Did third-party shopping-cart servers located in Illinois create sales-tax nexus for an otherwise out-of-state online business?

Plain-English summary

An out-of-state individual planned an online business selling counseling, teleseminars, virtual retreats, memberships, e-books, audio products, and DVDs. The business itself would operate outside Illinois, but a third-party company processing its shopping cart used servers physically located in Illinois. The requester asked whether that arrangement created Illinois sales-tax nexus.

IDOR did not answer that fact-specific question. It said nexus determinations usually require the information-gathering of an audit. The GIL then described three retailer categories under the law as it stood in 2013: Illinois retailers accepting orders or filling orders from Illinois inventory; out-of-state retailers maintaining a place of business in Illinois and required to collect Use Tax; and sellers lacking sufficient Illinois nexus whose Illinois customers self-assessed Use Tax.

The letter's constitutional analysis relied on Quill Corp. v. North Dakota and its physical-presence rule. That portion is outdated. In 2018, the U.S. Supreme Court held in South Dakota v. Wayfair, Inc. that Quill's physical-presence rule was unsound and overruled it. The GIL therefore cannot establish the current nexus consequences of third-party Illinois servers.

Common questions

Did IDOR say the shopping-cart servers created nexus? No. It expressly declined a fact-specific determination.

Is the GIL's physical-presence test still current? No. Wayfair overruled that Quill rule in 2018.

Citations and references

• 86 Ill. Adm. Code 150.201(i) and 150.801
• Quill Corp. v. North Dakota, 504 U.S. 298 (1992)
• 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-13-0069.pdf

Original ruling text

ST 13-0069-GIL 11/26/2013 NEXUS
This letter discusses nexus. See Quill Corp. v. North Dakota, 112 S.Ct. 1904 (1992). (This is a
GIL.)
November 26, 2013

Dear Xxxxx:
This letter is in response to your letter dated September 27, 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:
I am writing this letter in order to obtain a formal ruling on whether my client’s
business activity, as described below, would present sufficient “nexus” for which
our client would then have sales tax and/or income tax reporting requirements in
the state of Illinois.
My client is a STATE 1 resident who will be conducting internet-based business
activities from his business location in STATE 1. The kinds of services and
products that will be offered on my client’s web site would be the on-line sale of
individual counseling and group counseling services, teleseminars and virtual
retreats, as well as offering the sale of individual membership privileges e-Books,
audio and DVD courses. (Please note that the sale of memberships, and audio and
DVD courses will not be offered at the outset of the internet business actives.
These are items that will most likely not be offered to the public until some time
next year, after evaluating the success of the internet-based business activity.)
Again, all of this business activity would be conducted from his business that is
physically located in the STATE 1.
My client would be contracting with a web site hosting company (by the name of
COMPANY 1) that has internet services that are physically located in the state of
STATE 2.
My client will also be contracting with a company (by the name of COMPANY 2)
that will be handling the on-line shopping cart process (i.e., the processing of on-

line purchase transactions made by customers of the web site), and this
company’s internet servers are physically located in the Illinois.
My concern is that my client may be subject to sales tax registration and reporting
in the Illinois due to the fact that the company handling the online shopping cart
transactions have internet services that are physically located in your state.
Please advise as to whether this set of facts and circumstances constitutes
sufficient “nexus” for which my client would be required to collect and remit your
state’s sales tax for “taxable” sales that are made to customers who reside within
the state of Illinois.
Feel free to contact me directly regarding this issue.

DEPARTMENT’S RESPONSE:
The Department generally 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. However, we can
provide you with basic guidelines that may be used to determine whether a seller would be
considered “an Illinois retailer” subject to Retailers’ Occupation Tax liability or “a retailer
maintaining a place of business in Illinois” subject to Use Tax collection duties from their
Illinois customers.
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. Many retailers that do not have nexus with the State have chosen to
voluntarily register as Use Tax collectors as a courtesy to their Illinois customers so that those
customers are not required to file returns concerning the transactions with those retailers.
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