Our company is in MN, We purchase DVDs from a vendor in WI and have them sent to another vendor in IL, where they are packed and sent to us. The MN vendor is charging us IL sales tax. We do not have nexus in IL. Should we be paying IL sales tax?

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According to an information officer with the Illinois Department of Revenue, you have no liability to pay Illinois sales tax. Sales tax is based on the state of consumption. Although the Wisconsin vendor is shipping the item to Illinois, it is only doing so for the purpose of additional fabrication. Because your company doesn’t take possession of the DVD until it reaches Minnesota, you are only liable for paying Minnesota sales tax when you receive the DVD. This information was confirmed by an information officer with the Minnesota Department of Revenue.

You are also responsible for paying Minnesota use tax when you receive the booklet from Illinois because you do not have nexus in that state. However, the use tax only covers the booklet as you have already paid tax on the DVD.

It appears your vendor in Wisconsin has incorrectly charged your company Illinois sales tax when it was not supposed to. You should contact your Wisconsin vendor and ask them to explain their rationale. Make sure they understand that just because they are shipping an item to Illinois does not mean they must charge you Illinois sales tax.

To prevent double taxation, the information officer in Minnesota recommended you keep the billing statements from the Wisconsin firm showing you paid Illinois sales tax on the DVDs – albeit erroneously. You will only be liable for the difference provided Illinois sales tax is less than Minnesota.

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