Did an out-of-state internet retailer create Illinois sales-tax nexus by sharing a loyalty program with affiliated Illinois stores and accepting online returns there?

Plain-English summary

Illinois did not decide whether the internet retailer had nexus. The Department said it declines to make nexus determinations through PLRs or GILs because the necessary information is often best gathered by an auditor.

The requester described an out-of-state internet fragrance retailer with no Illinois property, employees, payroll, solicitors, representatives, or leased assets. Its affiliated brick-and-mortar company had retail stores, and the companies planned a shared loyalty-points program, interchangeable reward certificates, and returns of internet purchases at affiliated stores.

The GIL gave only general 2011 nexus principles

An "Illinois Retailer" was described as a seller that accepted purchase orders in Illinois or maintained inventory in Illinois and filled Illinois orders from that inventory. Such a retailer incurred Retailers' Occupation Tax and collected the purchaser's corresponding Use Tax.

A retailer maintaining a place of business in Illinois had to register as an Illinois Use Tax collector and collect Use Tax for Illinois customers even if it did not incur Retailers' Occupation Tax.

Under the Quill framework quoted in the GIL, due process required purposeful use of the state's economic market, and the Commerce Clause analysis required physical presence. Physical presence was not limited to an office; it could include an agent or representative. The GIL also says repetitive delivery and installation by a vendor could trigger Use Tax collection duties.

An out-of-state retailer without sufficient nexus did not incur Retailers' Occupation Tax on Illinois sales and did not have to collect Use Tax, but the Illinois customers still owed and had to self-assess that tax.

What this means for you

Internet retailers with affiliated stores

This letter does not answer whether a shared loyalty program, redeemable rewards, or in-store returns created nexus. It is a list of historical principles, not a factual determination.

Businesses evaluating current nexus

Do not use the 2011 physical-presence discussion as a current safe harbor. The GIL is nonbinding, fact-specific nexus was left for audit, and the legal framework may have changed.

Illinois customers of noncollecting sellers

Under the rule described, the seller's lack of collection duty did not eliminate the customer's Use Tax obligation.

Common questions

Q: Did Illinois say the loyalty program created nexus?
A: No. The Department declined to decide nexus.

Q: Did Illinois say accepting online returns at affiliate stores created nexus?
A: No. That fact was presented, but the GIL gave only general principles.

Q: What physical presence did the letter describe?
A: More than an office or building; an agent or representative, or repetitive delivery and installation, could qualify under the 2011 framework.

Q: Who paid Use Tax if the seller lacked nexus and did not collect?
A: The Illinois customer had to self-assess and remit it.

Citations and references

• 86 Ill. Adm. Code 150.201(i) — retailer maintaining a place of business in Illinois.
• 86 Ill. Adm. Code 150.801 — registration as an Illinois Use Tax collector.
• Quill Corp. v. North Dakota, 112 S. Ct. 1904 (1992) — two-prong nexus framework discussed in the GIL.
• Brown's Furniture, Inc. v. Zehnder, 171 Ill. 2d 410 (1996) — Illinois physical-presence authority cited by the Department.

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-11-0106.pdf

Original ruling text

ST 11-0106-GIL 12/28/2011 NEXUS
This letter discusses nexus. See Quill Corp. v. North Dakota, 112 S.Ct. 1904 (1992). (This is a
GIL.)

December 28, 2011

Dear Xxxxx:
This letter is in response to your letter dated December 1, 2011, in which you request
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 on behalf of COMPANY to obtain an official ruling with regards to
sales tax nexus and sales tax collections for COMPANY an Internet based company.
COMPANY, an entity who has never had sales tax nexus within the state of Illinois, may
be establishing sales tax nexus as a result of a loyalty program launching on or about
DATE, 2011, that will enable COMPANY customers to redeem loyalty points in an
affiliated company’s retail stores.
COMPANY hereby respectfully requests a ruling as to whether it has sales tax nexus
with the state of Illinois. Should you determine that COMPANY does have nexus with
the state of Illinois, we further respectfully request additional rulings as to how we
should properly administer the collection and remittance process of state as well as any
local sales taxes.
A. STATEMENT OF FACTS
1.

COMPANY INFORMATION

CORPORATION NAME: COMPANY
ADDRESS: ADDRESS, CITY/STATE
TELEPHONE: #
FEIN: #
NATURE OF BUSINESS: Internet retailer of fragrances and other specialty items
INCORPORATION DATE: DATE 1999

STATE OF INCORPORATION: STATE
2.

PARENT COMPANY:

CORPORATION NAME: COMPANY HOLDINGS
ADDRESS: ADDRESS, CITY/STATE
TELEPHONE: #
FEIN: #
NATURE OF BUSINESS: Wholesaler, distributor, specialty retailer of perfumes and
fragrances
INCORPORATION DATE: DATE 2000
STATE OF INCORPORATION: STATE
RELATION TO COMPANY: Parent company
3.

AFFILIATED COMPANY:

CORPORATION NAME: BUSINESS
ADDRESS: ADDRESS, CITY/STATE
TELEPHONE: #
FEIN: #
NATURE OF BUSINESS: Retail stores that sell fragrances and other related specialty
items
INCORPORATION DATE: DATE, 1987
STATE OF INCORPORATION: STATE
RELATION TO COMPANY: Affiliate
*These 3 companies are, herein, from time to time collectively referred to as
‘COMPANY Holdings and Subsidiaries.’
3.
GENERAL CORPORATE OVERVIEW:
COMPANY HOLDINGS is an independent wholesaler, distributor and specialty retailer
of perfumes and fragrances that does business through several operating subsidiaries,
two of which, COMPANY and BUSINESS, are relevant to this inquiry.
COMPANY is a separate company that is an internet retailer of fragrance and other
specialty items.
The brick and mortar retail business is operated by BUSINESS, a subsidiary of
COMPANY HOLDINGS, and all retail stores but one, operate under BUSINESS as
‘COMPANY.’ The BUSINESS retail stores are generally located in regional malls,
manufacturers’ outlet malls, lifestyle centers, airports and suburban strip shopping
centers. As of DATE, 2011, BUSINESS operated # retail stores in the United States.
The following chart shows the number of BUSINESS retail stores located and operated
in each state.

Retail Stores as of DATE, 2011
STATES and # of stores.

4.

EXECUTIVE OFFICERS AND DIRECTORS OF COMPANY HOLDINGS:
POSITION

NAME

NAMES AND TITLES LISTED
5.
BUSINESS & DISTRIBUTION LOCATION:
The corporate headquarters and the only warehouse and distribution center of
COMPANY HOLDINGS and Subsidiaries are all physically located at ADDRESS,
CITY/STATE. All shipments from this location either to COMPANY or BUSINESS retail
stores are done by common carrier, from this one location.
B.

RULINGS REQUESTED

The following rulings are respectfully requested:
1.

On or about DATE, 2011, does COMPANY have nexus with the state of
Illinois based upon the following facts:
a.

COMPANY has no physical presence, employee(s), payroll,
solicitor(s), representative(s) (brokers, agents, etc.), nor owns or
leases real or tangible personal property in the state of Illinois.

b.

COMPANY is associated with an affiliated company, BUSINESS,
which has retail store locations throughout the United States. A
chart has been provided above that details the locations of the
BUSINESS retail stores.

c.

On or about DATE, 2011 and not prior, both COMPANY and
BUSINESS will be promoting a loyalty points program whereby the
customers of each company will receive points for purchases made
from either the COMPANY internet site and/or the BUSINESS retail
store locations. As these points accrue, the customer will reach a
threshold where they will receive a fixed price redeemable gift
certificate to use interchangeably in either BUSINESS retail store
locations and/or the COMPANY internet site.

d.

On or about DATE, 2011 and not prior, COMPANY customers will
have the option to make any returns of internet purchases at
BUSINESS retail store locations or online.

Should you determine that COMPANY does have nexus with the state of Illinois, please
answer the following:
2.

What type of filer status would COMPANY be registered as, Sales Tax,
Sellers [sic] Use Tax, or an alternate filing status?
a.

If COMPANY is to be considered as a Sellers [sic] Use Tax Filer or
an alternate filer, can COMPANY collect the appropriate taxes from
the end customer?

b.

3.

Is COMPANY liable to collect all state and local sales taxes on all
COMPANY shipments into the state of Illinois?
a.

If it is determined that COMPANY is liable to collect all sales taxes,
is it the ‘ship to’ address of the customer or the affiliated company
BUSINESS retail store locations that drives the local tax rate being
charged to the customer?

b.

If it is determined that it is the ‘ship to ‘ address that drives the tax
rate being charged to the customer then are all sales taxes
collected within the state remitted on the state Sales and Use Tax
Return or are there other local Sales and Use Tax Returns that are
to be filed separately from the state return?

c.

4.

If the tax is collected from the end customer, is there a flat rate
charged for out of state shipments in to [sic] the State or is it the
local jurisdictions that determine the tax rate that should be applied
to the products that are being shipped in to [sic] the State?

•

If there are separate locality [sic] Sales & Use Tax returns
does COMPANY have to register for sales tax with all of
those localities?

•

If COMPANY is required to be registered and collect the
local sales taxes for all of the separate locality [sic] Sales
and Use Tax jurisdictions, please provide us with a list of all
the locality [sic] Sales and Use tax jurisdictions within your
state that COMPANY would be liable to collect and remit
sales taxes.

If in the alternative, it is determined that it is the BUSINESS retail
store locations that drive the tax rate being charged to the customer
and BUSINESS has multiple retail locations (stores) in the state,
what retail location should be used to calculate the correct local
rate to charge to the COMPANY customers?

In any months that COMPANY does not have any sales into the state of
Illinois, is COMPANY required to file a zero state and local Sales and Use
Tax Return for that month?

**Please keep in mind that COMPANY’s only physical location is located in New York
State and the affiliate, BUSINESS, only has physical locations in precise areas within
each state.
C.

CONCLUSION

Based on the facts provided, COMPANY, an internet based company, respectfully
requests a ruling on the topic of sales tax nexus with the state of Illinois. Should you
determine that COMPANY does have nexus with the state of Illinois, we further
respectfully request additional rulings as to how we should properly administer the
collection and remittance process of state as well as any local sales taxes. If you have

any questions, concerns or if additional information is needed, please do not hesitate to
contact INDIVIDUAL.
Under penalties of perjury, I declare that I have examined this request, and to the best
of my knowledge and belief, this request contains all relevant facts relating to such
request, and the facts presented in support of the requested rulings are true, correct
and complete.

DEPARTMENT’S RESPONSE:
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.
If you believe that you have sufficient nexus with the State to be required to register as a Use
Tax collector or want to voluntarily report to collect Use Tax for sales to Illinois customers, please

contact the Department’s Central Registration Division at P.O. Box 19030, Springfield, IL 62794-9050
or through the Department’s website listed below.
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,

Debra M. Boggess
Associate Counsel
DMB:msk