Illinois Clarifies Taxability of Drop Shipments
The Illinois Department of Revenue issued a General Information Letter (GIL) that stated properly documented resale drop shipments are not included in Illinois sales tax economic nexus thresholds. For out-of-state sellers doing business in Illinois, sales tax is only due once the seller has crossed a threshold of $100,000 in sales or 200 or more separate transactions. The letter clarifies that drop shipment sales and transactions are not included in determining whether a seller has crossed the nexus threshold.
“If the sale is properly documented as a sale for resale, it would not count towards the thresholds establishing tax remittance obligations.”
Remote Retailers and Drop Shipments
The general information letter released by Illinois on July 29, 2021 is in response to a taxpayer’s question from the previous year regarding the issue of destination sales of drop shipments and whether they should be included in the state’s sales tax economic presence nexus threshold for out-of-state sellers. The department responded by defining a remote retailer as a seller without a physical presence in Illinois doing business in the state. They reiterated the threshold that triggers a seller to be responsible for Retailer’s Occupation Tax is $100,000 in gross sales or 200 or more separate transactions.
The Department says that a drop shipment situation is normally one where an out-of-state purchaser makes a purchase for resale from a company which is registered with Illinois and has that company drop-ship the property to the purchaser’s customer located in Illinois. The company is responsible for either charging and collecting tax or filling out a resale exemption certificate. However, if the sale is properly documented as a sale for resale with an exemption certificate, it would not count towards nexus thresholds establishing an obligation for sales tax remittance. Sales that are not properly documented will continue to be considered a taxable retail sale and would count towards the threshold.