What did Illinois's 2013 annual survey say about nexus, BOGO and coupon discounts, and seminar or webinar charges?

Plain-English summary

IDOR answered selected questions in a 2013 annual multistate survey:

• Nexus: The letter used Quill's physical-presence test and said Illinois had no de minimis activity threshold. That constitutional framework is outdated because South Dakota v. Wayfair, Inc. overruled Quill's physical-presence rule in 2018.
• Coupons and discounts: An unreimbursed store discount reduced taxable receipts to the amount actually received. A manufacturer-reimbursed coupon left the full customer payment plus reimbursement taxable.
• BOGO promotions: When the retailer received no reimbursement for the second item, tax applied only to the amount paid for the two items; IDOR said no gift was intended.
• Seminars and webinars: A service without tangible-property transfer was outside retail tax. Materials transferred with the service were taxed under the applicable Service Occupation Tax method.

Common questions

Was a supposedly free BOGO item separately taxed at its value? No, absent third-party reimbursement.

Is the nexus section current? No. Its Quill rule was overruled.

Citations and references

• 86 Ill. Adm. Code 130.2125(b)
• 86 Ill. Adm. Code 140.129
• 86 Ill. Adm. Code 150.201(i) and 150.801
• South Dakota v. Wayfair, Inc. (CourtListener opinion)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2013.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2013/st-13-0036.pdf

Original ruling text

ST 13-0036-GIL 07/31/2013 MISCELLANEOUS
This letter responds to an annual survey. See 86 Ill. Adm. Code, Parts 120, 130, 140,
and 160. (This is a GIL.)
July 31, 2013
Dear:
This letter is in response to your email dated June 10, 2013, 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:
The UNIVERSITY, in conjunction with PUBLISHER, annually undertakes a major
information collection effort with respect to the application of the tax laws of the states.
UNIVERSITY's goal in gathering this information is to assemble and publish the
GUIDE. As the market has shown, such a publication is a useful reference source for
departments of revenue, attorneys, corporate tax departments, and public accounting
firms.
UNIVERSITY is in the process of updating the Guide for its 2014 annual edition.
Accordingly, we ask for your state's assistance in preparing this important publication. I
have attached two Microsoft Word files–one for income tax and one for sales tax–to
serve as this year's questionnaire. The questionnaire follows the same format as in
past years. (If you do not have a copy of your 2012 response, and it would be helpful to
you in completing the 2013 questionnaire, please let me know and I will email you a
copy.)
This year, the numbering scheme and the sequence of the questions remains
essentially the same. Also, please note that the new questions are highlighted in red
font. Therefore, you should be able to easily follow the changes from last year to this
year. Because of anticipated time constraints for respondents, again this year we are
asking that you only respond to the questions for which your answers require a change
and the new questions. All unanswered questions will be considered the same as last
year's answer unless otherwise noted.
Please complete the 2013 questionnaire and return it by July 15, 2013. The enclosed questionnaire
should be answered in accordance with laws in effect as of July 1, 2013. If there is legislation
pending or recently enacted that would alter your answers, please explain any such changes that you
are aware of at the time the questionnaire is completed.

ST 13-0036-GIL
July 31, 2013
Page 2

Beginning in the fall 2000, UNIVERSITY began a tuition assistance program for state department of
revenue employees in appreciation for their assistance in publishing the GUIDE. A limited amount of
tuition assistance is available for courses in UNIVERSITY's Online Graduate Certificate in State and
Local Taxation. This Certificate program is the first of its kind in the nation to be offered totally online.
To receive the Certificate, students must complete the four-course curriculum. For further information
about the program or available tuition assistance contact Mr. Z at the UNIVERSITY.
If you have any questions about the questionnaire or a specific question, please contact me. Thank
you for your continued cooperation and support. Your contributions are extremely valuable in
maintaining the quality of this outstanding reference work. A complimentary copy of the 2014 GUIDE
will be sent to you when it is published next year.

DE MINIMIS RULE FOR SALES TAX NEXUS
▪ Does your state provide a de minimis level of activity below which in-state sales
activity can be conducted without creating nexus?
Yes
No
▪ If YES, what is the standard?
1 day
Less than 3 days
Less than 5 days
Other, explain:

[64] BUY ONE, GET ONE FREE (BOGO). Vendors frequently offer additional products as
free incentives to induce customers to purchase their product. These incentive programs
are frequently referred to as “buy one, get one free” programs. They have grown in
popularity in recent years.

▪ If a vendor offers a free item with the purchase of a specific item, i.e., buy product ABC,
get product XYZ for free, assuming no increase in price for the item purchased (item
ABC), does the vendor owe use tax on the cost of the free item (item XYZ)?
▪ If a vendor offers a 50% discount on the purchase of the second item with the purchase
of the first item (buy item ABC, get item XYZ for 50% off list price), does the vendor owe
use tax on any portion of the discounted item (item XYZ)?
▪ If YES, on what portion?
50%
Other, explain: _______
▪ If the vendor offers a free item (item XYZ) with the purchase of a non-taxable item (item
ABC), assuming no increase in price for the item purchased (item ABC), does the vendor
owe use tax on the cost of the free item (item XYZ)?
▪ If the vendor offers free shipping with the purchase of a specific item, assuming no
increase in price for the item purchased, does the vendor owe use tax on the cost of the
free service, if it is taxable in your state?

ST 13-0036-GIL
July 31, 2013
Page 3
[65] SEMINARS
YES NO
▪ Does your state impose sales tax upon the fee for “live” seminars occurring in
your state?
▪ If YES, are only certain types of seminars taxed (e.g., personal improvement
seminars versus technical topics related to employment)?
▪ If YES, what type(s) of seminars are taxed? ___
[66] WEBINARS. In recent years the Internet has provided the capability to reach
an unlimited audience through Webinars, facilitated by broadcast over the
Internet. Typically, these Webinars are initially offered in a live broadcast and
then available at a later date as an archived broadcast. The primary distinction
between the live and archived broadcast is the ability of the participant to
interact with the instructor and others during the Webinar.
YES NO
▪ Does your state impose tax upon live Webinars that allow for interaction
between the instructor and student during the broadcast?
▪ If YES, do you consider it taxable as a service or a digital audiovisual work?
Service
Digital audiovisual work
Other, explain: ___
▪ Does your state impose tax upon archived Webinars that allow participants to
listen to earlier broadcasts without the opportunity for interaction with the
instructor during the program?
▪ If archived Webinars are taxable because they lack interaction between the
instructor and students, would they still be taxable if students had an
opportunity to ask questions via email to a facilitator who may or may
not be the instructor in the Webinar or take a test to demonstrate knowledge
gained from the program?
▪ Frequently, books and other study materials are provided as part of the fee for
seminars and Webinars. If these materials are provided at no additional charge
to the fee for the program, does the seminar provider owe use tax on the cost of
the materials provided?
▪ If the materials are self-produced by hiring writers to develop and publish
them, are those aggregate charges subject to tax, i.e., costs of the writers,
editors, paper, etc. used to publish the study materials?
Is some portion of the aggregate charge for development of the materials not
taxable? For example, are the fees or wages paid to writers and editors for the
materials non-taxable?
▪ If YES, what portion of the charges are non-taxable? ________
DEPARTMENT’S RESPONSE:
Nexus
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

ST 13-0036-GIL
July 31, 2013
Page 4
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.
Section 2a of the Retailers’ Occupation Tax Act, 35 ILCS 120/2a, makes it unlawful for any person to
engage in the business of selling tangible personal property at retail in Illinois without first obtaining a
certificate of registration from the Illinois Department of Revenue. This applies to all persons whether
they sell at swap meets, flea markets, or as transient vendors along the roadside.
The Department sometimes has collection officers at Illinois swap meets and flea markets who are
authorized to collect and provide receipts for Retailers’ Occupation Tax incurred at the event. Any
such tax liability paid directly to a Department collection officer that is evidenced by a receipt need not
be reported to the Department on a return. See 86 Ill. Adm. Code 130.2045, 130.501 and 130.510.
The State applies the foregoing standards to determine nexus. It does not have a “de minimis”
standard.
Discounts
The Illinois Retailers' Occupation Tax Act imposes a tax upon persons engaged in this State in the
business of selling tangible personal property to purchasers for use or consumption. See 86 Ill. Adm.
Code 130.101. In Illinois, Use Tax is imposed on the privilege of using, in this State, any kind of

ST 13-0036-GIL
July 31, 2013
Page 5
tangible personal property that is purchased anywhere at retail from a retailer. See 86 Ill. Adm. Code
150.101. These taxes comprise what is commonly known as "sales" tax in Illinois.
Gross receipts subject to Retailers' Occupation Tax are defined as all the consideration actually
received by the seller. If a seller provides a discount to a purchaser and does not receive a
reimbursement or rebate from any source for that discount, only the (discounted) amount received by
the seller is taxable. For example, if a retailer sells an item for $10 and the purchaser provides the
retailer with a $1 in-store coupon for which the retailer receives no reimbursement from the
manufacturer of the item or any other source, the retailer’s gross receipts of $9 are subject to
Retailers' Occupation Tax. See 86 Ill. Adm. Code 130.2125(b)(1).
When a retailer receives full or partial coupon reimbursement (from a manufacturer, distributor or any
other source), the retailer incurs Retailers' Occupation Tax liability on the receipts received from the
purchaser and the amount of any coupon reimbursement. For example, if a retailer lists an item for
sale for $15 and the purchaser provides the retailer with a $5 manufacturer’s coupon for which the
retailer receives full reimbursement from the manufacturer of the item, the retailer’s gross receipts are
the $10 received from the customer and the $5 received from the manufacturer for a total of $15 that
is subject to Retailers' Occupation Tax. See 86 Ill. Adm. Code 130.2125(b)(2).
When a retailer provides a purchaser with the opportunity to receive a free item conditioned on the
purchase of a separate item (two-for-one, buy one get one free, etc.), with or without a coupon issued
by the retailer, the retailer's gross receipts are measured only by the amount actually received from
the purchaser for both items. Thus, tax is only incurred on the amount actually received from the
purchaser. The retailer does not incur tax based upon the value of the free item received because
technically the item was not free and no gift was intended. The retailer was simply offering a special
price for both items sold. The result presumes that the retailer is not being reimbursed for the free
item by the manufacturer or other source.
Likewise, if a retailer provides a customer with a card, coupon or other certificate later to be used to
reduce (“discount”) the purchase price of an item or items and the retailer is not to be reimbursed for
that discount from a manufacturer or any other source, the amount representing that discount would
not be subject to Retailers’ Occupation Tax liability. See in general 86 Ill. Adm. Code 130.2125(b)(1).
Seminars and Webinars
Illinois Retailers' Occupation and Use Taxes do not apply to sales of service that do not involve the
transfer of tangible personal property to customers. However, if tangible personal property is
transferred incident to sales of service, this will result in either Service Occupation Tax liability or Use
Tax liability for the servicemen depending upon his activities. See 86 Ill. Adm. Code 140.101 through
140.109 regarding sales of service and Service Occupation Tax.
Under the Service Occupation Tax Act, businesses providing services (i.e. servicemen) are taxed on
tangible personal property transferred as an incident to sales of service. See 86 Ill. Adm. Code
140.101. The purchase of tangible personal property that is transferred to the service customer may
result in either Service Occupation Tax liability or Use Tax liability for the servicemen depending upon
his activities. The serviceman’s liability may be calculated in one of four ways: (1) separately-stated
selling price of tangible personal property transferred incident to service; (2) 50% of the servicemen's
entire bill; (3) Service Occupation Tax on the servicemen's cost price if the servicemen are registered

ST 13-0036-GIL
July 31, 2013
Page 6
de minimis servicemen; or (4) Use Tax on the servicemen's cost price if the servicemen are de
minimis and are not otherwise required to be registered under Section 2a of the Retailers' Occupation
Tax Act.
See the Department’s Administrative Rule concerning the taxation of seminar materials. 86 Ill. Adm.
Code 140.129.
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,

Richard S. Wolters
Associate Counsel