Did an out-of-state medical-device seller with an Illinois sales employee have Illinois sales-tax nexus or need to keep filing returns?

Plain-English summary

An out-of-state medical-device company had no Illinois inventory or office but employed an Illinois resident sales associate. The Department declined to decide nexus or grant relief from return filing, explaining that an auditor was better positioned to gather the required facts.

Historical 2011 nexus framework

An Illinois retailer accepted orders in Illinois or maintained Illinois inventory used to fill Illinois orders and incurred Retailers' Occupation Tax.

A retailer maintaining a place of business in Illinois registered as a Use Tax collector and collected Illinois Use Tax even when it did not incur Retailers' Occupation Tax.

Under the historical Quill framework described in the letter, physical presence was not limited to an office or building. An agent or representative of the seller could count, even if not a sales representative. Repetitive delivery and installation also could trigger collection responsibility.

The GIL did not decide how those principles applied to the requester's Illinois employee. Quill's physical-presence framework is historical and should not be used as a current nexus safe harbor.

Sales exclusively for resale

A seller making sales exclusively—100%—for resale did not have to register under the Retailers' Occupation Tax Act for those sales. A seller making both wholesale and retail sales had to register, file monthly returns, and document the wholesale exemptions.

Medical-appliance rate discussion

The GIL separately stated that medicines and qualifying medical appliances used a reduced 1% Illinois state rate rather than the normal 6.25% state rate then in effect, plus applicable local taxes. Sterile band-aids, dressings, bandages, and gauze qualified because they substituted for skin.

What this means for you

Remote sellers with Illinois personnel

Do not infer a no-nexus conclusion from limited authority, no warehouse, or out-of-state order acceptance. This GIL expressly refused the determination, and current nexus rules must be checked separately.

Wholesale-only sellers

Confirm that sales are genuinely 100% for resale and retain documentation. Any retail sales changed the registration and filing rule described.

Common questions

Q: Did Illinois say the company lacked nexus?
A: No. It declined to decide.

Q: Did an Illinois representative matter under the 2011 framework?
A: Potentially yes; physical presence included agents or representatives.

Q: Does this letter's Quill rule govern today?
A: Do not treat it as a current safe harbor. Verify current nexus law.

Citations and references

• 86 Ill. Adm. Code 150.201(i) and 150.801 — retailer maintaining a place of business and Use Tax registration.
• Quill Corp. v. North Dakota, 112 S. Ct. 1904 (1992) — historical physical-presence framework quoted in the GIL.
• Brown's Furniture, Inc. v. Zehnder, 171 Ill. 2d 410 (1996) — representative, delivery, and installation presence.
• Dearborn Wholesale Grocers, Inc. v. Whitler, 82 Ill. 2d 471 (1980) — sales exclusively for resale.
• Tri-America Oil Co. v. Department of Revenue, 102 Ill. 2d 234 (1984) — mixed wholesale and retail sales.
• 86 Ill. Adm. Code 130.311 — medical appliances and the historical reduced rate.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2011.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2011/st-11-0067.pdf

Original ruling text

ST 11-0067-GIL 08/22/2011 NEXUS
This letter discusses nexus. See Quill Corp. v. North Dakota, 112 S.Ct. 1904 (1992). (This is a
GIL.)

August 22, 2011

Dear Xxxxx:
This letter is in response to your letter dated July 25, 2011 in which you requested information.
The Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are issued by the
Department in response to specific taxpayer inquiries concerning the application of a tax statute or
rule to a particular fact situation. A PLR is binding on the Department, but only as to the taxpayer
who is the subject of the request for ruling and only to the extent the facts recited in the PLR are
correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in
the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information
Letter (“GIL”) is to direct taxpayers to Department regulations or other sources of information
regarding the topic about which they have inquired. A GIL is not a statement of Department policy
and is not binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website
at www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to
your inquiry.
The nature of your inquiry and the information you have provided require that we respond with
a GIL. In your letter you have stated and made inquiry as follows:
I am writing to you to obtain an exempt status for submitting monthly Form ST-1 Sales
and Use Tax Returns.
COMPANY is located in the STATE, which has no sales tax
COMPANY manufactures medical devices such as hemorrhage control bandages and
nasal plugs
Inventory is manufactured and warehoused from STATE
COMPANY contracts with distributors to resale [sic] our products
Distributor agreements involve drop shipments to locations throughout the US
COMPANY has a Sales Associate residing in the Sate [sic] of Illinois. Employee does
not have authority to sign or enter into any binding legal agreements, she only sells to
commercial accounts that resell to the end consumer, she is assigned a region that
includes Illinois and other states

COMPANY does not have a warehouse located in Illinois, no inventory is located in
Illinois, and we have no principal business located in Illinois or maintain a place of
business in Illinois.
All orders for products are communicated to our Customer Service Department located
in Oregon for which a decision is made to accept order.
For these reasons, it appears COMPANY does not have nexus in the Sate [sic] of
Illinois; COMPANY does not purposely avail itself of the benefits of an economic market
in Illinois, and COMPANY does not have a physical presence in Illinois.
I am writing to request that you provide a binding Private Letter Ruling to provide
exempt status to remove COMPANY from future Sales and Use Tax Return filings.
Please let me know if you have any questions.

DEPARTMENT’S RESPONSE:

Nexus
The Department 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. The following information outlines the principles
of nexus. We hope it is helpful to you.
An “Illinois Retailer” is one who either accepts purchase orders in the State of Illinois or
maintains an inventory in Illinois and fills Illinois orders from that inventory. The Illinois Retailer is
then liable for Retailers' Occupation Tax on gross receipts from sales and must collect the
corresponding Use Tax incurred by the purchasers.
Another type of retailer is the retailer maintaining a place of business in Illinois. The definition
of a “retailer maintaining a place of business in Illinois” is described in 86 Ill. Adm. Code 150.201(i).
This type of retailer is required to register with the State as an Illinois Use Tax collector. See 86 Ill.
Adm. Code 150.801. The retailer must collect and remit Use Tax to the State on behalf of the
retailer’s Illinois customers even though the retailer does not incur any Retailers' Occupation Tax
liability.
The United States Supreme Court in Quill Corp. v. North Dakota, 112 S.Ct. 1904 (1992), set
forth the current guidelines for determining what nexus requirements must be met before a person is
properly subject to a state's tax laws. The Supreme Court has set out a 2-prong test for nexus. The
first prong is whether the Due Process Clause is satisfied. Due process will be satisfied if the person
or entity purposely avails itself or himself of the benefits of an economic market in a forum state. Quill
at 1910.
The second prong of the Supreme Court's nexus test requires that, if due process
requirements have been satisfied, the person or entity must have physical presence in the forum
state to satisfy the Commerce Clause. A physical presence is not limited to an office or other physical
building. Under Illinois law, it also includes the presence of any agent or representative of the seller.
The representative need not be a sales representative. Any type of physical presence in the State of
Illinois, including the vendor’s delivery and installation of his product on a repetitive basis, will trigger

Use Tax collection responsibilities. Please refer to Brown’s Furniture, Inc. v. Zehnder, 171 Ill.2d 410,
(1996).
The final type of retailer is the out-of-State retailer that does not have sufficient nexus with
Illinois to be required to submit to Illinois tax laws. A retailer in this situation does not incur Retailers’
Occupation Tax on sales into Illinois and is not required to collect Use Tax on behalf of its Illinois
customers. However, the retailer’s Illinois customers will still incur Use Tax liability on the purchase
of the goods and have a duty to self-assess and remit their Use Tax liability directly to the State.
Sales Exclusively for Resale
If a person or entity makes sales that are exclusively (i.e., 100%) for resale, that person or
entity is not required to register under the Illinois Retailers' Occupation Tax Act when making such
sales. See Dearborn Wholesale Grocers, Inc. v. Whitler, 82 Ill.2d 471 (1980). However, if a person
or entity engages in making both wholesale and retail sales, they are required to register under the
Retailers' Occupation Tax Act and file monthly sales tax returns and document the exempt status of
their wholesale transactions. See Tri-America Oil Company v. Department of Revenue, 102 Ill.2d 234
(1984).

Medical Appliances
All gross receipts from sales of tangible personal property in Illinois are subject to Retailers’
Occupation Tax unless an exemption is specifically provided. Medicines and medical appliances are
not taxed at the normal State rate of 6.25% plus applicable local taxes. These items are taxed at a
reduced State rate of 1% plus applicable local taxes. See 86 Ill. Adm. Code 130.311. The definition
of a medical appliance is "an item which is intended by its manufacturer for use in directly substituting
for a malfunctioning part of the body." See 86 Ill. Adm. Code 130.311(d). Please note that sterile
band-aids, dressings, bandages and gauze qualify for the low rate as medical appliances because
they serve as a substitute for skin. See 86 Ill. Adm. Code 130.311(d)(3).
I hope this information is helpful. If you require additional information, please visit our website
at www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.
Very truly yours,

Terry D. Charlton
Senior Counsel, Sales & Excise Taxes

TDC:msk