Did Illinois use a 30-man-hour threshold to decide whether a reseller's in-state training or technical services defeated P.L. 86-272 protection?

Plain-English summary

Illinois did not use a 30-man-hour safe harbor for deciding whether unprotected in-state activity was de minimis. IDOR declined to decide the reseller's fact-specific nexus but explained that Public Law 86-272 protected only solicitation of tangible-personal-property orders.

Training courses, technical assistance or design services for purposes beyond facilitating solicitation, approving or accepting orders, and activities not entirely ancillary to solicitation were unprotected. If the taxpayer conducted any such activity in Illinois, federal immunity survived only when the combined unprotected activity created a truly trivial connection.

That de minimis inquiry considered both quality and quantity in light of the taxpayer's entire business. Regular, systematic, or company-policy activity normally was not trivial, and the proportion of unprotected to protected Illinois activity did not control.

What this means for you

Inventory every Illinois activity by sales and service personnel. Do not rely on a fixed hour count; evaluate purpose, regularity, company policy, and significance across the whole business.

Common questions

Q: Did fewer than 30 person-hours automatically preserve protection?
A: No. IDOR expressly said the de minimis test was not based on a 30-man-hour standard.

Q: Were training and technical services protected solicitation?
A: Not when they fell within the listed unprotected activities and were not entirely ancillary to requesting orders.

Citations and references

• 15 U.S.C. § 381
• 35 ILCS 5/502(a)
• 86 Ill. Adm. Code 100.9720(c)(2), (4)
• Quill Corp. v. North Dakota, 504 U.S. 298 (1992)

Subject

Public Law 86-272/Nexus

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/income-tax/2010.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/income-tax/2010/ig100016.pdf

Original ruling text

IT 10-0016-GIL 06/30/2010 PUBLIC LAW 86-272/NEXUS
General Information Letter: Nexus issues are generally not appropriate for general
information letters.
June 30, 2010
Dear:
This is in response to your letter dated May 24, 2010 in which you request a letter ruling. The
following is in response to your request with respect to Illinois income tax. Your request with respect
to sales and use tax has been referred to the Sales Tax Division and will be addressed by a separate
ruling. The nature of your request and the information provided with respect to Illinois income tax
requires that we respond with a General Information Letter (GIL). A GIL is designed to provide
general information, is not a statement of Department policy and is not binding on the Department.
See 2 Ill. Adm. Code § 1200.120(b) and (c), which may be accessed from the Department’s website
at www.ILtax.com.
Your letter states as follows:
I am writing to you for confirmation as to whether my company, COMPANY1, Inc., has nexus
in Illinois or not. We are being audited by the STATE Department of Revenue, who is
questioning our nexus status and believes we no longer qualify.
COMPANY1, Inc., a Value-Added Reseller of COMPANY2, is a STATE company, established
in 19XX. We were told by the Illinois Department of Revenue that as soon as we entered your
state and began working with companies in our industry, we needed to register with the State
of Illinois, which we did. As a result, we have been paying Sales Tax collected from customers
and filing Corporate Income Tax Returns. We did open an office in CITY1, Illinois, from
0X/01/19XX through 0X/31/20XX, but closed it and merged operations back into our facility in
CITY2, STATE.
I called the Illinois Department of Revenue at 2:41 PM on Friday, 05/21/10, and discussed our
Sales Tax situation with Miss Z (Phone #800-732-8866). She indicated that because we have
no location in Illinois, the sales to Illinois companies should be considered interstate commerce
and sales taxes due should be the consumers’, our customers’ responsibility, not ours. She
elaborated that we have been paying the sales tax to Illinois voluntarily, and we can stop
collecting it. We were audited by the Illinois Department of Revenue for Sales Tax several
years ago and were told we were doing everything correctly. We just needed to update some
of the customer Exemption Certificates we had on file. Can you tell me which is correct as it
applies to us? Please provide a ruling as to whether we should continue to collect and pay
sales tax or not.
STATE doesn’t believe we have nexus because we haven’t had 30 man-hours per year in
Illinois, and all the hours we have accumulated haven’t been by a representative with the
authority to close sales. The auditor has informed me that based on this interpretation, I may
have to request the State of Illinois to refund any Income/Franchise Taxes we’ve paid in the
past and pay them to STATE instead.
I spoke with Mr. Y at the Illinois business hotline (Phone #217-524-4772) at 2:14 PM today. He
told me Illinois doesn’t have a time frame to satisfy to qualify for nexus, and that we would
have nexus due to the fact have gone into Illinois to do business and we are registered with

IT 10-0016-GIL
June 30, 2010
Page 2
the Revenue Department. It is at Mr. Ys’ recommendation that I’m writing to you to request an
opinion on these issues, too.
Would you please provide me with something in writing I can give to the State of STATE to
clarify our nexus position and responsibility for filing and paying Sales and
Corporate/Franchise Income Tax to the State of Illinois?

RULING
The determination as to whether a taxpayer has nexus with Illinois is extremely fact-specific.
Therefore, the Department does not issue rulings regarding whether a taxpayer has nexus with the
State. For information regarding nexus, see Department of Revenue Regulations Section 100.9720
(accessible from the Department’s web site). In addition, the following general information may be
provided.
The United States Constitution restricts a state’s power to subject to income tax foreign corporations
and other nonresidents. The Due Process Clause requires that there exist some minimum connection
between a state and the person, property, or transaction the state seeks to tax. (Quill Corp. v. N.
Dakota, 504 U.S. 298 (1992)) Similarly, the Commerce Clause requires that a state’s tax be applied
only to activities with a substantial nexus to the taxing state. (Id.) In the case of foreign corporations,
Illinois may assert nexus to tax unless the corporation falls under the protection provided under Public
Law 86-272. (15 U.S.C. § 381) Public Law 86-272 precludes any state from subjecting a
nondomiciliary corporation to a net income tax where such corporation’s only activities within the state
for the taxable year consist of solicitation activities for sales of tangible personal property.
Regarding Public Law 86-272, Department Regulations Section 100.9720(c)(2)(A) states:
If a nonresident taxpayer’s activities exceed “mere solicitation” as set forth in subsection (a) of
PL 86-272 (subsection (c)(1)(A) of this Section), it obtains no immunity under that federal
statute. The taxpayer is subject to Illinois income tax and personal property tax replacement
income tax for the entire taxable year and its business income is apportioned under IITA
Section 304. Whether a nonresident taxpayer’s conduct exceeds “mere solicitation” depends
upon the facts in each particular case.
Regulations Section 100.9720(c)(4) contains a list of activities that are considered to be beyond
“mere solicitation” for purposes of P.L. 86-272. Included in that list of unprotected activities are the
following:
E)

Conducting training courses, seminars or lectures for personnel other than personnel
involved only in solicitation of sales of tangible personal property.

F)

Providing any kind of technical assistance or services, including, but not limited to,
engineering assistance or design service, when one of the purposes of the assistance
or service is other than the facilitation of the solicitation of orders.

H)

Approving or accepting orders.

IT 10-0016-GIL
June 30, 2010
Page 3
S)

Conducting any activity that is not on the list of "protected activities" in subsection (c)(5),
and that is not entirely ancillary to requests for orders, even if the activity helps to
increase purchases.

A taxpayer that engages in unprotected activity within Illinois, unless such activity is de minimus, is
not entitled to immunity under the federal statute. Regulations Section 100.9720(c)(2)(D) sets forth
the test for determining whether unprotected activities are de minimus.
De minimus activities are those that, when taken together, establish only a trivial additional
connection with this State. An activity regularly conducted within this State on a regular or
systematic basis or pursuant to a company policy (whether such policy is in writing or not) shall
normally not be considered trivial. Whether an activity consists of a trivial or non-trivial
additional connection with this State is to be measured on both a qualitative and quantitative
basis. If the activity either qualitatively or quantitatively creates a non-trivial connection with
this State, then the activity exceeds the protection of PL 86-272. The amount of unprotected
activities conducted within this State relative to the amount of protected activities conducted
within this State is not determinative of the issue of whether the unprotected activities are de
minimus. The determination of whether an unprotected activity creates a non-trivial connection
with this State is made on the basis of the taxpayer’s entire business activity, not merely its
activities conducted within this State. An unprotected activity that would not be de minimus if it
were the only business activity of the taxpayer conducted in this State will not be de minimus
merely because the taxpayer also conducts a substantial amount of protected activities within
this State, nor will an unprotected activity that would be de minimus if conducted in conjunction
with a substantial amount of protected activities fail to be de minimus merely because no
protected activities are conducted in this State.
As the above provisions indicate, the conduct of training activities, or service activities unrelated to
the solicitation of orders, results in the loss of protection under Public Law 86-272 unless those
activities are de minimus. Whether an unprotected activity is de minimus is not based on a 30 manhour standard. Rather, a factual determination must be made taking into account the taxpayer’s entire
business activity.
Section 502(a) of the Illinois Income Tax Act (“IITA” ; 35 ILCS 5/502(a)) sets forth the requirements
for filing Illinois income tax returns. That section states in pertinent part as follows:
(a) In general. A return with respect to the taxes imposed by this Act shall be made by every
person for any taxable year:
(1)

For which such person is liable for a tax imposed by this Act, or

(2)
In the case of a resident or in the case of a corporation which is qualified to do business
in this State, for which such person is required to make a federal income tax return, regardless
of whether such person is liable for a tax imposed by this Act.
Under this section, a nonresident must file an Illinois income tax return if it incurs a liability for tax
imposed under Section 201 of the IITA (or in the case of a corporation qualified to do business in
Illinois, if it is required to file a federal return). A nonresident is liable for Illinois income tax under
Section 201 if it computes “Illinois net income” as defined under IITA Section 202. IITA Section 202

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June 30, 2010
Page 4
defines Illinois net income as that portion of the taxpayer’s “base income” as defined in Section 203,
which is allocated or apportioned to Illinois under the provisions of Article 3 of the IITA, less certain
deductions. The above provisions may be accessed from the Department’s web site.
As stated above, this is a GIL. A GIL does not constitute a statement of policy that applies, interprets
or prescribes the tax laws, and it is not binding on the Department. If you wish to obtain a PLR which
will bind the Department, please submit a request conforming to the requirements of 2 Ill. Adm. Code
§ 1200.110(b).

Sincerely,

Brian L. Stocker
Associate Counsel (Income Tax)