Does Illinois's $100,000 economic-nexus threshold for sales tax also apply to corporate income tax, and does leasing a warehouse forfeit PL 86-272 protection?

Plain-English summary

A CPA wrote to the Illinois Department of Revenue on behalf of three out-of-state corporate clients, all selling tangible goods into Illinois, asking whether each one needed to file Illinois Form IL-1120 (Corporation Income and Replacement Tax Return):

• Company A started selling into Illinois in 2021, leases an Illinois warehouse, but has no Illinois employees. It had relied on a sales-tax exemption and hadn't been collecting sales tax, but was in the process of registering for a sales tax permit.
• Company B sells over the internet into Illinois with no warehouse or salesperson in the state, and has properly registered for and filed Illinois sales tax all along.
• Company C sells over the internet into Illinois, has total annual sales under $100,000, and is not registered to do business in Illinois.

The CPA argued that Public Law 86-272 should shield all three companies, since they sell tangible personal property, and questioned whether the IL-1120 instructions (which appear to require a return whenever a corporation has Illinois net income/loss, or is qualified to do business in Illinois and files a federal return) conflict with that federal protection.

IDOR declined to decide nexus for any of the three companies. It stated plainly that "the determination as to whether a taxpayer has nexus with Illinois is extremely fact specific" and that "the Department does not issue rulings regarding whether a taxpayer has nexus with the State." Instead of a yes/no answer per company, the letter laid out the governing framework and mapped it loosely onto each fact pattern:

1. When a return is required. Under IITA Section 502(a), an Illinois return is required if either (a) the taxpayer is liable for Illinois income tax under Section 502(a)(1), or (b) the corporation is qualified to do business in Illinois and required to file a federal return, regardless of net income or loss, under Section 502(a)(2).
2. Public Law 86-272's protection is narrow. PL 86-272 (15 U.S.C. §§ 381-384) bars a state from taxing a nonresident corporation's net income if its only in-state activity is "mere solicitation" of orders for tangible personal property that are approved and filled from outside the state. Under 86 Ill. Adm. Code 100.9720(c)(4)(O)(iv), leasing a warehouse in Illinois is not "mere solicitation" and is not protected. That means Company A's warehouse lease is a likely PL 86-272 problem — assuming it's not a de minimis activity, it can knock out protection that would otherwise apply.
3. The $100,000 economic-nexus threshold is a sales-tax concept only. IDOR pointed to South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018), which lets states tax remote sellers based on economic presence. Illinois used that ruling to set its $100,000-or-200-transaction sales tax collection threshold, but Illinois has "not adopted a similar threshold for income tax nexus." For income tax, Illinois instead asserts jurisdiction to the full extent the U.S. Constitution allows, subject to Due Process and Commerce Clause limits (citing Quill Corp. v. N. Dakota, 504 U.S. 298 (1992), and Complete Auto Transit v. Brady, 430 U.S. 274 (1977)). So Company C's under-$100,000 sales volume, while it may keep Company C outside sales tax collection duties, has no direct bearing on its income tax nexus — that question instead turns on whether its internet-only selling activity exceeds "mere solicitation."

Applying that framework (without a final verdict): Company B and Company C, having no warehouse or in-state salesperson, would be protected from Illinois income tax if their activities don't exceed mere solicitation. Company A's leased warehouse is flagged as very likely to defeat PL 86-272 protection. IDOR never said definitively that any company must (or need not) file — this is a framework letter, not a per-company ruling.

What this means for you

Remote and e-commerce sellers

Selling only over the internet, with no warehouse and no in-state salespeople, keeps you in PL 86-272's "mere solicitation" safe harbor for income tax purposes — as long as your activities don't cross into something more. Critically, staying under Illinois's $100,000 sales-tax economic-nexus threshold does not by itself protect you from Illinois income tax; that dollar threshold is a sales-tax-only concept. Whether you owe Illinois income tax depends on the separate PL 86-272 "mere solicitation" analysis, not your revenue number.

Businesses leasing an in-state warehouse

Leasing a warehouse in Illinois is called out by name in IDOR's own rule, 86 Ill. Adm. Code 100.9720(c)(4)(O)(iv), as an activity that is not "mere solicitation" and is not protected by Public Law 86-272 (unless it's truly de minimis). If your company otherwise would have qualified for PL 86-272 protection as a seller of tangible goods, adding a leased warehouse in the state is a strong signal that protection no longer applies, and you may owe Illinois corporate income tax.

Accountants advising multistate clients

Don't expect IDOR to resolve a client's nexus question with a definitive yes/no through a GIL — this letter is a good example of the Department mapping the law onto facts without delivering a verdict. Use IITA Section 502(a)'s two independent triggers (income tax liability, or qualification to do business plus a federal filing requirement) to test each entity, and remember that the Wayfair-based $100,000/200-transaction threshold governs sales tax collection only; Illinois income tax nexus is still assessed under Public Law 86-272 and constitutional Due Process/Commerce Clause limits, with no dollar safe harbor.

Common questions

Q: Did IDOR say whether Company A, B, or C actually has to file Form IL-1120?
A: No. IDOR explicitly declined to make a nexus determination for any of the three companies, calling nexus determinations "extremely fact specific" and stating the Department does not issue rulings on whether a taxpayer has nexus. It described the legal framework and how it would likely apply, without issuing a final ruling per company.

Q: Does staying under $100,000 in Illinois sales protect a company from Illinois income tax?
A: No. The $100,000/200-transaction threshold comes from South Dakota v. Wayfair, Inc. and applies only to Illinois's sales tax collection requirement for remote sellers. Illinois has not adopted a similar dollar threshold for income tax nexus; income tax jurisdiction is instead governed by Public Law 86-272 and constitutional limits, regardless of sales volume.

Q: Does leasing a warehouse in Illinois automatically create income tax nexus?
A: The ruling doesn't say it automatically creates nexus, but it does say leasing a warehouse is not "mere solicitation" under 86 Ill. Adm. Code 100.9720(c)(4)(O.)(iv) and so is not protected by Public Law 86-272 (unless de minimis). That means it can defeat PL 86-272 protection a company would otherwise have as a seller of tangible goods.

Q: What does "mere solicitation" mean under Public Law 86-272?
A: It covers soliciting orders for sales of tangible personal property that are sent outside Illinois for approval and, if approved, filled by shipment from outside the state. Activities beyond that — like leasing a warehouse — are not protected, and whether a company's conduct exceeds "mere solicitation" is assessed on the specific facts.

Q: If a corporation is registered to do business in Illinois and files a federal return, must it file an Illinois return even with no Illinois income?
A: Based on IITA Section 502(a)(2), yes — a corporation qualified to do business in Illinois that is required to file a federal income tax return must also file an Illinois return, regardless of whether it has net income or loss. Section 502(a)(1) separately requires a return whenever the taxpayer is liable for Illinois income tax.

Citations and references

Statutes and rules:

• IITA Section 502(a) (35 ILCS 5/502(a)) — when an Illinois income tax return is required
• IITA Section 201(a), (c) (35 ILCS 5/201) — imposition of income tax and replacement tax on corporations
• IITA Section 304(a)(3)(B) (35 ILCS 5/304) — sourcing sales of tangible personal property to Illinois
• 86 Ill. Adm. Code 100.9720(a), (c), (e) — nexus for non-resident taxpayers and the scope of federal PL 86-272 limits
• 86 Ill. Adm. Code 100.9720(c)(4)(O)(iv) — leasing a warehouse is not "mere solicitation"
• Public Law 86-272 / 15 U.S.C. §§ 381-384 — federal limit on state net income tax nexus for sellers of tangible personal property

Case law cited by the Department:

• South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018)
• Quill Corp. v. N. Dakota, 504 U.S. 298 (1992)
• Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/income-tax/2022.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/income-tax/2022/it22-0009-gil.pdf

Original ruling text

IT-22-0009 06/14/2022 NEXUS/CORPORATE FILING REQUIREMENTS
Nexus issues are not generally suitable for resolution by letter ruling. (This
is a GIL.)
June 14, 2022
NAME
ADDRESS
Re:

Out-of-State Corporate Filing Requirements Form IL-1120

Dear NAME:
This is in response to your letter dated May 12, 2022, in which you request
information regarding out-of-state corporate filing requirements for Form IL-1120.
The nature of your request and the information you have provided require that we
respond with a General Information Letter (“GIL”), which is designed to provide
general information, is not a statement of Department policy, and is not binding
on the Department. See 2 Ill. Adm. Code Section 1200.120(b) and (c), which
may be found on the Department’s website at www.tax.illinois.gov.
Your letter states as follows:
I, as a Certified Public Accountant, request a private ruling letter to
determine if the out-of-state corporations need to file Form IL-1120 when
the corporations have sales in the state of Illinois.
Company A has started sales to IL in 2021. A warehouse was leased in IL
but without employees in the state. Due to the sales tax exemption
because of industry use, the company A doesn’t collect sales taxes from
the customer in the past. The company is in the process of registering the
sales permit. The company is filing federal and state tax returns for 2021
now. My question is whether the company is required to file corporate
income tax returns in IL for 2021? Should the company file the initial IL
income tax return for 2022 as the registration is done in 2022?
Company B has sales in IL without warehouse or salesperson in the state.
The company conducts sales through internet and delivers the products to
the customers in IL. The company had registered sales permit in the state
and has complied sales tax filing properly each period. My question is
whether the company needs to file corporate income tax returns with sales
in IL but no presence?
Company C has sales via internet in IL. The total annual sales are below
$100,000. The company has not registered to do business in IL. The
questions is whether the company needs to file corporate income tax
returns with merely online sales?

Public Law 86-272 (15 USC Section 381) holds that States can’t impose a
tax based on net income, such as the corporate income tax or franchise
tax to out-of-state business entities. Both companies are selling tangible
goods to the state in which case should be protected from income taxes
under the Public Law 86-272.
In the meantime, the instructions of the Form IL-1120, Corporation Income
and Replacement Tax Return, requires for filing returns when a
corporation that:
has net income or loss as defined under the Illinois Income Tax Act
(IITA); or is qualified to do business in the state of Illinois and is
required to file a federal income tax return (regardless of net
income or loss).
The instructions seem the tax returns are needed for the two companies
because both of them have taxable income (losses) in the state. However,
the interpretation is not consistent with the Public Law 86-272. Please
advise.
Feel free to reach me at my email E-MAIL or mail to address ADDRESS.
Your help is highly appreciated!
RULING
Section 502(a) of the Illinois Income Tax Act (“IITA”, 35 ILCS 5/101 et seq.)
describes when an Illinois income tax return is required. Pursuant to Section
502(a), an Illinois income tax return is required in two situations: when a taxpayer
is liable for Illinois income tax (Section 502(a)(1)) or, in the case of a corporation
qualified to do business in Illinois, when the taxpayer is required to file a federal
income tax return, regardless of whether such person is liable for Illinois income
tax (Section 502(a)(2)).
Section 201(a) of the IITA imposes a tax measured by net income on
corporations on the privilege of earning or receiving income in or as a resident of
Illinois. In addition, Section 201(c) of the IITA imposes a second tax (the
personal property tax replacement income tax) measured by net income on
corporations on the privilege of earning or receiving income in or as a resident of
Illinois.
86 Ill. Adm. Code Section 100.9720(a) provides in pertinent part:

2

In general, a resident of this State will always be subject to these taxes.
Activity conducted in interstate commerce may establish sufficient nexus
with Illinois to permit imposition of these taxes on a non-resident taxpayer,
as well, when the non-resident earns or receives income in this State
within the meaning of the IITA. Complete Auto Transit, Inc. v. Brady, 430
U.S. 274, 97 S. Ct. 1076 (1977); Quill v. North Dakota, 504 U.S. 298, 112
S. Ct. 1904 (1992). However, the fact that Article 3 of the IITA requires a
non-resident taxpayer to allocate or apportion income to this State does
not create a presumption that the taxpayer has nexus.
Further, 86 Ill. Adm. Code Section 100.9720(e) provides:
U.S. Constitutional Jurisprudence. If not protected by U.S. or Illinois
statute, an income-producing activity may, nonetheless, be protected from
State taxation by principles of U.S. Constitutional jurisprudence.
Controlling decisions that assert protections afforded by the Interstate
Commerce Clause, the Foreign Commerce Clause and the Due Process
Clause are accepted by this State as limitations on the reach of its income
tax and personal property tax replacement income tax statutes. However,
nothing stated in this subsection (e) shall prevent Illinois from challenging
taxpayer assertions of U.S. Constitutional protection.
The Due Process Clause and the Commerce Clause of the United States
Constitution limit the power of states to subject foreign corporations and other
nonresidents to income tax. The Due Process Clause requires that there exist
some minimum connection between a state and the person, property, or
transaction the state seeks to tax. (Quill Corp. v. N. Dakota, 504 U.S. 298 (1992))
Similarly, the Commerce Clause requires that a state’s tax be applied only to
activities with a substantial nexus to the taxing state. (Id.)
The determination as to whether a taxpayer has nexus with Illinois is extremely
fact specific. Therefore, the Department does not issue rulings regarding whether
a taxpayer has nexus with the State. For information regarding nexus, see 86 Ill.
Adm. Code Section 100.9720 (accessible from the Department’s website). In
addition, the following general information may be provided.
In the case of foreign corporations, Illinois may assert nexus to tax unless the
corporation falls under the protection conferred by Public Law 86-272. (15 U.S.C.
§ 381) Public Law 86-272 precludes any state from subjecting a nondomiciliary
corporation to a net income tax where such corporation’s only activities within the
state for the taxable year consist of solicitation activities for sales of tangible
personal property.
86 Ill. Adm. Code Section 100.9720(c) provides:

3

c)

The scope of federal statutes limiting nexus for imposition of Illinois
income and replacement taxes are described in this subsection (c):
1)

Public Law 86-272. In 1959, Congress enacted PL 86-272
(15 USC 381-384), which prohibits states and their political
subdivisions from imposing a net income tax on nonresident
taxpayers who operate primarily in interstate commerce and
whose activity within a state is limited. PL 86-272 provides in
pertinent part:
A)

B)

No state or political subdivision thereof shall have the
power to impose . . . a net income tax on the income
derived within such state by any person from
interstate commerce if the only business activities
within such state by or on behalf of such person
during such taxable year are either, or both of the
following:
i)

the solicitation of orders by such person, or his
representative, in such state for sales of
tangible personal property, which orders are
sent outside the state for approval or rejection,
and, if approved, are filled by shipment or
delivery from a point outside the state; and

ii)

the solicitation of orders by such person, or his
representative, in such state in the name of or
for the benefit of a prospective customer of
such person, if orders by such customer to
such person to enable such customer to fill
orders resulting from such solicitation are
orders described in subsection (c)(1)(A)(i).

The provisions of subsection (c)(1)(A) of this Section
shall not apply to the imposition of a net income tax
by any State or political subdivision thereof, with
respect to –
i)

Any corporation which is incorporated under
the laws of such state; or

ii)

any individual who, under the laws of such
state, is domiciled in, or a resident of, such
state.

4

C)

For the purposes of subsection (c)(1)(A) of this
Section, a person shall not be considered to have
engaged in business activities within a state during
any taxable year merely by reason of sales in such
state, or the solicitation of orders for sales in such
state, of tangible personal property on behalf of such
person by one or more independent contractors
whose activities on behalf of such person in such
state consist solely of making sales, or soliciting
orders for sales, of tangible personal property.

D)

For purposes of this subsection (c)(1) –
i)

The term "independent contractor" means a
commission agent, broker, or other
independent contractor who is engaged in
selling, or soliciting orders for the sale of
tangible personal property for more than one
principal and who holds himself out as such in
the regular course of his business activities;
and

ii)

the term "representative" does not include an
independent contractor.

If a nonresident taxpayer’s activities exceed “mere solicitation” as set forth in
subsection (c)(1)(A) of 86 Ill. Adm. Code Section 100.9720, the taxpayer obtains
no immunity under Public Law 86-272 and is subject to Illinois income tax and
personal property tax replacement income tax for the entire taxable year and its
business income is apportioned under Section 304 of the IITA. Solicitation of
orders is defined in 86 Ill. Adm. Code Section 100.9720(c)(2)(C) as speech or
conduct that explicitly or implicitly invites an order and activity ancillary to
invitations for an order.
Whether a corporation’s conduct exceeds the “mere solicitation” standard
depends upon the facts of each particular case. Specific activities that go beyond
“mere solicitation” and are unprotected by Public Law 86-272 are listed within 86
Ill. Adm. Code Section 100.9720(c)(4). Additionally, 86 Ill. Adm. Code Section
100.9720(c)(5) lists specific activities that are considered to be protected
activities in Illinois. As provided in 86 Ill. Adm. Code Section 100.9720(c)(3)(B),
the inclusion of an activity on the listing of “protected activities” is neither a
declaration nor an admission by this State that the activity must be afforded
protection under Public Law 86-272.
De minimis activities, as outlined in 86 Ill. Adm. Code Section 100.9720(c)(2)(D),
are those activities that when taken together, establish only a trivial additional
5

connection with this State. Activities that are regularly conducted within Illinois on
a regular or systematic basis or pursuant to a company policy are normally not
considered to be trivial. An unprotected activity that would not be de minimis if it
were the only business activity of the taxpayer conducted in this State will not be
de minimis merely because the taxpayer also conducts a substantial amount of
protected activities within this State, nor will an unprotected activity that would be
de minimis if conducted in conjunction with a substantial amount of protected
activities fail to be de minimis merely because no protected activities are
conducted in this State.
A nonresident is liable for Illinois income tax under Section 201 of the IITA if it
computes “net income” as defined under IITA Section 202. IITA Section 202
defines Illinois net income as that portion of the taxpayer’s “base income” as
defined in Section 203, which is allocated or apportioned to Illinois under the
provisions of Article 3 of the IITA, less certain deductions. Under Article 3,
business income is apportioned to Illinois based on an apportionment ratio in
which the numerator is the amount of the taxpayer’s sales in Illinois and the
denominator is the amount of the taxpayer’s sales everywhere.
Section 304(a)(3)(B) of the IITA allocates sales of tangible personal property to
the numerator of the apportionment formula:
Sales of tangible personal property are in this State if:
i)
The property is delivered or shipped to a purchaser, other
than
the United States government, within this State
regardless of the
f.o.b. point or other conditions of the
sale; or
ii)
The property is shipped from an office, store, warehouse,
factory
or other place of storage in this State and either the
purchaser is the
United States government or the person is not
taxable in the state of the purchaser; provided, however, that
premises owned or leased by a person who has independently
contracted with the seller for the printing of newspapers,
periodicals or books shall not
be deemed to be an office, store,
warehouse, factory or other place
of storage for purposes of
this Section. Sales of tangible personal property are not in this
State if the seller and purchaser would be
members of the
same unitary business group but for the fact that
either the
seller or purchaser is a person with 80% or more of total
business activity outside of the United States and the
property is purchased for resale.
If the taxpayer has no sales in Illinois, then their numerator would be zero
resulting in no business income and no net Illinois income. If a foreign
corporation has no Illinois net income under Section 202, there is no liability for
6

tax under Section 201. Therefore, the requirement to file an Illinois income tax
return as provided in Section 502(a)(1) of the IITA would not apply. However, this
does not necessarily mean that the taxpayer will not have to file a Corporate
Income Tax return.
If the taxpayer is registered to conduct business in Illinois and is required to file a
federal income tax return, then under Section 502(a)(2) of the IITA, the taxpayer
would be required to file an Illinois income tax return. If the taxpayer has no
Illinois income tax liability and is not registered to do business in Illinois, then
most likely the taxpayer would not be required to file an Illinois income tax return.
In South Dakota v. Wayfair, Inc. (138 S. Ct. 2080 (2018)), the United States
Supreme Court ruled that states may tax remote sales based on economic as
well as physical presence. For sales tax purposes, Illinois requires remote sellers
to collect sales tax from Illinois customers if their amount of sales into Illinois
exceed $100,000 or 200 transactions. Illinois has not adopted a similar threshold
for income tax nexus but asserts jurisdiction to tax business income to the full
extent allowed under the U.S. Constitution. For sales of tangible personal
property, Illinois income tax nexus is still determined in accordance with the
Commerce Clause, the Due Process Clause, and Public Law 86-272.
Your letter indicates “both companies are selling tangible goods to the state” but
your letter requests corporate filing guidance about the activities of three
companies (Company A, Company B, and Company C).
Regarding Company A, your letter indicates that company started sales to Illinois
in 2021 and leases a warehouse in this State. If the sales of Company A are
sales of tangible personal property, then Section 304(a)(3)(B) of the IITA
provides when those sales are to be allocated to this State. In addition, pursuant
to 86 Ill. Adm. Code Section 100.9720(c)(4)(O)(iv), leasing a warehouse in
Illinois, assuming the activity is not de minimis, does not constitute neither “mere
solicitation” of orders nor an ancillary activity, and is not otherwise protected
under Public Law 86-272. Therefore, an otherwise protected nonresident
taxpayer would not be protected from Illinois income taxation under Public Law
86-272.
In regard to Company B and Company C, your letter indicates that Company B
has sales in Illinois, conducted through the internet, without a warehouse or
salesperson in the State, and Company C has sales in Illinois via the internet
with the total annual sales below $100,000. As indicated above, the dollar
amount of sales into this State will only trigger an Illinois sales tax nexus
analysis. For Illinois income tax, if the sales of Company B and Company C are
sales of tangible personal property, then Section 304(a)(3)(B) of the IITA
provides when those sales are to be allocated to this State. Company B and
Company C would be protected from Illinois income taxation if the activities in
Illinois have not exceeded those permitted under Public Law 86-272.
7

As stated above, this is a GIL. A GIL does not constitute a statement of
Department policy that applies, interprets or prescribes the tax laws, and it is not
binding on the Department.
Sincerely,
Jennifer Uhles
Associate Counsel (Income Tax)

8