Did independent sales managers, local installers, and direct shipments from Illinois require a Missouri LED-sign seller to collect Illinois tax?

Plain-English summary

A Missouri LED-message-center seller had no offices or warehouses outside Missouri but used independent state sales managers and local installers. An Illinois supplier shipped products directly to the destination state. The seller asked where it had to remit sales tax.

IDOR expressly declined to make a nexus determination, explaining that the necessary facts were usually best gathered in an audit.

Under the historical Quill framework described in 2012, Illinois distinguished an Illinois retailer, a retailer maintaining a place of business in Illinois that had to collect Use Tax, and an out-of-state retailer without sufficient nexus. Physical presence could include any agent or representative and was not limited to an office; repetitive delivery and installation could create collection responsibilities. If the seller lacked sufficient nexus, its Illinois customer still owed and had to self-assess Use Tax.

The letter also identified two other issues without resolving them. Direct shipments could implicate the drop-shipment rule. If installation permanently incorporated property into real estate, construction-contractor rules made the contractor the end user owing Use Tax on cost; contractor tax reimbursement could not be labeled customer “sales tax.”

Common questions

Did IDOR decide whether the seller had Illinois nexus? No.

Could an independent representative or installer matter? Yes under the historical guidance; physical presence included agents or representatives and repetitive delivery and installation.

What if the seller lacked nexus? The Illinois purchaser still owed Use Tax and had to self-assess.

Citations and references

• 86 Ill. Adm. Code 150.201(i) and 150.801
• Quill Corp. v. North Dakota, 112 S. Ct. 1904 (1992)
• Brown's Furniture, Inc. v. Zehnder, 171 Ill. 2d 410 (1996)
• 86 Ill. Adm. Code 130.225, 130.1940, 130.2075, and 150.310

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2012.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2012/st-12-0019.pdf

Original ruling text

ST 12-0019-GIL 03/30/2012 NEXUS
This letter discusses nexus. See Quill Corp. v. North Dakota, 112 S.Ct. 1904 (1992). (This is a
GIL.)

March 30, 2012

Dear Xxxxx:
This letter is in response to your letter that we received on March 6, 2012, 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:
We, ABC, are a Missouri based corporation with our sole office in CITY, MO. We have
no other offices or warehouses in any other state, although we do have State Sales
Managers who are independent contractors in other states. We are looking for a
definitive explanation as to whom ABC is responsible to remit sales tax to.
We are in the market of selling LED message centers and use local installers from the
state the items are being sold. Our supplier from who [sic] we receive our products is
based out of Illinois and ships the product directly to the state in which the item is being
sold. Then our, independent contracted, State Sales Managers handle the transaction
from there.
Thanks for your response.
DEPARTMENT’S RESPONSE:
Although we cannot provide you with a specific answer to your question, described below are
descriptions of some sales tax principles that may be of interest to you.
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, which we hope 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.
Drop shipments:
Your letter indicates that the transactions you describe may involve drop-shipment situations.
For general information regarding drop shipments, you may wish to review the Department’s drop
shipment rules at 86 Ill. Adm. Code 130.225, which can be viewed on the Department’s website.
Construction contractor:
We cannot determine from the information that you provided whether the tangible personal
property will be permanently affixed or incorporated into a structure. Note, though, a contract that
provides for both the sale and installation of tangible personal property that is permanently affixed or
incorporated into a structure is considered a construction contract. The tax liabilities regarding
construction contractors in Illinois may be found at 86 Ill. Adm. Code 130.1940 and 130.2075 on the
Department’s Internet website. The term construction contractor includes general contractors,
subcontractors, and specialized contractors such as landscape contractors.

In Illinois, construction contractors are deemed end users of tangible personal property
purchased for incorporation into real property. As end users of such tangible personal property, these
contractors incur Use Tax liability for such purchases based upon their cost price of the tangible
personal property. See 86 Ill. Adm. Code 130.1940 and 86 Ill. Adm. Code 130.2075. Therefore, any
tangible personal property that a construction contractor purchases that will be permanently affixed to
or incorporated into real property in this State will be subject to Use Tax. If such contractors did not
pay the Use Tax liability to their suppliers, those contractors must self assess their Use Tax liability
and pay it directly to the Department. If the contractors have already paid a tax in another state
regarding the purchase or use of such property, they will be entitled to a credit against their Illinois
Use Tax liability to the extent that they have paid tax that was properly due to another state. See 86
Ill. Adm. Code 150.310.
It is important to note that since construction contractors are the end users of the materials that
they permanently affix to real estate, their customers incur no Use Tax liability and the construction
contractors have no legal authority to collect the Use Tax from their customers. However, many
construction contractors pass on the amount of their Use Tax liabilities to customers in the form of
higher prices or by including provisions in their contracts that require customers to “reimburse” the
construction contractor for his or her tax liability. Please note that this reimbursement cannot be billed
to a customer as “sales tax,” but can be listed on a bill as a reimbursement of tax. The choice of
whether a construction contractor requires a tax reimbursement from the customer or merely raises
his or her price is a business decision on the construction contractor’s part.
If subcontractors are utilized and are acting as construction contractors, the transaction
between the general contractors and the subcontractors is not a taxable transaction. The
subcontractors incur Use Tax liability on any tangible personal property that they purchase for
incorporation into real estate. If, however, general contractors make purchases of tangible personal
property and then contract to have subcontractors install that tangible personal property, the general
contractors incur Use Tax liability on that tangible personal property.
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