What does Illinois General Information Letter ST 18-0005-GIL conclude about Nexus?

Plain-English summary

A group conducting an annual multi-state tax survey asked the Illinois Department of Revenue to fill out a questionnaire about the state's nexus rules. The Department refused to answer in that format: it explained that nexus determinations are "very fact specific" and cannot be addressed in a General Information Letter. Instead of completing the survey, the Department used the letter to summarize the basic framework Illinois uses to decide when a seller has nexus.

The letter walks through three categories of sellers. An "Illinois Retailer" makes sales of property in Illinois and owes Retailers' Occupation Tax on its gross receipts, plus must collect the corresponding Use Tax from customers. A "retailer maintaining a place of business in Illinois" (defined at 86 Ill. Adm. Code 150.201(i)) has some other form of presence in the state - including an agent or representative, or repetitive delivery and installation activity - and must register to collect and remit Use Tax even though it owes no Retailers' Occupation Tax itself. A retailer with no such connection to Illinois owes neither tax, but its Illinois customers still owe Use Tax on their purchases and must self-assess it. The Department also traces Illinois's "click-through nexus" history: the original 2011 provision (35 ILCS 105/2(1.1)) was struck down by the Illinois Supreme Court in Performance Marketing Ass'n, Inc. v. Hamer, and was replaced effective January 1, 2015 with a revised commission/referral-code provision that applies once referred sales exceed $10,000 over the preceding four quarters, subject to rebuttal.

Because the survey also touched on the "sharing economy," the Department addressed two unrelated taxes. Under the Hotel Operators' Occupation Tax Act, when short-term lodging is booked through a third-party platform, the tax obligation falls on the owner/host of the accommodations, not the platform. Under the Automobile Renting Occupation and Use Tax, a company that rents out automobiles for a year or less (the letter cites Avis and Hertz as examples) is responsible for the 5% tax on its own gross receipts. Finally, the letter reiterates a basic distinction: Illinois taxes only sales of tangible personal property, so pure services are outside Retailers' Occupation and Use Tax, though property transferred incident to a service can trigger Service Occupation Tax or Use Tax instead.

Because this is a GIL rather than a Private Letter Ruling, it is not a statement of Department policy and is not binding on the Department for anyone, including the original requester.

What this means for you

Remote and out-of-state sellers

If you sell into Illinois without a physical location there, whether you owe Retailers' Occupation Tax and must collect Use Tax turns on whether you are an "Illinois Retailer," a "retailer maintaining a place of business in Illinois" (which can include having an agent, a delivery/installation presence, or a qualifying referral/commission contract with an Illinois-based affiliate), or neither. If none of those apply, you owe no state sales tax yourself, but your Illinois customers still owe Use Tax and must self-assess it - Illinois does not require you to notify them of that duty.

Businesses using affiliate or referral marketing

If you pay Illinois-based affiliates a commission or give them promotional codes to track referred sales, and cumulative referred sales into Illinois exceed $10,000 over the trailing four quarters, you are presumed to be "maintaining a place of business in Illinois" under the post-2015 click-through nexus rule and must register to collect Use Tax - unless you can rebut the presumption by showing the in-state activity didn't meet constitutional nexus standards.

Short-term rental hosts and platforms, and vehicle rental companies

If you host on a short-term rental platform, the Hotel Operators' Occupation Tax obligation is on you as the owner/host, not on the platform, and it's measured by your gross rental receipts. If you run a short-term car rental business, the Automobile Renting Occupation and Use Tax (5% of gross receipts) is your obligation as the vehicle owner, separately stated on the rental price.

Common questions

Q: Did the Department answer the nexus survey the requester sent?
A: No. The Department expressly stated it could not respond to the nexus survey "in the format provided" because nexus determinations are too fact-specific for a GIL, and instead gave general background guidelines.

Q: What is the difference between an "Illinois Retailer" and a "retailer maintaining a place of business in Illinois"?
A: An Illinois Retailer sells property in Illinois and owes Retailers' Occupation Tax on its own receipts. A retailer maintaining a place of business in Illinois (under 86 Ill. Adm. Code 150.201(i)) has some other connection to the state, such as an agent, representative, or repetitive delivery/installation, and must collect Use Tax from its Illinois customers, but doesn't itself owe Retailers' Occupation Tax.

Q: Is Illinois's click-through nexus law still the 2011 version?
A: No. The original 2011 click-through provision was struck down by the Illinois Supreme Court in Performance Marketing Ass'n, Inc. v. Hamer. A revised version took effect January 1, 2015, applying once referred sales through a commission/promo-code arrangement exceed $10,000 in the preceding four quarters, subject to a rebuttable presumption.

Q: Who owes tax on a room booked through a short-term rental app, or a car rented through a rental company?
A: For hotel-type rentals booked through a third-party platform, the Hotel Operators' Occupation Tax obligation is on the owner/host, not the platform. For short-term automobile rentals, the Automobile Renting Occupation and Use Tax obligation is on the company/owner renting out the vehicle.

Citations and references

Statutes and regulations:

• 35 ILCS 105/2(1.1), (1.2) (click-through nexus and affiliate-contract nexus)
• 35 ILCS 145/2(1), (3), (6); 145/3(e) (Hotel Operators' Occupation Tax Act)
• 35 ILCS 155/1 et seq., 155/2, 155/4 (Automobile Renting Occupation and Use Tax Act)
• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax)
• 86 Ill. Adm. Code 140.101-140.109 (Service Occupation Tax)
• 86 Ill. Adm. Code 150.101, 150.201(i), 150.801 (Use Tax and place-of-business definition)
• 86 Ill. Adm. Code 180.101 (Automobile Renting Occupation and Use Tax regulation)
• 2 Ill. Adm. Code 1200.110, 1200.120 (PLR and GIL procedures)

Cases cited in the ruling:

• Quill Corp. v. North Dakota, 112 S. Ct. 1904 (1992) (due process / physical presence nexus test)
• Hartney Fuel Oil Co. v. Hamer, 2013 IL 115130 (Illinois Supreme Court, sourcing of retail sales)
• Brown's Furniture, Inc. v. Zehnder, 171 Ill. 2d 410 (1996) (physical presence via delivery/installation)
• Performance Mktg. Ass'n, Inc. v. Hamer, 998 N.E.2d 54 (2013) (striking down 2011 click-through nexus provision)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2018.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2018/st-18-0005-gil.pdf

Original ruling text

ST 18-0005-GIL 02/09/2018

NEXUS

This letter responds to a questionnaire regarding nexus. See Quill Corp. v. North Dakota, 112
S. Ct. 1904 (1992). (This is a GIL.)

February 9, 2018

Dear Xxxxx:
This letter is in response to your email dated November, 16, 2017, 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.
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 are writing to ask you to complete the questionnaires for the 2018 SURVEY on
behalf of your state. Attached is an Excel spreadsheet containing the questions for
2018. One column of the spreadsheet has all of your state’s responses for 2017. An
adjacent column is there for you to record your responses for 2018. To avoid any
errors, please fill out the 2018 column even if the answer has not changed from 2017.
Additionally, we ask that you note where you have intentionally left questions blank. We
are required to follow-up regarding any unanswered questions; and making note of
intentionally unanswered questions allows us to process and analyze the data faster.
This can be accomplished by typing “blank” or “no response” in the answer column or
simply noting in your email that questions were left blank intentionally.
The survey covers many of the gray areas of state tax law. Your responses will provide
useful guidance for taxpayers in complying with your state’s laws.
The questionnaires should be completed based on state law as of January 1,
2018.

ST 18-0005-GIL
Page 2

If you would like to add or change information you have previously recorded in the
comments section, please make those modifications in red font.
Some new questions have been added to this year’s questionnaires.
questions and subsections are denoted in blue font.

The new

Please return your questionnaires to us. Your completed Excel spreadsheets should
be e-mailed to me.
Your responses, along with the responses we receive from other states, will be
published by COMPANY, a leading publisher of international, federal, and state tax
analysis. More information about COMPANY can be found at www.XXX.com.
If you have any questions about this or if there is any way I can help you to complete
this year’s questionnaires, please contact me.
DEPARTMENT’S RESPONSE:
We are unable to respond to your nexus survey in the format provided. Determinations
regarding nexus are very fact specific and cannot be addressed in the context of a General
Information Letter. 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.
NEXUS
An “Illinois Retailer” is one who makes sales of tangible personal property in Illinois. 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. Our regulations were amended in
response to the Illinois Supreme Court’s decision in Hartney Fuel Oil Co. v. Hamer, 2013 IL 115130.
The regulations specify the selling activities that trigger Retailers’ Occupation Tax liability in Illinois.
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

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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.
Beginning July 1, 2011, the definition of a “retailer maintaining a place of business” was
amended to include additional types of retailers. A retailer maintaining a place of business also
includes a retailer having a contract with a person located in this State under which:
A. The retailer sells the same or substantially similar line of products as the person located in
this State and does so using an identical or substantially similar name, trade name, or trademark as
the person located in this State; and
B. The retailer provides a commission or other consideration to the person located in this State
based upon the sale of tangible personal property by the retailer. See 35 ILCS 105/2(1.2).
These provisions only apply if the cumulative gross receipts from sales of tangible personal
property by the retailer to customers in this State under all such contracts exceed $10,000 during the
preceding 4 quarterly periods. Please note that in Performance Mktg. Ass'n, Inc. v. Hamer, 998
N.E.2d 54 (2013) the Illinois Supreme Court struck down 35 ILCS 105/2(1.1) and 35 ILCS 110/2(1.1),
a “click-thru nexus provision” enacted in 2011. However, new provisions became effective January 1,
2015. The following provisions address the court’s concerns in Performance Mktg. Ass'n, Inc. v.
Hamer, 998 N.E. 2d 54 (2013).
Beginning January 1, 2015, a retailer maintaining a place of business also includes a retailer
having a contract with a person located in this State under which the person, for a commission or
other consideration based upon the sale of tangible personal property by the retailer, directly or
indirectly refers potential customers to the retailer by providing to the potential customers a
promotional code or other mechanism that allows the retailer to track purchases referred by such
persons.
Examples of mechanisms that allow the retailer to track purchases referred by such persons
include but are not limited to the use of a link on the person's Internet website, promotional codes
distributed through the person's hand-delivered or mailed material, and promotional codes distributed
by the person through radio or other broadcast media. These provisions apply only if the cumulative
gross receipts from sales of tangible personal property by the retailer to customers who are referred
to the retailer by all persons in Illinois under such contracts exceed $10,000 during the preceding 4
quarterly periods ending on the last day of March, June, September, and December. A retailer
meeting these requirements shall be presumed to be maintaining a place of business in Illinois but
may rebut this presumption by submitting proof that the referrals or other activities pursued within this

ST 18-0005-GIL
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State by such persons were not sufficient to meet the nexus standards of the United States
Constitution during the preceding 4 quarterly periods. See 35 ILCS 105/2(1.1).
Illinois does not require out-of-state retailers who do not maintain a place of business in this
State to report sales of tangible personal property made to Illinois residents. Illinois also does not
require out-of-state retailers to notify in-State customers of their obligation to pay use tax.
THE SHARING ECONOMY
The Hotel Operators' Occupation Tax Act (“HOOT”) imposes a tax upon persons engaged in
the business of renting, leasing or letting rooms in a hotel, as defined in the Act. HOOT defines
“hotel” to include any building or buildings in which the public may, for consideration, obtain living
quarters, sleeping or housekeeping accommodations. See 35 ILCS 145/2(1). HOOT defines “rent”
as “the consideration received for occupancy, valued in money, whether received in money or
otherwise, including all receipts, cash, credits and property or services of any kind or nature.” See 35
ILCS 145/2(6). The definition of “rent” must be read in conjunction with the term “occupancy.” HOOT
defines “occupancy” as “the use or possession, or the right to the use or possession, of any room or
rooms in a hotel for any purpose, or the right to the use or possession of the furnishings or to the
services and accommodations accompanying the use and possession of the room or rooms.” See 35
ILCS 145/2(3). Persons subject to the tax imposed by this Act may reimburse themselves for their tax
liability under this Act by separately stating such tax as an additional charge. See 35 ILCS 145/3(e).
Therefore, in the context of the provision of short-term accommodations that are rented
through the use of a third-party platform, the third-party platform is not generally liable for HOOT.
Rather, the tax obligation is on the owner/host of the accommodations which are being rented. The
tax is imposed on the gross rental receipts received by the owner/host.
The Automobile Renting Occupation and Use Tax (“AROT”) imposes a tax on persons
engaged in the business of renting automobiles in Illinois under rental terms of one year or less. See
35 ILCS 155/1 et seq. Also see 86 Ill. Adm. Code 180.101. This tax is imposed at the rate of 5% of
the gross receipts from such business. "Gross receipts" means all consideration received by a rentor
for the rental of automobiles under lease terms of one year or less. “Renting” means any transfer of
the possession or the right to possession of an automobile to a user for valuable consideration. 35
ILCS 155/2. Rentors shall collect the tax from rentees by adding the tax to the rental price of the
automobile, when rented for use, in the manner prescribed by the Department. The tax imposed by
this Section shall, when collected, be stated as a distinct item separate and apart from the rental price
of the automobile. See 35 ILCS 155/4.
Companies making short term rentals of automobiles, such as Avis and Hertz, are responsible
for paying the tax. The tax obligation is on the owner of the automobile which is being rented. The
tax is imposed on the gross receipts received by the owner of the automobile.
SERVICE PROVIDERS
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

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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.
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 serviceman depending upon his or her activities. For your general information,
see 86 Ill. Adm. Code 140.101 through 140.109 regarding sales of service and Service Occupation
Tax.
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

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