Where did Illinois source local retailers' occupation tax for an industrial supplier's branch, remote-order, online, and affiliate sales?

Plain-English summary

Four related industrial-supply companies asked Illinois to source local retailers' occupation tax across numerous sales channels. IDOR applied the post-Hartney regulations' fact-specific test: the place where a retailer conducts the business of selling depends on the composite of primary and, when necessary, secondary selling activities.

The ruling produced three main results:

• Branch counter sales: sourced to the branch where the order was placed.
• Specified phone, fax, email, eProcurement, special-branch, and affiliate sales: no single place had three or more primary selling activities, so IDOR considered secondary activities and sourced them to the corporate headquarters in an unincorporated Illinois county.
• Specified online and related-entity sales: when the sold property was in inventory at the Illinois distribution facility, the sale was sourced to that city. When the property was outside Illinois at sale, predominant selling activities were presumed outside Illinois and the companies were to collect 6.25% Use Tax from Illinois customers.

For distributing the 1.25% local-government share of State tax under the State Finance Act, each sale followed the same source location used for locally imposed occupation taxes.

What this means for you

Order channel alone does not always control Illinois local sourcing. Retailers must document where personnel solicit and bind orders, where inventory sits, where orders are accepted, and other primary and secondary selling activities for each sales stream.

Common questions

Where were over-the-counter sales sourced? To the branch where the order was placed.

Why were several remote-order channels sourced to headquarters? No location contained enough primary activities, and the secondary-activity analysis pointed to headquarters.

What happened when online inventory was outside Illinois? The companies were directed to collect 6.25% Use Tax on sales to Illinois customers under the stated presumption.

Citations and references

• 86 Ill. Adm. Code 220.115, 270.115, 693.115, and 150.801.
• 35 ILCS 120/3; 30 ILCS 105/6z-18 and 6z-20.
• Hartney Fuel Oil Co. v. Hamer, 2013 IL 115130; Ex-Cell-O Corp. v. McKibbin, 383 Ill. 316 (1943).

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2017.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2017/st-17-0005-plr.pdf

Original ruling text

ST 17-0005-PLR 06/14/2017 LOCAL TAXES
The occupation of selling is comprised of the composite of many activities extending from the
preparation for, and the obtaining of, orders for goods to the final consummation of the sale by
the passing of title and payment of the purchase price. Thus, establishing where "the taxable
business of selling is being carried on" requires a fact-specific inquiry into the composite of
activities that comprise the retailer’s business. 86 Ill. Adm. Code 220.115, 270.115, and
693.115. (This is a PLR.)

June 14, 2017

Re:

Request for Illinois Retailers’ Occupation Tax Private Letter Ruling

Dear Xxxxx:
This letter is in response to your letter dated September 8, 2016, 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.
Review of your request disclosed that all the information described in paragraphs 1 through 8
of Section 1200.110 appears to be contained in your request. This Private Letter Ruling will bind the
Department only with respect to COMPANY (“COMPANY”), COMPANY 1 (“COMPANY 1”),
COMPANY 2 (“COMPANY 2”), and “COMPANY 3 (“COMPANY 3”), together referred to in the
Department’s response as “the Companies,” for the issue or issues presented in this ruling, and is
subject to the provisions of subsection (e) of Section 1200.110 governing expiration of Private Letter
Rulings. Issuance of this ruling is conditioned upon the understanding that neither the Companies
nor a related taxpayer is currently under audit or involved in litigation concerning the issues that are
the subject of this ruling request. Further, this letter ruling is binding only for sales made on or after
January 22, 2014 (the effective date of the Department’s emergency rules regarding sourcing of sales
found at 38 Ill. Reg. 4047 et seq.). In your letter you have stated and made inquiry as follows:

The purpose of this letter (“Letter”) is to request a private letter ruling under 86 Ill.
Admin. Code § 1200.110 on behalf of COMPANY (“COMPANY”), COMPANY 1
(“COMPANY 1”), COMPANY 2 (“COMPANY 2”) and COMPANY 3 (“COMPANY 3,” and
together with COMPANY, COMPANY 1 and COMPANY 2 the “Companies”) on which
the Companies may rely. Specifically, the Companies requests a private letter ruling

ST 17-0005-PLR
Page 2
that, for purposes of the Home Rule County Retailers’ Occupation Tax, Home Rule
Municipal Retailers’ Occupation Tax (collectively, the “Tax”), it is “engaged in the
business of selling” (within the meaning of 86 Ill. Admin. Code §§120.115, 270.115, and
693.115 (collectively, the “Regulations”)) in the locations described further below. The
Companies also request a ruling that the same result will apply for purposes of
allocating the local government portions of the Tax under 35 ILCS 120/3 and 30 ILCS
105/6z-18 and 105/6z-20.
No audit or litigation is pending with the Illinois Department of Revenue (the
“Department”) involving the Companies regarding the issues presented below. We
note, however, that COMPANY is currently under a sales tax audit by the Illinois
Department of Revenue for the periods of January 2011 through December 2012.
Neither the Companies nor any representatives of the Companies has previously
submitted the same or similar issues to those presented below to the Department but
withdrew them before a letter ruling was issued.
COMPANY is a Fortune 500 industrial supply company founded in YEAR in CITY, with
its corporate headquarters located in unincorporated COUNTY, Illinois. 1 Approximately
3 million businesses and institutions worldwide rely on COMPANY for products such as
safety gloves, ladders, motors and janitorial supplies, along with services like inventory
management and technical support. COMPANY’s customers represent a broad
collection of industries including healthcare, manufacturing, government and hospitality.
COMPANY’s customers typically place over 100,000 orders per day online, with mobile
devices, over the phone and at local branches.
Due to the numerous different methods of sale for which a ruling is being requested, for
ease of review, the Letter begins by listing the ruling requested, followed by a
discussion of the applicable law. The letter concludes with descriptions of the relevant
facts, organized by type of sale, and an application of the law to such facts. 2
RULINGS REQUESTED

1. COMPANY’s Branch Sales (as defined below) will be treated as “over
   the counter sales” within the meaning of the Regulations and thus, will
   be treated as occurring at the branch where the order was placed.
2. COMPANY’s Phone Sales (as defined below) will be treated under the
   Regulations as occurring in unincorporated COUNTY.
3. COMPANY’s Fax Sales (as defined below) will be treated under the
   Regulations as occurring in unincorporated COUNTY.
4. COMPANY’s Email Sales (as defined below) will be treated under the
   Regulations as occurring in unincorporated COUNTY.

1

Although COMPANY’s corporate headquarters is physically located in unincorporated COUNTY, its mailing address is in CITY 2,
Illinois.
2
We recognize that this approach inverts the normal order in which a ruling would be submitted, but believe that this format will
streamline the presentation and simplify the Department’s review and analysis.

ST 17-0005-PLR
Page 3

5. COMPANY’s Online Sales (as defined below) will be (i) treated under
   the Regulations as occurring in CITY 3, Illinois to the extent the Online
   Sale is fulfilled from the CITY 3 Distribution Facility (defined below) and
   (ii) subject to use tax presumption set forth in the Regulations for
   “Sales over the Internet,” to the extent the Online Sale is fulfilled from a
   COMPANY distribution facility located outside of Illinois.
6. COMPANY’s eProcurement Sales (as defined below) will be treated
   under the Regulations as occurring in unincorporated COUNTY.
7. COMPANY’s Branch 938 Sales (as defined below) will be treated
   under the Regulations as occurring in unincorporated COUNTY.
8. COMPANY 2 Sales (as defined below) will be (i) treated under the
   Regulations as occurring in CITY 3, to the extent the COMPANY 2
   Sale is fulfilled from the CITY 3 Distribution Facility (defined below) and
   (ii) subject to the use tax presumption set forth in the Regulations for
   “Sales over the Internet,” to the extent the COMPANY 2 Sale is fulfilled
   from a COMPANY distribution facility located outside of Illinois.
9. COMPANY 3 Sales (as defined below) will be (i) treated under the
   Regulations as occurring in CITY 3, to the extent the COMPANY 3
   Sale is fulfilled from the CITY 3 Distribution Facility (defined below) and
   (ii) subject to the use tax presumption set forth in the Regulations for
   “Sales over the Internet,” to the extent the COMPANY 3 Sale is fulfilled
   from a COMPANY distribution facility located outside of Illinois.
10. COMPANY Procurement Sales (as defined below) will be treated
    under the Regulations as occurring in unincorporated COUNTY.
11. The results under Ruling Requests 1-11, above, apply for purposes of
    allocating the local government portions of the Tax under 35 ILCS
    120/3 and 30 ILCS 105/6-18 and 105/6z-20.

APPLICABLE LAW
Under the Regulations, the jurisdiction where a retailer is “engaged in the business of
selling” is the jurisdiction that can impose Tax. A retailer incurs Tax in a particular
jurisdiction if its predominant and most important selling activities take place in the
jurisdiction. 86 Ill. Admin. Code §§ 220.115(b)(5), 270.115(b)(5) and 693.115(b)(5). A
retailer is instructed to determine the taxing jurisdiction in which it is engaged in the
business of selling with respect to each of its sales by first analyzing its “primary selling
activities.”
A Taxpayer’s primary selling activities (also referred to as the “primary factors”) include:

ST 17-0005-PLR
Page 4
•

The location of sales personnel exercising discretion and authority to solicit
customers on behalf of a seller and to bind the seller to the sale (“Primary factor
1”);

•

The location where the seller takes action that binds it to the sale, which may be
the acceptance of purchase orders, submission of offers subject to unilateral
acceptance by the buyer, or other actions that bind the seller to that sale
(“Primary Factor 2”);

•

The location where payment is tendered and received, or from which invoices are
issued with respect to each sale “(Primary factor 3”);

•

The location of inventory, if tangible personal property that is sold is in the
retailer’s inventory at the time of its sale or delivery (“Primary Factor 4”); and

•

The location of the retailer’s headquarters, which is the principal place from
which the business of selling tangible personal property is directed or managed.
In general, this is the place at which the offices of the principal executives are
located. When executive authority is located in multiple jurisdictions, the place of
daily operational decision making is the headquarters (“Primary Factor 5”).

86 Ill. Admin. Code §§ 220.115(c)(1), 270.115(c)(1) and 693.115(c)(1). A retailer
engaging in three or more primary selling activities in one jurisdiction in the State is
considered to be engaged in the business of selling in that jurisdiction. 86 Ill. Admin.
Code §§ 220.115(c)(2), 270.115(c)(2) and 693.115(c)(2).
If a retailer’s primary selling activities occur in multiple jurisdictions, but no jurisdiction
has more than two primary selling activities, the following additional selling activities
(“secondary selling activities” or “secondary factors”) are considered to determine the
jurisdiction in which the retailer is engaged in the business of selling:
• The location where marketing and solicitation occur;
• The location where the seller engages in activities necessary to procure
goods for sale;
• The location of the retailer’s officers, executives and employees with
authority to set prices or determine other terms of sale, if determinations
are made in a location different than that identified in the first primary
selling factor;
• The location where purchase orders or other contractual documents are
received when purchase orders are accepted, processed or fulfilled in a
location or locations different from where they are received;
• The location where title passes; and

ST 17-0005-PLR
Page 5
• The location where the retailer displays goods to prospective customers,
such as a showroom;
86 Ill. Admin. Code §§ 220.115(c)(4), 270.115(c)(4) and 693.115(c)(4). A retailer that is
not engaged in the business of selling in any particular jurisdiction under the primary
factors will be treated as engaged in the business of selling in the jurisdiction where the
inventory is located for such sale (under the fourth primary factor) or where the retailer’s
headquarters is located (under the fifth primary factor), whichever jurisdiction is the
location where more selling activities occur, considering both the primary and secondary
factors. 86 Ill. Admin. Code §§ 220.115(c)(5), 270.115(c)(5) and 693.115(c)(5). Finally,
a retailer that is not engaged in the business of selling in a jurisdiction based upon
application of the primary and secondary factors described above is presumed, absent
clear and convincing evidence to the contrary, to be engaged in the business of selling
at the location of its headquarters. 86 Ill. Admin. Code §§ 220.115(c)(6), 270.115(c)(6)
and 693.115(c)(6).
For so-called “over the counter” sales (i.e., sales where the purchaser is present at a
place of business owned or leased by the retailer and there enters into agreement with
the retailer’s sales personnel to purchase tangible personal property from the retailer
and makes payment for the property at the same location), the sale is deemed to take
place at the retailer’s place of business where the over the counter sale occurred,
regardless of whether the purchaser takes immediate possession of the property or
whether the retailer delivers or arranges for the property to be delivered to the
purchaser.
86 Ill. Admin. Code §§ 220.115(c)(3)(A), 270.115(c)(3)(A) and
693.115(c)(3)(A).
For sales of tangible personal property made through a consumer-based retailer
website available without limitation on the world wide web, the Department will presume
that the retailer’s selling activities take place outside of the state. Therefore, such sale
will be subject to use tax unless there is “clear and convincing” evidence that the
retailer’s predominant and most important selling activities take place in the state. 86 Ill.
Admin. Code §§ 220.115(d)(3), 270.115(d)(3) and 693.115(d)(3). There is “clear and
convincing evidence” sufficient to overcome the use tax presumption if the tangible
personal property that is sold is in an inventory in the possession of the retailer located
within a jurisdiction in Illinois at the time of the sale. In that case, the retailer will be
treated as engaged in the business of selling with respect to such sale where the
property is located at the time of the sale. 86 Ill. Admin. Code §§ 220.115(d)(3)(A),
270.115(d)(3)(A) and 693.115(d)(3)(A).
In General Information Letter ST 15-0001-GIL (01/07/15) (the “GIL”), the Department
addressed the meaning of the first three “primary selling activities” under these local
sourcing rules. 3 In the GIL, the Department stated that the “primary selling activities”
are so designed because they are “nearly universal.” Moreover, the “primary selling
activities” serve as “proxies for a composite of activities critical to the business of
selling” and the locations of each of the “primary selling activities” are “generally
3

The GIL addressed the rules contained under 86 Ill. Admin. Code § 320.115, which relate to the Regional Transportation Authority
portion of the Tax. The rules contained in the Regulation are identical to those contained in 86 Ill. Admin. Code § 320.115, but relate
to the Home Rule Municipality, Non-Home Rule Municipality, and Home Rule County portions of the Tax, respectively.

ST 17-0005-PLR
Page 6
physical structures where employees come and go on a daily basis, taking advantage of
… core services provided by local governments.” Thus, the “primary selling activities”
test satisfies important practical criteria: it is predictable for retailers and administrable
for the Department. General Information Letter ST 15-0001-GIL (01/07/15).
To meet the first primary selling activity in a particular location, the GIL confirms that the
retailer must have sales personnel in that location with “actual power to determine
whether or not a retailer will do business with a given customer.” Thus, the first of the
primary selling activities refers to the location of individuals to whom the retailer has
delegated significant authority to decide when, where and to whom the retailer will sell
the goods, and who hold the power to “bind the seller to the sale.” If there is no single
location where sales personnel exercise discretion and authority to both solicit
customers and complete sales, the retailer will not meet the first primary selling activity
in any location when determining where to source its sales.
The GIL confirms that the second primary selling activity occurs where the retailer’s
personnel perform the “final action necessary to commit the retailer to a contractually
binding relationship.”
With respect to the third primary selling activity, the GIL states that, if payment is not
“tendered or received” at the seller’s place of business, the third primary selling activity
occurs at the location where the retailer “engages in the conduct necessary to prepare
and submit an invoice.”
The GIL also addresses certain sales of tangible personal property over the Internet,
stating that such sales are generally presumed to be subject to use tax when the
consumer places an order “through a consumer-based retailer website available without
limitation on the world wide web.” On the other hand, sales made through web-based
applications accessible only to established members or customers would not be subject
to the use tax presumption, and would instead appear to be sourced based on the
retailers primary selling activities, as described in the Regulations.
Under 35 ILCS 120/3, the Department is required to pay into the Local Government Tax
Fund 16% of the 6.25% general state rate on the selling price of tangible personal
property, and into the County and Mass Transit District Fund 4% of the net revenue
realized for the preceding month from such 6.25% general state rate. Under 30 ILCS
105/6z-18, a portion of the money paid into the Local Government Tax Fund from the
6.25% general state rate is distributed to the municipalities based upon the sales which
occurred in that municipality, with the remainder distributed to each county based upon
the sales which occurred in the unincorporated area of such county. Under 30 ILCS
105/6z-20, distribution of the money paid into the County and Mass Transit District Fund
form the 6.25% general state rate is to be made to the Regional Transportation
Authority tax fund based upon the retail sales occurring in a county have [sic] more than
3,000,000 inhabitants, with the remainder of such money being distributed to each
county having 3,000,000 or fewer inhabitants based upon the retail sales occurring in
each such county.
STATEMENT OF FACTS AND APPLICATION OF LAW

ST 17-0005-PLR
Page 7
As described above, due to the number of different methods by which COMPANY
makes sales to its customers, we have included a separate section below for each type
of sale that describes the relevant facts and applies the relevant law. Nonetheless,
there are certain important facts that are generally consistent across all of the different
types of COMPANY sales. Those common facts are as follows:

4

•

COMPANY’s corporate headquarters is located in unincorporated
COUNTY, Illinois. 4 COMPANY’s principal executives, as well as its
marketing team (including COMPANY VPs of Marketing and ECommerce), procurement team (including COMPANY’s VP of Global
Product Management and VP of Pricing and Indirect Procurement),
finance team (including its Chief Financial Officer), and numerous other
team members are located at its headquarters. Except as otherwise
described herein, the team members at COMPANY’s corporate
headquarters generally have the ability to set pricing and determine other
terms of sale.

•

Although COMPANY has several distribution facilities throughout the
United States, COMPANY’s sole distribution facility in Illinois is located in
CITY 3, Illinois (the “CITY 3 Distribution Facility”). Thus far during 2016,
approximately 70% of COMPANY’s sales to Illinois customers have been
shipped from the CITY 3 Distribution Facility. All shipments are made
FOB origin.

•

Approximately 85% of COMPANY customers make purchases on
account. The balance make payment with a credit card, debit card, cash
or check at the time an order is placed. A new customer’s credit limit is
generally determined by algorithms with COMPANY’s SAP system.
Assuming an order is placed on account within the customer’s preapproved credit limit, the order can generally be accepted and released
through the normal process that is in place for the particular type of sale.
If a customer places an order on account in excess of its credit limit, the
request is routed to one of COMPANY’s credit specialists located in CITY
4, STATE for manual approval. COMPANY estimates that approximately
8% of the 100,000 orders that are typically processed through
COMPANY’s various sale channels each day are routed to the credit
specialist team in CITY 4, STATE for approval and order release.

•

COMPANY’s main data center (which houses, among other things,
COMPANY’s main SAP software) is located in CITY 5, Illinois.
COMPANY also has a backup data center located at its corporate
headquarters in unincorporated COUNTY.

•

An electronic billing file with relevant sale and pricing information is sent
each week by COMPANY from its main data center in CITY 5, Illinois to a
third party billing company in CITY 6, Illinois. The customer invoices are

Although COMPANY’s corporate headquarters is physically located in unincorporated COUNTY, its mailing address is in CITY 2,
Illinois.

ST 17-0005-PLR
Page 8
physically printed and mailed by the third party company, which does not
have the authority to modify them. Illinois customers generally mail
payment on these invoices to a lock box in CITY 7, Illinois for processing
by the cash processing team located in CITY 5, Illinois.
The following is a brief description of each type of sale that is the subject of this Letter,
as well as a discussion applying the law to the facts of each particular type of sale. To
aid the Department’s review, attached to this Letter as Exhibit A is a matrix (the “Matrix”)
that sets fourth, by type of sale, the location in which each of the primary and secondary
factors occur.
Branch Sales
Facts. In a branch sale (“Branch Sale”), a customer walks into a store to place an order
for an item. The COMPANY personnel located at the branch have the discretion and
authority to solicit and bind COMPANY to the sale and can accept payment from the
customer at the branch location. When a customer places an order and makes
payment at the branch, the order is accepted at the branch and the customer receives a
receipt from the point of sale terminal at the branch location.
Customers with COMPANY accounts also have the ability to place their Branch Sale
orders on account. If the order is within the customer’s pre-approved credit limit (as
determined by COMPANY’s internal SAP system), the order is automatically approved.
If the customer wishes to place an order on account that is in excess of its pre-approved
credit limit, however, the request is routed to one of COMPANY’s credit specialists
located in CITY 4, STATE for manual approval. For orders that are placed on account,
an invoice for payment is issued to the customer from COMPANY’s main data center in
CITY 5, Illinois. As described above, customer payments on these invoices are
processed by the COMPANY cash processing team in CITY 5, Illinois.
In a Branch Sale, the customer will almost always receive the purchased item at the
time of sale at the branch location. If the item is not in stock at the branch, it is
generally shipped to the customer from the CITY 3 Distribution Facility.
Discussion. Under the Regulations, an “over the counter sale” is deemed to take place
at the retailer’s place of business where the sale occurred, regardless of whether the
purchaser takes immediate possession of the property or whether the retailer delivers or
arranges for the property to be delivered to the purchaser. 86 Ill. Admin. Code §§
120.115(c)(3)(A), 270.115(c)(3)(A) and 693.115(c)(3)(A). An “over the counter sale”
includes a sale where the purchaser “is present at a place of business owned or leased
by a retailer and there enters into an agreement with the retailer’s sale personnel to
purchase tangible personal property, and makes payment for that property at the same
place of business.” Id. In a Branch Sale, the customer will often make payment at the
time of the sale, in which case it is clear that a Branch Sale would be an “over the
counter sale.” Even where a customer places a Branch Sale order on account,
however, such sale should still be treated as an “over the counter sale,” because the
customer agrees at the time of sale to make payment, albeit at a later date. Moreover,
at the time the order is placed, the customer’s available credit limit is decreased and a
receivable is created on COMPANY’s books for the amount due. Thus, all of

ST 17-0005-PLR
Page 9
COMPANY’s Branch Sales (whether the customer makes payment at the time of sale or
agrees at the time of sale to make payment at a later date) should be considered “over
the counter sales,” and should therefore be deemed to take place at the branch where
the order was placed.
Phone Sales
Facts. Customers are able to order products by phone by calling 1-800-COMPANY
(“Phone Sales”). A customer’s call is routed to any available COMPANY customer
service agent. COMPANY estimates that only approximately 10% of COMPANY’s
customer service agents are located in Illinois.
The customer service agent has the discretion and authority to solicit and bind
COMPANY to the sale and can accept payment from the customer over the phone.
Payments taken over the phone by customer service agents are entered by the
customer service agent into COMPANY’s SAP system. In the event that a customer
places an order on account, the process is substantially similar to that which is
described above for orders placed on account under “Branch Sales.” Invoices or
receipts are issued from COMPANY’s main data center in CITY 5, Illinois.
Phones Sale orders to Illinois customers are primarily shipped (FOB origin) from the
CITY 3 Distribution Facility.
Discussion. Because the customer service agents are not likely to be in Illinois, it is
unlikely the Primary Factor 1 will be treated as occurring in Illinois. It is also unlikely
that Primary Factor 2 will occur in any location in Illinois, whether payment is made by
phone through a customer service agent (likely not located in Illinois) or whether the
order needs to be approved and released by a member of COMPANY’s credit team
located in CITY 4, STATE. Primary Factor 3 should be treated as occurring in CITY 5,
Illinois (where invoices are issued from and payments are received). In most cases,
Primary Factor 4 will be treated as occurring in CITY 3. Primary Factor 5 is met at
COMPANY’s headquarters in unincorporated COUNTY.
Although COMPANY may on occasion have Phone Sales that meet one or both of
Primary Factors 1 and 2, none of those sales will ever meet three of the five Primary
Factors in any single Illinois location. Thus, the determination of where COMPANY is
“engaged in the business of selling” with respect to its Phone Sales will depend upon
the application of both the primary and the secondary factors. In such case, the
Regulations provide that COMPANY will be “engaged in the business of selling” in the
jurisdiction where its inventory is located (under Primary Factor 4) or where its
headquarters is located (under Primary Factor 5), whichever jurisdiction is the location
where more selling activities occur, considering both the primary and the secondary
selling factors. As shown in the attached Matrix, one of the primary factors (Primary
Factor 5) and three secondary factors occur at COMPANY’s corporate headquarters in
unincorporated COUNTY, whereas only one of the primary factors (Primary Factor 4)
and one secondary factor (passage of title), at the most, occur at the location of the

ST 17-0005-PLR
Page 10
inventory in CITY 3. 5 Thus, COMPANY’s Phone Sales should be treated under the
Regulations as occurring in unincorporated COUNTY, Illinois.
Fax Sales
Facts. Customers have the ability to fax purchase orders directly to a dedicated
COMPANY fax number (“Fax Sales”). In general, fax orders are processed by
COMPANY’s SAP computer system located in CITY 5, Illinois. Any errors are reviewed
manually by teams in CITY 8, STATE 1 and CITY 4, STATE. In the event of an error,
(i.e., if the fax order does not process correctly), a COMPANY employee in CITY 8,
STATE 1 will manually enter the sales order data into COMPANY’s SAP system.
Invoices for Fax Sales are issued from COMPANY’s data center in CITY 5, Illinois. As
is the case with other COMPANY sales, Fax Sales are primarily shipped (FOB Origin) to
Illinois customers from CITY 3 Distribution Facility.
Discussion. Because Fax Sales are the result of a direct order request from the
customer, Primary Factor 1 would not appear to occur in any single Illinois location.
Primary Factor 2 should occur, if anywhere, in CITY 5 Illinois (where the Fax Sales are
processed by COMPANY’s SAP system). As is the case with other COMPANY sales,
primary Factor 3 occurs in CITY 5, Illinois, Primary Factor 4 should generally occur in
CITY 3, and Primary Factor 5 occurs at COMPANY’s headquarters in unincorporated
COUNTY. Because COMPANY does not meet three primary factors for its Fax Sales in
any one Illinois location, the determination of where COMPANY is “engaged in the
business of selling” with respect to its Fax Sales will depend on application of both the
primary and secondary factors. As shown in the attached Matrix, one of the primary
factors (Primary Factor 5) and three of the secondary factors occur at COMPANY’s
corporate headquarters in unincorporated COUNTY, whereas only one of the primary
factors (Primary Factor 4) and one secondary factor (passage of title), at the most,
occur at the location of the inventory in CITY 3. 6 Thus, COMPANY’s Fax Sales should
be treated under the Regulations as occurring in unincorporated COUNTY, Illinois.
Email Sales
Facts. Customers have the ability to order items by emailing purchase orders to a
dedicated COMPANY email address (“Email Sales”). The process for Email Sales is
substantially similar to that which is described above for Fax Sales.
Discussion. Because Email Sales are the result of direct order request from the
customer, Primary Factor 1 would not appear to occur in any single Illinois location.
Primary Factor 2 should occur, if anywhere, in CITY 5, Illinois (where the Email Sales
are processed by COMPANY’s SAP system). As is the case with other COMPANY
sales, primary Factor 3 occurs in CITY 5, Illinois, Primary Factor 4 should generally
occur in CITY 3, and Primary Factor 5 occurs at COMPANY’s headquarters in
unincorporated COUNTY. Because COMPANY does not meet three primary factors for
5

As discussed above, approximately 70% of Illinois sales are shipped from the CITY 3 Distribution Facility. In other cases, no
primary or secondary factors will occur in CITY 3.
6
As discussed above, approximately 70% of Illinois sales are shipped from the CITY 3 Distribution Facility. In other cases, no
primary or secondary factors will occur in CITY 3.

ST 17-0005-PLR
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its Email Sales in any one Illinois location, the determination of where COMPANY is
“engaged in the business of selling” with respect to its Email Sales will depend upon the
application of both the primary and the secondary factors. As shown in the attached
Matrix, one of the primary factors (Primary Factor 5) and three of the secondary factors
occur at COMPANY’s headquarters in unincorporated COUNTY, whereas only one of
the primary factors (Primary Factor 4) and one secondary factor (passage of title), at the
most, occur at the location of the inventory in CITY 3. 7 Thus, COMPANY’s Email Sales
should be treated under the Regulations as occurring in unincorporated COUNTY,
Illinois.
Online Sales
Facts. Customers have the ability to place orders on COMPANY’s general internet
website, www.COMPANY.com (“Online Sales”). The website is available for both new
and returning COMPANY customers. For Online Sales, customers select a product
from COMPANY’s website and place their order via a standard online shopping
cart/checkout process. Payment is generally made on the website at the time the order
is placed, but customers with COMPANY accounts have the ability to place their order
on account. To the extent an order is placed on account, the process for invoicing and
payment following the order is substantially similar to that which is described above
under “Branch Sales.” Approximately 70% of Online Sales to Illinois customers are
shipped from the CITY 3 Distribution Facility, with the remainder coming from
COMPANY distribution facilities located outside of Illinois.
Discussion. Under the Regulations, sales made through a consumer-based retailer
website available without limitation on the world wide web are presumed to take place
outside of the state and thus are subject to use tax unless there is “clear and
convincing” evidence that the retailer’s predominant and most important selling activities
take place in the state. 86 Ill. Admin. Code §§ 220.115(d)(3), 270.115(d)(3) and
693.115(d)(3). An example of “clear and convincing evidence” sufficient to overcome
the use tax presumption includes the fact that the tangible personal property sold on the
retailer’s website is in the inventory in possession of the retailer located within a
jurisdiction in Illinois at the time of the sale, in which case the retailer is engaged in the
business of selling in the jurisdiction where the property is located at the time of sale
with respect to the sale. Id.
In most cases, there should be “clear and convincing evidence” to overcome the use tax
presumption that applies to sales over the internet because, as described above,
approximately 70% of Online Sales to Illinois customers come from inventory in
COMPANY’s possession at the CITY 3 Distribution Facility. Thus, in such cases,
Online Sales should be treated as occurring in CITY 3. In cases where Online Sales
are fulfilled from COMPANY distribution facilities located outside of the Illinois, however,
the use tax presumption set forth in the Regulations for “Sales over the Internet” would
apply.
eProcurement Sales
7

As discussed above, approximately 70% of Illinois sales are shipped from the CITY 3 Distribution Facility. In other cases, no
primary or secondary factors will occur in CITY 3.

ST 17-0005-PLR
Page 12
Facts. The COMPANY eProcurement solution is a seamless private electronic
connection between the customer and COMPANY. The eProcurement solution is set
up to emulate an online retail-like experience to help the customer find products, place
orders and make payment. COMPANY offers the following eProcurement solutions and
services to its customers:
•

Punchout Catalog – The COMPANY online catalog is connected directly to the
customer’s eProcurement system (BRAND 1, BRAND 2, BRAND 3) or other
enterprise resource planning (ERP) system (e.g., BRAND 4, BRAND 5, BRAND
6). Customers have the ability to browse the COMPANY online catalog, place
orders and make payments.

•

Hosted Content – COMPANY’s product catalog is provided as a file to load into a
customer’s ERP system (or the system of a third party that is providing the
customer’s eProcurement solution).

•

Business-to-Business (B2B) Integration Services – allows for integrated
purchase orders, order acknowledgements and invoices using electronic data
interchange (EDI) or extensible markup language (XML) technologies.

Discussion. Sales of tangible personal property over the Internet are generally
presumed to be subject to use tax when the consumer places an order “through a
consumer-based retailer website available with limitation on the world wide web.” 86
Ill. Admin. Code §§ 220.115(d)(3), 270.115(d)(3) and 693.115(d)(3). On the other hand,
sales made through web-based applications accessible only to established members or
customers generally would not be subject to the use tax presumption. General
Information Letter ST 15-0001-GIL (01/07/15). Because eProcurement Sales are the
result of direct order request from established COMPANY customers, the use tax
presumption should not apply. Rather, the eProcurement Sales should be sourced
based on an analysis of the primary and secondary factors.
Primary Factor 1 does not appear to occur in any single Illinois location. Primary Factor
2 should occur, if anywhere, in CITY 5, Illinois (where the eProcurement Sales are
processed by COMPANY’s SAP system). As is the case with other COMPANY sales,
Primary Factor 3 occurs in CITY 5, Illinois, Primary Factor 4 should generally occur in
CITY 3, and Primary Factor 5 occurs at COMPANY’s headquarters in unincorporated
COUNTY.
Because COMPANY does not meet three primary factors for its
eProcurement Sales in any one Illinois location, the determination of where COMPANY
is “engaged in the business of selling” with respect to its eProcurement Sales will
depend upon the application of both the primary and the secondary factors. As shown
in the attached Matrix, one of the primary factors (Primary Factor 5) and three of the
secondary factors occur at COMPANY’s headquarters in unincorporated COUNTY,
whereas only one of the primary factors (Primary Factor 4) and one secondary factor
(passage of title), at the most, occur at the location of the inventory in CITY 3. 8 Thus,

8

As discussed above, approximately 70% of Illinois sales are shipped from the CITY 3 Distribution Facility. In other cases, no
primary or secondary factors will occur in CITY 3.

ST 17-0005-PLR
Page 13
COMPANY’s eProcurement Sales should be treated under the Regulations as occurring
in unincorporated CITY 1, Illinois.
Branch 938 Sales
Facts. In some instances, a customer will contact a COMPANY account manager (or a
COMPANY account manager will suggest to a customer) to purchase a product which
COMPANY does not typically stock. In that case, the account manager submits a
request for the product to the COMPANY sourcing team (the “Sourcing Team”) located
in CITY 9, Illinois. The Sourcing Team works with potential suppliers to identify the
product cost and delivery options that meet the customer’s needs. The Sourcing Team
negotiates the cost or relies on pricing that COMPANY may already have with the
supplier. The Sourcing Team will then prepare a quote for the account manager to
present to the customer. If the customer accepts the quote, it is turned into a purchase
order with “Branch 938” identified as the selling location (a “Branch 938 Sale”). Once
the customer accepts the quote from the Sourcing Team, the COMPANY account
manager (generally located at one of the branches located in Illinois) enters the order
into COMPANY’s SAP systems to process the order. The ordered product is usually
drop shipped directly to the customer location from the third party supplier, but in some
cases the product is shipped to a local COMPANY branch for consolidation and
subsequent shipment to the customer. As is the case with all COMPANY shipments, if
the product is shipped from a COMPANY branch, it is shipped FOB origin.
Discussion. Although the COMPANY account managers solicit Branch 938 Sales, it is
the Sourcing Team (located in CITY 9, Illinois) that prepares the price quote. Thus, it
does not appear the Primary Factor 1 is met at any one COMPANY location or
department. Primary Factor 2 should be treated as occurring, if anywhere, where the
COMPANY account manager receives the purchase order from the customer and
enters it into COMPANY’s SAP system. As is the case with other COMPANY sales,
Primary Factor 3 should generally be met in CITY 5, Illinois. Primary Factor 4, however,
may not be met in any Illinois location to the extent (as is most often the case) that an
item is drop shipped by the third party supplier directly to the customer. 9 Primary Factor
5, of course, is met in unincorporated COUNTY, Illinois.
Because COMPANY does not meet three primary factors for its Branch 938 Sales in
any one Illinois location, the determination of where COMPANY is “engaged in the
business of selling” with respect to its Branch 938 Sales will depend upon the
application of both the primary and the secondary factors. As described above and as
shown in the attached Matrix, one of the primary factors (Primary Factor 5) and one of
the secondary factors occur at COMPANY’s corporate headquarters in unincorporated
COUNTY, whereas neither Primary Factor 4 nor any of the secondary factors occur at
COMPANY’s CITY 3 Distribution Facility. Thus, COMPANY’s Branch 938 Sales should
be treated under the Regulations as occurring in unincorporated COUNTY, Illinois.
COMPANY 2 Sales

9

As discussed above, in a small percentage of Branch 938 Sales, an item may be shipped to a local COMPANY branch and
delivered to the customer thereafter.

ST 17-0005-PLR
Page 14
Facts. COMPANY 2 is a COMPANY affiliate which is an online retailer of industrial
maintenance, repair and operational supplies. COMPANY 2 does not have any sales
people – it is a pure internet sales business. COMPANY 2’s main offices are located in
CITY 10, Illinois where its marketing, finance, human resources, e-commerce teams are
located. COMPANY 2’s back office operations, including its customer operations and
customer service teams, are located in CITY 4, STATE.
For COMPANY 2 Sales, customers select a product from COMPANY 2’s website
(www.COMPANY 2.com) and place their order via a standard online shopping
cart/checkout process. Payment is most often made on the website at the time the
order is placed with a credit card. Customers generally do not make purchases on
account, but COMPANY 2 will sometimes grant payments on terms. To the extent an
invoice is issued, it is issued electronically from COMPANY 2’s data center, which is not
located in CITY 5, Illinois, but rather is hosted by a third party outside of Illinois.
Approximately 70% of COMPANY 2 Sales are shipped from COMPANY’s CITY 3
Distribution Facility, with the remainder coming from COMPANY distribution facilities
located outside of Illinois. Title to inventory located in COMPANY’s distribution facilities
is transferred to COMPANY 2 prior to shipment by COMPANY 2 to the customer.
Discussion. Under the Regulations, sales made through a consumer-based retailer
website available without limitation on the world wide web are presumed to take place
outside of the state and thus are subject to use tax unless there is “clear and
convincing” evidence that the retailer’s predominant and most important selling activities
take place in the state. 86 Ill. Admin. Code §§ 120.115(d)(3), 270.115(d)(3) and
693.115(d)(3). An example of “clear and convincing evidence” sufficient to overcome
the use tax presumption includes the fact that the tangible personal property sold on the
retailer’s website is in the inventory in possession of the retailer located within a
jurisdiction in Illinois at the time of the sale, in which case the retailer is engaged in the
business of selling in the jurisdiction where the property is located at the time of sale
with respect to the sale. Id.
In most cases, there should be “clear and convincing evidence” to overcome the use tax
presumption that applies to sales over the internet because, as described above,
approximately 70% of COMPANY 2 Sales to Illinois customers come from inventory in
COMPANY’s possession at the CITY 3 Distribution Facility. Thus, in such cases,
COMPANY 2 Sales should be treated as occurring in CITY 3. In cases where
COMPANY 2 Sales are fulfilled from COMPANY distribution facilities located outside of
the Illinois, however, the use tax presumption set forth in the Regulations for “Sales over
the Internet” would apply.
COMPANY 3 Sales
Facts. COMPANY 3 is a COMPANY affiliate that is an online retailer of industrial
maintenance, repair and operations supplies which will begin operations in 2017.
COMPANY 3 will not have any sales people - it will be solely an internet sales business.
COMPANY 3’s main offices are located in CITY, Illinois where its marketing, finance,
human resources, and e-commerce teams are located. COMPANY 3’s back office
operations, including its customer operations and customer service teams, are located
in CITY 4, STATE.

ST 17-0005-PLR
Page 15
For COMPANY 3 sales (“COMPANY 3 Sales”), customers will select a product from
COMPANY 3’s website and place their orders via a standard online shopping
cart/checkout process. Payment will be most often made on the website at the time the
order is placed with a credit card. Customers generally will not make purchases on
account, but COMPANY 3 will sometimes grant payment on terms. To the extent an
invoice is issued, it will be issued electronically from COMPANY 3’s data center, which
is not located in CITY 5, Illinois, but rather is hosted by a third party outside of Illinois. It
is expected that approximately 70% of COMPANY 3 Sales will be shipped from
COMPANY’s CITY 3 Distribution Facility, with the remainder coming from COMPANY
distribution facilities located outside of Illinois. Title to inventory located in COMPANY’s
distribution facilities will be transferred to COMPANY 3 prior to shipment by COMPANY
3 to the customer.
Discussion. Under the Regulations, sales made through a consumer-based retailer
website available without limitation on the world wide web are presumed to take place
outside of the state and thus are subject to use tax unless there is “clear and
convincing” evidence that the retailer’s predominant and most important selling activities
take place in the state. 86 Ill. Admin. Code §§ 220.115(d)(3), 270.115(d)(3) and
693.115(d)(3). An example of “clear and convincing evidence” sufficient to overcome
the use tax presumption includes the fact that the tangible personal property sold on the
retailer’s website is in the inventory in possession of the retailer located within a
jurisdiction in Illinois at the time of the sale, in which case the retailer is engaged in the
business of selling in the jurisdiction where the property is located at the time of sale
with respect to the sale. Id.
In most cases, there should be “clear and convincing evidence” to overcome the use tax
presumption that applies to sales over the internet because, as described above,
approximately 70% of COMPANY 3 Sales to Illinois customers come from inventory in
COMPANY 3’s possession at the CITY 3 Distribution facility. In such cases, COMPANY
3 Sales should be treated as occurring in CITY 3. In cases where COMPANY 3 Sales
are fulfilled from COMPANY distribution facilities located outside of the [sic] Illinois, the
use tax presumption set forth in the Regulations for “Sales over the Internet” should
apply.
COMPANY 1 Sales
Facts. COMPANY 1 is a COMPANY affiliate that serves as an indirect procurement
company, procuring goods on behalf of COMPANY affiliates for use in their various
businesses. When a COMPANY affiliate identifies an item that it needs in connection
with its business operations, the COMPANY affiliate issues a purchase order to
COMPANY 1 requesting the item.
Following receipt of such purchase order,
COMPANY 1 identifies potential suppliers, negotiates a contract and ultimately acquires
and resells the item to the COMPANY affiliate (“COMPANY 1 Sales”). The team
members making contract purchase and resale decisions on behalf of COMPANY 1 are
located at the COMPANY corporate headquarters in unincorporated COUNTY.
COMPANY 1 has a bank account from which it makes payment to suppliers.
COMPANY 1 then issues an invoice (from the COMPANY data center in CITY 5,

ST 17-0005-PLR
Page 16
Illinois) to the COMPANY affiliate to which it resold the item. The requested item is
generally shipped directly from the supplier to the requested COMPANY location. 10
Discussion. Because COMPANY 1 does not engage in any marketing or solicitation of
the COMPANY affiliates for which it procures goods, Primary Factor 1 does not appear
to be met in any location. Primary Factor 2 is met in unincorporated COUNTY, where
the COMPANY 1 team members that make contract purchase and resale decisions are
located. Primary Factor 3 occurs in CITY 5, Illinois, as that is where COMPANY 1
issues invoices to its customers (the COMPANY affiliates). As COMPANY 1 Sales are
shipped to COMPANY directly from its suppliers, Primary Factor 4 does not occur at
any COMPANY location. As is the case with all COMPANY sales, Primary Factor 5 is
met at COMPANY’s corporate headquarters in unincorporated COUNTY, Illinois.
Because COMPANY 1 does not meet three primary factors for its COMPANY 1 Sales in
any one Illinois location, the determination of where COMPANY 1 is “engaged in the
business of selling” will depend upon the application of both the primary and secondary
factors. As described above and as shown in the attached Matrix, one of the primary
factors (Primary Factor 5) and three of the secondary factors occur at COMPANY’s
corporate headquarters in unincorporated COUNTY, whereas neither Primary Factor 4
nor any of the secondary factors occur at COMPANY’s CITY 3 Distribution Facility.
Thus, COMPANY 1 Sales should be treated under the Regulations as occurring in
unincorporated COUNTY, Illinois.

Thank you for your consideration of this request. Please do not hesitate to contact me if
you have any questions, or would like any additional information. We respectfully
request a conference in the event you tentatively conclude that an adverse ruling would
be warranted. A power of attorney authorizing the undersigned to represent COMPANY
in this matter is attached as Exhibit B. This ruling request pertains only to periods
beginning after the date hereof.

DEPARTMENT’S RESPONSE:
In response to the Illinois Supreme Court decision in Hartney Fuel Oil Co. v. Hamer, 2013 IL
115130, 376 Ill. Dec. 294 (2013), the Illinois Department of Revenue revised the administrative rules
that govern the sourcing of local retailers’ occupation taxes. See, for example, 86 Ill. Adm. Code
270.115. The rules provide that:
The occupation of selling is comprised of "the composite of many activities extending
from the preparation for, and the obtaining of, orders for goods to the final consummation of
the sale by the passing of title and payment of the purchase price". Ex-Cell-O Corp. v.
McKibbin, 383 Ill. 316, 321 (1943). Thus, establishing where "the taxable business of selling is
being carried on" requires a fact-specific inquiry into the composite of activities that comprise

10

COMPANY 1 transfers title to the requested item to the COMPANY affiliate instantaneously once the item arrives at the requested
COMPANY location.

ST 17-0005-PLR
Page 17
the retailer’s business. Hartney Fuel Oil Co. v. Hamer, 2013 IL 115130, paragraph 32 (citing
Ex-Cell-O Corp. v. McKibbin, 383 Ill. 316, 321-22 (1943)). 86 Ill. Adm. Code 270.115(b)(2).
Based on a review of the activities described in your letter and an analysis of the Department’s
regulations found at 86 Ill. Adm. Code 220.115, 270.115, and 693.115, the Department finds that:
Branch sales, as described in your letter, are over the counter sales in accordance with 86 Ill. Adm.
Code 220.115(c)(3)(A), 270.115(c)(3)(A), and 693.115(c)(3)(A). For branch sales, as described in
your letter, the Companies are engaged in the business of selling at the branch where the order is
placed and therefore these sales should be sourced to the branch where the order is placed.
For phone sales, fax sales, email sales, eprocurement sales, branch 938 sales, and COMPANY
1 sales, as described in your letter, you represent that the Companies do not engage in three or more
primary selling activities in one location. Therefore, under the regulations, we also look at the
Companies’ secondary selling activities to determine whether the Companies are engaged in the
business of selling where the inventory is located or where the headquarters are located with respect
to these sales. See 86 Ill. Adm. Code 220.115(c)(5), 270.115(c)(5), and 693.115(c)(5). Based on a
review of the primary and secondary selling activities described in your letter, and an analysis of the
Department’s regulations, the Department finds that, for phone sales, fax sales, email sales,
eprocurement sales, branch 938 sales, and COMPANY 1 sales, as described in your letter, the
Companies are engaged in the business of selling at the corporate headquarters in unincorporated
COUNTY, Illinois and therefore these sales should be sourced to unincorporated COUNTY, Illinois.
For COMPANY’s online sales, COMPANY 2 sales, and COMPANY 1 sales, as described in your
letter, the provisions of 86 Ill. Adm. Code 220.115(c)(3), 270.115(c)(3), and 693.115(c)(3) regarding
“sales over the Internet” apply. With respect to these sales, if the tangible personal property that is
sold is in the Companies’ inventory in CITY 3, Illinois at the time of its sale, then the sale should be
sourced to CITY 3, Illinois. With respect to these sales, if the tangible personal property that is sold is
not in the Companies’ inventory in Illinois at the time of the sale, it is presumed that the Companies’
predominant selling activities take place outside Illinois and, with respect to these sales from the
Companies’ out-of-state locations to Illinois customers, the Companies should collect Use Tax at the
rate of 6.25%. See 86 Ill. Adm. Code 150.801.
Sections 6z-18 and 6z-20 of the State Finance Act (30 ILCS 105/6z-18 and 6z-20) require
distribution of the 1.25% portion of the State 6.25% Retailers’ Occupation and Service Occupation
Taxes to units of local government based on where the sale occurred. For purposes of making these
distributions under Sections 6z-18 and 6z-20 of the State Finance Act to units of local government,
each sale shall be sourced to the same location as the sale is sourced under this Private Letter
Ruling with respect to locally imposed Retailers’ Occupation and Service Occupation Taxes as
discussed above.
The factual representations upon which this ruling is based are subject to review by the
Department during the course of any audit, investigation, or hearing and this ruling shall bind the
Department only if the factual representations recited in this ruling are correct and complete. This
Private Letter Ruling is revoked and will cease to bind the Department 10 years after the date of this
letter under the provisions of 2 Ill. Adm. Code 1200.110(e) or earlier if there is a pertinent change in
statutory law, case law, rules or in the factual representations recited in this ruling.

ST 17-0005-PLR
Page 18
I hope this information is helpful. If you have further questions concerning this Private Letter
Ruling, you may contact me at (217) 782-2844. If you have further questions related to the Illinois
sales tax laws, 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
Chairman, Private Letter Ruling Committee

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