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Illinois Nexus Questions and Answers (Or Not)

  • Feb 4, 2014 | Gail Cole

 Does every question deserve an answer?

The Illinois Department of Revenue recently released an interesting General Interest Letter (GIL) regarding an out-of-state business trying to determine if it has nexus and must collect sales tax on Illinois sales. General Interest Letters direct taxpayers to relevant Department regulations or other sources of information. GILs are not binding on the Illinois Department of Revenue, nor do they reflect department policies.

The taxpayer in question is located in another state and contracts with a company to handle the taxpayer’s on-line shopping cart. That company has internet servers located in Illinois. Does this establish nexus and trigger a sales tax obligation in Illinois?

This is a touchy subject, as illustrated by the department’s response. It begins,

“The Department generally declines to make nexus determinations in the context of Private Letter Rulings or General Information Letters because the amount of information required to make those determinations is often best gathered by an auditor” [Emphasis mine].

That said, the GIL offers the following basic guidelines:

  • An Illinois Retailer that “either accepts purchase orders in the State of Illinois or maintains an inventory in Illinois and fills Illinois orders from that inventory is liable for Retailers’ Occupation Tax on gross receipts from sales and must collect the corresponding use tax incurred by purchases.”
  • An Illinois Retailer that maintains “a place of business in Illinois as described in 86 Ill. Adm. Code 150.201(i) must collect and remit use tax” but is not liable for the Retailers’ Occupation Tax.

The GIL goes on to explain guidelines set forth by the 1992 U.S. Supreme Court ruling, Quill Corp’ v. North Dakota, which has greatly influenced state tax policy. It stipulates that an out-of-state retailer may establish nexus through the use of in-state vendors. Use tax collection responsibilities may be triggered.

Finally, the GIL explains that some out-of-state retailers do “not have sufficient nexus with Illinois to be required to submit to Illinois tax laws.” However, Illinois customers still owe use tax on those purchases “and have a duty to self-assess and remit their Use Tax liability directly to the State.”

The GIL concludes with this helpful tidbit,
“Many retailers that do not have nexus with the State have chosen to voluntarily register as Use Tax collectors as a courtesy to their Illinois customers so that those customers are not required to file returns concerning transactions with those retailers.”

As is often the case with GILs, no concrete information is given to the taxpayer. Does the contract with the electronic shopping cart company with servers in Illinois trigger a sales tax collection obligation? We still don’t know. As the department notes, an auditor is best qualified to make that determination.

That’s frustrating for any company wishing to do the right thing and avoid a negative finding on an audit.

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.