Does an out-of-state vehicle seller create Illinois nexus just because it hires a third-party company to calibrate equipment at customers' locations in Illinois after delivery?

Plain-English summary

A company (referred to here as COMPANY) that is a licensed dealer selling certain vehicles (PRODUCT1, PRODUCT2, and PRODUCT3) to customers nationwide -- which could include Illinois customers -- wrote to the Illinois Department of Revenue asking about nexus. After COMPANY delivers a vehicle to a customer, it hires a third-party company to calibrate the meters on the vehicle at the customer's location. COMPANY asked whether that arrangement, by itself, gives it a physical presence in Illinois under the "retailer maintaining a place of business in this State" definition in Section 2 of the Use Tax Act, 35 ILCS 105/2.

The Department explained that it could not give COMPANY a specific answer because the limited facts provided didn't allow it, and because a physical-nexus determination is inherently fact-specific and not something that can be resolved in the context of a GIL -- the Department said the best way to determine nexus is for a Department auditor to examine all the relevant facts and information. Instead, the Department laid out the governing framework: an out-of-state retailer selling to Illinois purchasers from locations outside Illinois must register with the Department and collect and remit Illinois Use Tax if it is a "retailer maintaining a place of business in this State" under 35 ILCS 105/2. That definition isn't limited to having an office or other physical building -- it also reaches a retailer that has "any agent or other representative operating within this State under the authority of the retailer or its subsidiary," whether that presence is permanent or temporary, and whether or not the retailer is licensed to do business in Illinois.

The Department traced this physical-presence standard to a line of U.S. Supreme Court cases -- 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); and Quill Corporation v. North Dakota, 504 U.S. 298 (1992) -- and to the Illinois Supreme Court's 1996 decision in Brown's Furniture v. Wagner, 171 Ill. 2d 410 (1996), which held that a vendor's delivery and installation of its product on a repetitive basis can trigger Use Tax collection responsibilities. The Department reiterated that an out-of-state retailer with an ongoing physical presence in Illinois is a "retailer maintaining a place of business in Illinois" and, as a result, incurs a Use Tax collection obligation (6.25%) on sales made to Illinois purchasers from locations outside Illinois -- but if sales are instead made to Illinois purchasers from locations within Illinois, State and local Retailers' Occupation Tax applies at the rate in effect where the selling activity occurs (often when orders are filled from Illinois inventory). See 86 Ill. Adm. Code 270.115(c) and (d).

The Department also flagged a separate, independent basis for Illinois tax obligations that doesn't depend on physical presence at all: beginning January 1, 2021, an out-of-state retailer without sufficient physical presence in Illinois that meets either of the economic-nexus tax remittance thresholds in 86 Ill. Adm. Code 131.115(a) or 131.135(a) is liable for all applicable State and locally-imposed retailers' occupation taxes administered by the Department on its sales to Illinois purchasers.

Because COMPANY's letter asked the Department to apply this framework to its own specific facts, the Department treated the request as calling for a Private Letter Ruling (PLR) -- but issued a GIL instead, since the Department found it could not resolve the fact-specific nexus question in that format.

What this means for you

Out-of-state retailers using third-party installers, calibrators, or service technicians in Illinois

If you sell products to Illinois customers from outside the state, and you hire a third party to perform work at the customer's location after delivery (installation, calibration, repair, or similar service), this GIL is a reminder that "physical presence" under 35 ILCS 105/2 is not limited to owning an office or warehouse in Illinois -- it also covers having an agent or representative (which can include a contracted third party acting on your behalf) operating in the state, and the Illinois Supreme Court has held that repetitive delivery-and-installation activity can itself create a Use Tax collection obligation (Brown's Furniture v. Wagner). Whether your specific arrangement crosses that line is fact-specific, and the Department expressly said it would need to be examined by a Department auditor rather than resolved by letter. This GIL does not tell you whether COMPANY's own calibration arrangement created nexus, and you cannot rely on it to resolve your own situation -- you would need a Department audit or your own binding PLR under 2 Ill. Adm. Code 1200.110.

Retailers without any Illinois physical presence at all

Even if you're confident you have no office, warehouse, or agent operating in Illinois, remember that physical presence isn't the only route to an Illinois tax obligation anymore. Since January 1, 2021, an out-of-state retailer that meets either of the economic-nexus remittance thresholds in 86 Ill. Adm. Code 131.115(a) or 131.135(a) owes Illinois State and local retailers' occupation taxes on its Illinois sales regardless of physical presence. Check your Illinois sales volume against those thresholds independently of any physical-presence analysis.

Accountants and tax professionals

This GIL is useful as a concise recap of Illinois nexus doctrine -- the statutory "retailer maintaining a place of business" definition, the Scripto/National Bellas Hess/Quill line of physical-presence case law, Brown's Furniture's repetitive-delivery-and-installation holding, and the post-2021 economic-nexus thresholds -- but it stops short of applying that doctrine to the client's specific facts. When a client's situation turns on whether a specific third-party service arrangement creates nexus, treat this letter as background law, not as a resolution, and consider recommending a formal PLR request or requesting that a Department auditor review the specific facts.

Common questions

Q: Does this GIL decide whether COMPANY's use of a third-party calibration service creates Illinois nexus?
A: No. The Department said the facts provided were too limited to allow a specific answer and that a physical-nexus determination is fact-specific and best handled by a Department auditor examining all the facts, not resolved in a GIL.

Q: What does "retailer maintaining a place of business in this State" mean under 35 ILCS 105/2?
A: It includes a retailer that has or maintains, directly or through a subsidiary, an office, distribution house, sales house, warehouse, or other place of business in Illinois, or any agent or other representative operating in Illinois under the retailer's (or its subsidiary's) authority -- whether that presence is permanent or temporary, and regardless of whether the retailer is licensed to do business in Illinois.

Q: What did Brown's Furniture v. Wagner hold?
A: The Illinois Supreme Court ruled in 1996 that a vendor's delivery and installation of its product on a repetitive basis will trigger Use Tax collection responsibilities.

Q: If a retailer has an ongoing physical presence in Illinois, what does it owe?
A: If it's a "retailer maintaining a place of business" in Illinois and sells to Illinois purchasers from locations outside Illinois, it incurs a Use Tax collection obligation of 6.25% on those sales. If sales are instead made from a location within Illinois (for example, filling orders from Illinois inventory), State and local Retailers' Occupation Tax applies at the rate in effect where the selling activity occurs.

Q: Does a retailer need any Illinois physical presence to owe Illinois tax?
A: Not anymore. Beginning January 1, 2021, an out-of-state retailer without sufficient physical presence in Illinois that meets either remittance threshold in 86 Ill. Adm. Code 131.115(a) or 131.135(a) is liable for all applicable State and locally-imposed retailers' occupation taxes on its Illinois sales.

Q: Why did the Department issue a GIL instead of the PLR the company's letter seems to have been seeking?
A: Nexus determinations are inherently fact-specific, and the Department found the facts provided did not allow it to give a specific answer in this format; a GIL only directs taxpayers to the relevant law rather than resolving their particular situation, so the Department responded with a GIL rather than a binding PLR.

Citations and references

Statutes:

• 35 ILCS 105/2 (Use Tax Act definition of "retailer maintaining a place of business in this State")

Regulations:

• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax Act imposition of tax)
• 86 Ill. Adm. Code 150.101 (Use Tax imposition)
• 86 Ill. Adm. Code 150.201 (retailer maintaining a place of business)
• 86 Ill. Adm. Code 270.115(c) and (d) (retailers' occupation tax rate where selling activity occurs)
• 86 Ill. Adm. Code 131.115(a) (remote retailer tax remittance threshold, effective Jan. 1, 2021)
• 86 Ill. Adm. Code 131.135(a) (marketplace facilitator tax remittance threshold, effective Jan. 1, 2021)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedure)

Cases:

• 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)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2023.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2023/ST-23-0014-GIL.pdf

Original ruling text

ST-23-0014-GIL 05/23/2023 NEXUS
Generally, an out-of-State retailer with an ongoing physical presence in Illinois is
a "retailer maintaining a place of business in this State" under Section 2 of the
Use Tax Act, 35 ILCS 105/2. 86 Ill. Adm. Code 150.201 (This is a GIL).
May 23, 2023

NAME
ADDRESS
Dear NAME:
This letter is in response to your letter dated January 31, 2023, 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:

1)

2)

COMPANY is a licensed STATE dealer that sells
PRODUCT1, PRODUCT2 and PRODUCT3 to customers
nationwide, which could include Illinois customers.
After the vehicles are delivered to customers, COMPANY
hires a 3rd party company to calibrate the meters on the
PRODUCT1 at the customer’s location.

In reviewing 35 ILCS 105/2 it states:
"Retailer maintaining a place of business in this State", or any like term,
means and includes any of the following retailers:
(1)
A retailer having or maintaining 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
the authority of the retailer or its subsidiary, irrespective
of whether such place of business or agent or other

COMPANY/NAME
Page 2
May 23, 2023
representative is located here permanently or temporarily, or
whether such retailer or subsidiary is licensed to do business
in this State. However, the ownership of property that is
located at the premises of a printer with which the retailer
has contracted for printing and that consists of the final
printed product, property that becomes a part of the final
printed product, or copy from which the printed product is
produced shall not result in the retailer being deemed to
have or maintain an office, distribution house, sales house,
warehouse, or other place of business within this State.
Based on the highlighted text above, does COMPANY have a physical
presence because it hires a 3rd party company to complete the
calibrations on the equipment?
Thanks in advance for your response,
DEPARTMENT’S RESPONSE:
The Retailers' Occupation Tax Act imposes a tax upon persons engaged in this
State in the business of selling tangible personal property at retail to purchasers for use
or consumption. See 86 Ill. Adm. Code 130.101. 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.
The limited description you provided regarding activities performed in Illinois
does not allow for a specific answer to your question. Generally, a determination
regarding physical nexus is very fact specific and cannot be addressed in the context of
a GIL. The Department has found that the best manner to determine nexus is for a
Department auditor to examine all relevant facts and information. We hope the
following information which outlines the principles of nexus will be helpful.
An out-of-State 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 physical nexus, with Illinois. The physical presence
required to establish physical presence nexus is not limited to an office or other physical
building. The types of activities constituting a physical presence, as pronounced in a
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 was established in a series of United States

COMPANY/NAME
Page 3
May 23, 2023
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 a vendor’s delivery and installation of its product on a repetitive
basis, will trigger Use Tax collection responsibilities. See Brown's Furniture v. Wagner,
171 Ill. 2d 410 (1996).
Generally, an out-of-State retailer with an ongoing physical presence in Illinois
are "retailers maintaining a place of business in Illinois" under Section 2 of the Use Tax
Act, 35 ILCS 105/2. As a result, they incur only a Use Tax collection obligation (6.25%)
on sales made to Illinois purchasers from locations outside Illinois. However, if sales
are made to Illinois purchasers from locations in Illinois, State and local retailers'
occupation tax is incurred at the rate in effect where the selling activities occur. See 86
Ill. Adm. Code 270.115(c) and (d). This selling frequently occurs when sales made to
Illinois purchasers are filled from inventory located in Illinois.
Please note that beginning January 1, 2021, an out-of-State retailer without
sufficient physical presence in this State meeting either tax remittance threshold as set
out in 86 Ill. Adm. Code 131.115(a) and 131.135(a), respectively, are liable for all
applicable State and locally-imposed retailer’s occupation taxes administered by the
Department of Revenue on all sales made to Illinois purchasers. See 86 Ill. Adm. Code
131.115 and 131.135.
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,

Thomas Grudichak
Associate Counsel
TG:bf