Illinois Tax Nexus
Businesses with nexus in Illinois are required to register with the Illinois Department of Revenue and to charge, collect, and remit the appropriate tax. Illinois sales tax is comprised of the Retailers’ Occupation Tax and Service Occupation Tax.
Generally, a business has nexus in Illinois when it has a physical presence there, such as a retail store, warehouse, inventory, or the regular presence of traveling salespeople or representatives. However, out-of-state sellers can also establish nexus in the ways described below.
Illinois nexus for out-of-state sellers
If your business has ties to businesses in Illinois, including affiliates, it may have nexus. Affiliate nexus is presumed if an out-of-state retailer has a contract with a person located in Illinois under which all the following conditions are met:
- The out-of-state vendor sells the same or substantially similar line of products and uses an identical or substantially similar name, trade name, or trademark as an in-state person.
- The out-of-state retailer pays a commission or other consideration to the person located in Illinois based on its sales of tangible personal property to
- Cumulative gross receipts from all sales made to Illinois customers under such contracts exceed $10,000 during the preceding four quarterly periods
Referrals, including online referrals, from in-state entities may also trigger nexus for an out-of-state business.
Illinois enacted a click-through nexus law in 2011 that required ecommerce companies to charge Illinois sales tax if a person in Illinois directly or indirectly refers customers through a link on a website for a consideration or commission, and cumulative gross receipts from all such contracts exceed $10,000 during the preceding four quarterly periods (FY 2011-14). The law was found to discriminate against electronic commerce and was struck down.
Illinois then enacted revised click-through nexus legislation (effective January 1, 2015) that expanded the definition of out-of-state seller to include remote sellers of all sorts: catalog, internet, mail, phone, shopping channels, etc. (35 ILL. COMP. STAT. 105/2; 35 ILL. COMP. STAT. 110/2).
An out-of-state retailer is presumed to have nexus in Illinois if all the following criteria are met:
- The out-of-state retailer has a contract with a person in Illinois.
- Under the contract, the Illinois resident, for a commission or other consideration, directly or indirectly refers potential customers to the retailer by providing a promotional code or other mechanism that allows the retailer to track purchases referred by that person.
- Cumulative gross receipts from sales of tangible personal property by the retailer to customers referred by all persons in Illinois exceed $10,000 during the preceding four quarterly periods.
See the Illinois Department of Revenue: Sales and Use Tax; Important Notice of Changes for Out-of-State Retailers; and Regulations Title 86 Part 150 Section 150.801 When Out-of-State Retailers Must Register and Collect Use Tax.