What does Illinois General Information Letter ST 20-0031-GIL conclude about Nexus?

Plain-English summary

A sign contractor located outside Illinois wrote to the Department asking whether it had to start collecting Illinois local (not just state) sales tax on July 1, 2020. The company manufactures signs out of state and ships them to Illinois, mostly for installation onto buildings or in concrete as part of real estate construction contracts, but occasionally it ships signs to Illinois that are not installed. The taxpayer's real-property (installation) sales were well above $100,000 a year, but its uninstalled tangible personal property sales alone did not reach $100,000 in any 12-month period. The Department could not give a specific answer on the facts provided, but it used the letter to walk through how Illinois's economic nexus ("Wayfair nexus") rules work and, critically, how construction contractor sales interact with them.

The Department explained that since the U.S. Supreme Court's decision in South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018), remote retailers with no physical presence in Illinois can still be required to register and collect Illinois Use Tax if, over a rolling 12-month period measured quarterly, their cumulative gross receipts from Illinois sales reach $100,000 or they complete 200 or more separate transactions with Illinois purchasers. Illinois adopted this standard, "virtually identical" to South Dakota's, through Public Act 100-587, effective October 1, 2018. When calculating whether a remote retailer crosses either threshold, certain sales are excluded: sales for resale, sales of items required to be titled or registered with a state agency (vehicles, watercraft, aircraft, trailers), occasional sales, and sales already subject to Retailers' Occupation Tax. All other sales count, even exempt ones, except as otherwise excluded.

The key point for this taxpayer is that when a company acts as a construction contractor -- installing tangible personal property that becomes part of real estate -- it is not "making a sale" for nexus-threshold purposes at all, because the contractor is treated as the end user (consumer) of the materials it installs, not a retailer selling them. Only the taxpayer's sales of uninstalled signs count toward the $100,000/200-transaction Wayfair nexus threshold. The Department also flagged a separate, later development: Public Acts 101-0031 and 101-0604 (the "Leveling the Playing Field for Illinois Retail Act") require remote retailers meeting the same $100,000/200-transaction thresholds to collect state and local Retailers' Occupation Tax, but that requirement took effect January 1, 2021 -- not July 1, 2020, the date the taxpayer asked about.

Finally, the Department reiterated the general construction-contractor framework: a contractor that sells and installs property permanently affixed to real estate is treated as the end user, owes Use Tax on its own cost of the materials, and has no legal authority to collect tax from its customer (though it may pass the cost along in its price or as a contractually stated "reimbursement," just not labeled "sales tax"). Subcontractors performing installation likewise incur their own Use Tax liability on the materials they install; the transaction between a general contractor and a subcontractor performing installation is not itself taxable, unless the general contractor purchases the materials and simply subcontracts out the installation, in which case the general contractor incurs the Use Tax.

What this means for you

Out-of-state sellers with mixed retail and installation sales

If you sell tangible personal property into Illinois both as ordinary retail sales and as part of installation/construction contracts, only the uninstalled retail sales count toward the $100,000/200-transaction Wayfair nexus threshold for Use Tax collection purposes. Your construction-contract (installation) revenue does not count toward that threshold, because as an installer you're treated as the end user of the materials, not a retailer of them. Track the two revenue streams separately so you can correctly determine whether you've crossed the threshold.

Remote retailers and marketplace facilitators generally

Since October 1, 2018, any remote retailer without an Illinois physical presence must register and collect Illinois Use Tax once it hits $100,000 in cumulative Illinois gross receipts or 200+ separate Illinois transactions in a 12-month period, tested quarterly. Watch the excluded-sale categories (resales, titled/registered vehicles and similar items, occasional sales, and sales already taxed under the Retailers' Occupation Tax) when doing this math. Separately, since January 1, 2021, remote retailers meeting the same thresholds must also collect state and local Retailers' Occupation Tax under the Leveling the Playing Field for Illinois Retail Act -- a distinct, later obligation from the 2018 Use Tax registration requirement.

Construction contractors and subcontractors

If you install tangible personal property that becomes a permanent part of real estate, you are the end user of that property for Illinois tax purposes. You owe Use Tax on your cost of the materials (with credit available for tax properly paid to another state), you cannot legally bill your customer "sales tax," though you may raise your price or bill a separate tax "reimbursement" line item. If you subcontract out installation after buying the materials yourself, you (the general contractor) owe the Use Tax; if the subcontractor buys and installs the materials, the subcontractor owes it, and the general-to-subcontractor transaction itself isn't taxed.

Common questions

Q: Does installing a sign into concrete or attaching it to a building count toward the $100,000 economic nexus threshold?
A: No. The Department explains that when a company acts as a construction contractor incorporating tangible personal property into real estate, it is not "making a sale" for nexus purposes -- it's the end user of the property. Only sales of signs that are shipped but not installed count toward the threshold.

Q: What are the two ways a remote retailer can have nexus with Illinois?
A: Either (1) physical presence in Illinois (more than "the slightest," per Brown's Furniture v. Wagner, 171 Ill.2d 410 (1996)), or (2) "Wayfair nexus" -- no physical presence, but $100,000 or more in cumulative Illinois gross receipts, or 200 or more separate Illinois transactions, in a trailing 12-month period, tested quarterly, per Public Act 100-587 (effective October 1, 2018).

Q: If I only make nontaxable/exempt sales into Illinois, do I still have to worry about Wayfair nexus?
A: If a remote retailer makes exclusively nontaxable sales, it is not subject to the Wayfair nexus requirements at all (86 Ill. Adm. Code 150.803(c)(2)). But if it makes a mix of taxable and nontaxable sales, all of those sales (other than sales for resale and the other specifically excluded categories) count toward the threshold, including the nontaxable ones.

Q: Is the local-tax collection requirement for remote retailers the same as the 2018 Wayfair nexus rule?
A: No, they're separate. The 2018 rule (Public Act 100-587) only required qualifying remote retailers to collect state Use Tax. The requirement to also collect state and local Retailers' Occupation Tax came later, from the Leveling the Playing Field for Illinois Retail Act (Public Acts 101-0031 and 101-0604), and did not take effect until January 1, 2021 -- which is why the Department told this taxpayer that July 1, 2020 was not the relevant date.

Q: Can a construction contractor bill its customers "sales tax" on installed materials?
A: No. Because the contractor, not the customer, is the party that owes Use Tax on materials it installs, the contractor has no legal authority to collect tax from the customer. It may build the cost into its price, or separately state a tax "reimbursement" on the bill, but that line item cannot be labeled "sales tax."

Citations and references

• South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018)
• 86 Ill. Adm. Code 150.803 (including 150.803(c)(2) and 150.803(c)(3)(E))
• 86 Ill. Adm. Code 130.101
• 86 Ill. Adm. Code 150.101
• 86 Ill. Adm. Code 150.130
• Hartney Fuel Oil Co. v. Hamer, 2013 IL 115130
• 86 Ill. Adm. Code 270.115
• 35 ILCS 105/2
• 86 Ill. Adm. Code 150.201
• 86 Ill. Adm. Code 150.801
• 86 Ill. Adm. Code 150.802
• Scripto v. Carson, 362 U.S. 207 (1960)
• National Bellas Hess v. Department of Revenue of the State of Illinois, 386 U.S. 753 (1967)
• Quill Corporation v. North Dakota, 504 U.S. 298 (1992)
• Brown's Furniture v. Wagner, 171 Ill.2d 410 (1996)
• Illinois Public Act 100-587
• Public Acts 101-0031 and 101-0604 (Leveling the Playing Field for Illinois Retail Act)
• 35 ILCS 120/2(b)
• 35 ILCS 120/1
• 86 Ill. Adm. Code 131
• 86 Ill. Adm. Code 130.1940
• 86 Ill. Adm. Code 130.2075
• 86 Ill. Adm. Code 150.310

Subject

Nexus

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2020.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2020/st20-0031-gil.pdf

Original ruling text

ST 20-0031-GIL 11/09/2020 NEXUS
This letter discusses nexus. See South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018); 86 Ill.
Adm. Code 150.803. (This is a GIL.)

November 9, 2020

Dear Xxxxx:
This letter is in response to your letter dated September 23, 2019, 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:
I am writing to clarify what sales are used to determine if we reach the threshold of
$100,000 annual sales in a twelve month period.
We are a sign contractor in STATE. We have been registered and remitting sales &
use tax for many years in Illinois. Most of our sales in Illinois are pylon signs
mounted in concrete or signs attached to a building to identify the business. We
manufacture in CITY and ship to local subcontractors for installation. My
understanding is that these are real property contracts. All of our material is
purchased in STATE with a resale certificate. We accrue 6.25% use tax on material
cost for signs installed in Illinois and remit directly to the State.
Occasionally we ship signs to Illinois that are not installed. On these sales we
charge 6.25% sales tax.
The above mentioned real property income would be significantly above $100,000.
However, the tangible personal property sales (signs not installed) would typically
not reach $100,000 in a 12 month period.
Under these circumstances, are we required to start collecting local tax on July 1, 2020?

ST 20-0031-GIL
Page 2
I have previously exchanged emails with the Taxpayer Assistance Division and
they recommended that I write your office for clarification.
Thank you for your help with this matter.
DEPARTMENT’S RESPONSE:
It is not possible to provide a specific response based on the limited information in your
letter. However, we hope that the following information is helpful.
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
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. If the purchases
occur in Illinois, the purchasers must pay the Use Tax to the retailer at the time of purchase. The
retailers are then allowed to reduce the amount of Use Tax they must remit by the amount of
Retailers' Occupation Tax liability which they are required to and do pay to the Department with
respect to the same sales. See 86 Ill. Adm. Code 150.130.
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.
See, e.g., 86 Ill. Adm. Code 270.115.
Another type of retailer is a retailer maintaining a place of business in Illinois. The definition of
a “retailer maintaining a place of business in Illinois” is found at 35 ILCS 105/2 and described further,
in part, in 86 Ill. Adm. Code 150.201. 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.
An out-of-State retailer (a “remote retailer”) making sales to Illinois purchasers from locations
outside Illinois is required to register with the Department and collect and remit Use Tax on those
sales if it falls within the definition of a “retailer maintaining a place of business in this State” in
Section 2 of the Use Tax Act, 35 ILCS 105/2. The Department is authorized to require these retailers
to act as tax collectors because they have established sufficient contacts, or nexus, with Illinois.
There are two groups of remote retailers that must collect Use Tax on sales to Illinois purchasers:
1)

Remote retailers with a physical presence in Illinois. Prior to October 1, 2018,
remote retailers had to have a physical presence in Illinois before they could be
required to collect Use Tax. The types of activities constituting a physical
presence, as limited by the series of court cases described below, are found in
Section 2 of the Use Tax Act’s definition of a “retailer maintaining a place of
business” in Illinois. See, 35 ILCS 105/2. The physical presence requirement

ST 20-0031-GIL
Page 3
was established in a series of United States Supreme Court decisions. See, for
example, Scripto v. Carson, 362 U.S. 207 (1960); National Bellas Hess v.
Department of Revenue of the State of Illinois, 386 U.S. 753 (1967); Quill
Corporation v. North Dakota, 504 U.S. 298 (1992). In 1996, the Illinois Supreme
Court ruled that remote retailers need only “more than the slightest” physical
presence to be required to collect Use Tax. See Brown’s Furniture v. Wagner,
171 Ill.2d 410 (1996). Any remote retailer that has a physical presence in Illinois
will to be required to act as a Use Tax collector. Regulations describing these
types of retailers are found at 86 Ill. Adm. Code 150.801 and 150.802.
A retailer is required to collect Use Tax if it has 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 a 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. The provisions of this paragraph 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 this state under such contracts
exceed $10,000 during the preceding four quarterly calendar ending on the last
day of March, June, September, and December;
A retailer required to collect Use Tax if it has a contract with a person
located in this State under which:
A)

B)

the retailer sells the same or substantially similar line of products as the
person located in this state and do so using an identical or substantially
similar name, trade name, or trademark as the person located in this state;
and
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.

The provisions of this paragraph apply only if the cumulative gross receipts from
sales of tangible personal property by you to customers in this state under all such
contracts exceed $10,000 during the preceding four quarterly periods ending on
the last day of March, June, September, and December.
2)

Remote retailers without a physical presence in Illinois. In South Dakota v.
Wayfair, Inc., 585 U.S. ___ (2018), 138 S. Ct. 2080, the U.S. Supreme Court
upheld a South Dakota statute that imposed tax collection obligations on remote
retailers that met specific selling thresholds but had no physical presence in the
state. This decision abrogated the longstanding physical presence requirement
of Quill, deeming it “unsound and incorrect.” Illinois Public Act 100-587 enacted
nexus standards, effective October 1, 2018, that are virtually identical to those

ST 20-0031-GIL
Page 4
upheld in Wayfair.
nexus.”

This non-physical presence nexus we will call “Wayfair

Public Act 100-587 implemented the U.S. Supreme Court Wayfair nexus standards. It requires
remote retailers with no physical presence in Illinois to register and collect and remit Use Tax, as
provided below:
1)

2)

Beginning October 1, 2018, a retailer making sales of tangible personal property
to purchasers in Illinois from outside of Illinois must register with the Department
and collect and remit Use Tax if:
A)

The cumulative gross receipts from sales of tangible personal property to
purchasers in Illinois are $100,000 or more; or

B)

The retailer enters into 200 or more separate transactions for the sale of
tangible personal property to purchasers in Illinois.

A retailer shall determine on a quarterly basis, ending on the last day of March,
June, September, and December, whether he or she meets either of the criteria
of paragraph (1) for the preceding 12-month period. If the retailer meets either of
the criteria of paragraph (1) for a 12-month period, he or she is considered a
retailer maintaining a place of business in Illinois and is required to collect and
remit the Use Tax and file returns for one year.
A)

At the end of that one-year period, the retailer shall determine whether he
or she met either of the criteria of paragraph (1) during the preceding 12month period. If the retailer met either of the criteria in paragraph (1) for
the preceding 12-month period, he or she is considered a retailer
maintaining a place of business in Illinois and is required to collect and
remit Use Tax and file returns for the subsequent year.

B)

If at the end of a one-year period a retailer that was required to collect and
remit the Use Tax determines that he or she did not meet either of the
criteria in paragraph (1) during the preceding 12-month period, the retailer
shall subsequently determine on a quarterly basis, ending on the last day
of March, June, September, and December, whether he or she meets
either of the criteria of paragraph (1) for the preceding 12-month period.

Remote retailers must apply the following rules governing whether a transaction should be
included or excluded when determining if they meet either of the thresholds in subsection (b)(1):
1)

Sales for resale are excluded.

2)

Sales of tangible personal property that is required to be registered with an agency of
this State, including motor vehicles, watercraft, aircraft, and trailers, that are made from
locations outside Illinois to Illinois purchasers are excluded. Taxes on these items will
continue to be paid, as required by Section 10 of the Use Tax Act, by purchasers as a
condition of titling or registering these items.

ST 20-0031-GIL
Page 5

3)

Occasional sales must be excluded. Occasional sales are not considered sales at
retail.

4)

Sales made by a remote retailer that are subject to Retailers' Occupation Tax are
excluded.

5)

All sales of tangible personal property, other than those excluded by items 1 – 4, even if
they are exempt from tax, are included for purposes of calculating the thresholds. See
86 Ill. Adm. Code 150.803(c)(3)(E).

When person is acting as a construction contractor, it is not making a “sale” that counts toward
the threshold because it is the user of the tangible personal property. When it makes a sale of a sign
without installation, it is making a sale that counts towards the threshold.
In addition, if a remote retailer makes exclusively nontaxable sales, he or she is not subject to
the Wayfair nexus requirements. See 86 Ill. Adm. Code 150.803(c)(2). If, however, the remote
retailer makes both taxable and nontaxable sales into Illinois, all sales are included, including the
nontaxable sales (other than sales for resale and other sales specified at 86 Ill. Adm. Code
150.803(c)(3)(E)). See 86 Ill. Adm. Code 150.803(c)(3)(E)(v).
Public Acts 101-0031 and 101-0604 enacted the Leveling the Playing Field for Illinois Retail
Act. The Act implements a series of structural changes to the Illinois sales tax law that are intended
to “level the playing field” between Illinois-based retailers and remote retailers by imposing State and
local retailers’ occupation taxes on Illinois retailers, remote retailers and marketplace facilitators alike.
Public Acts 101-0031 and 101-0604 require “remote retailers” to collect and remit State and local
retailers’ occupation taxes. Beginning January 1, 2021, you must remit Retailers’ Occupation Tax if
you are a remote retailer and either of the following thresholds was met during the preceding four
quarterly periods ending on the last day of March, June, September, and December:
1)

The cumulative gross receipts from sales of tangible personal property by you to
purchasers in Illinois was $100,000 or more; or

2)

you entered into 200 or more separate transactions for the sale of tangible personal
property to purchasers in Illinois. [35 ILCS 120/2(b)]

You are a “remote retailer” if you do not maintain within this State, directly or by a subsidiary, an
office, distribution house, sales house, warehouse or other place of business, or any agent or other
representative operating within this State under your authority or a subsidiary of yours, irrespective of
whether such place of business or agent is located here permanently or temporarily or whether you or
your subsidiary is licensed to do business in this State. 35 ILCS 120/1.
The Department has filed proposed rules implementing the new requirements for remote
retailers and marketplace facilitators. The proposed rules can be found on the Department’s website.
86 Ill. Adm. Code 131. The new requirements for remote retailers and marketplace facilitators are
effective January 1, 2021, not July 1, 2020.
Construction Contractors

ST 20-0031-GIL
Page 6

A contract that provides for both the sale and installation of tangible personal property that is
permanently affixed or incorporated into a structure is considered a construction contract. The tax
liabilities regarding construction contractors in Illinois may be found at 86 Ill. Adm. Code 130.1940
and 130.2075 on the Department’s website. The term construction contractor includes general
contractors, subcontractors, and specialized contractors such as landscape contractors. In Illinois,
construction contractors are deemed end users of tangible personal property purchased for
incorporation into real property. As end users of such tangible personal property, these contractors
incur Use Tax liability for such purchases based upon their cost price of the tangible personal
property. See 86 Ill. Adm. Code 130.1940 and 86 Ill. Adm. Code 130.2075.
Therefore, any tangible personal property that a construction contractor purchases that will be
permanently affixed to or incorporated into real property in this State will be subject to Use Tax. If
such contractors did not pay the Use Tax liability to their suppliers, those contractors must register
and self-assess their Use Tax liability and pay it directly to the Department. If the contractors have
already paid a tax in another state regarding the purchase or use of such property, they will be
entitled to a credit against their Illinois Use Tax liability to the extent that they have paid tax that was
properly due to another state. See 86 Ill. Adm. Code 150.310.
It is important to note that since construction contractors are the end users of the materials that
they permanently affix to real estate, their customers incur no Use Tax liability and the construction
contractors have no legal authority to collect the Use Tax from their customers. However, many
construction contractors pass on the amount of their Use Tax liabilities to customers in the form of
higher prices or by including provisions in their contracts that require customers to “reimburse” the
construction contractor for his or her tax liability. Please note that this reimbursement cannot be
billed to a customer as “sales tax,” but can be listed on a bill as a reimbursement of tax. The choice of
whether a construction contractor requires a tax reimbursement from the customer or merely raises
his or her price is a business decision on the construction contractor’s part.
Section 130.1940(c) addresses situations where tangible personal property is permanently
affixed or incorporated into a structure incident to a construction contract. As previously noted, a
construction contractor does not incur Retailers' Occupation Tax liability as to receipts from labor
furnished and tangible personal property (materials and fixtures) incorporated into a structure as an
integral part thereof for an owner when furnished and installed as an incident of a construction
contract. A construction contract that provides for both the sale and installation of tangible personal
property that is permanently affixed or incorporated into a structure may separately state the cost of
installation and the cost of the tangible personal property and remain a construction contract for sales
tax purposes. The fact that the installation costs and the tangible personal property costs are
separately stated in the contract or on the billing does not change the tax consequences of the
transaction.
If subcontractors are utilized and are acting as construction contractors, the transaction
between the general contractors and the subcontractors is not a taxable transaction. The
subcontractors incur Use Tax liability on any tangible personal property that they purchase for
incorporation into real estate. If, however, general contractors make purchases and then contract to
have subcontractors do the installation, the general contractors incur Use Tax liability because they
are making the purchases of such tangible personal property.

ST 20-0031-GIL
Page 7
I hope this information is helpful. If you require additional information, please visit our website
at www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.

Very truly yours,

Debra M. Boggess
Associate Counsel
DMB:rkn