the Department, file returns, and remit taxes since the Taxpayer agrees to do so on their behalf.   However, if a distributor would prefer to register and remit their own taxes they may opt out of the agency agreement.

Taxpayers who are interested in entering into an agency agreement should contact the Department of Revenue Central Registration Unit and submit Form RR-80.

For Further Information

Illinois Department of Revenue – General Information Letter ST 13-0030-GIL