What does Illinois General Information Letter IT 23-0004-GIL conclude about Nexus?

Plain-English summary

An out-of-state insurance agency, an LLC with an S-corp election owned solely by a married couple, asked the Illinois Department of Revenue whether it has Illinois income tax nexus and must file an Illinois return (the state equivalent of federal Form 1120-S). The agency had 2 Illinois clients, both obtained remotely by phone or email, generating a stated share of its annual nationwide revenue. The agency and its owner hold non-resident insurance licenses that let them service Illinois clients, but the agency never travels to Illinois and has no physical presence there. The taxpayer even said an IDOR phone-line representative had called the nexus question "a pretty gray area" and could not give a firm answer.

The Department's response did not resolve that question. IDOR stated flatly that "nexus determinations are inherently fact specific, and IDOR does not issue letter rulings on nexus." Instead of applying the law to this agency's facts, it summarized the general framework: IITA Section 201(a) taxes individuals, corporations, trusts, and estates for the privilege of earning or receiving income in or as a resident of Illinois; IITA Section 304(b) sources insurance company receipts to Illinois based on direct premiums written; and IDOR's nexus regulation, 86 Ill. Adm. Code 100.9720(a), says interstate commerce activity may establish sufficient nexus for a non-resident who earns or receives Illinois income, citing Complete Auto Transit, Inc. v. Brady and Quill Corp. v. North Dakota — but that being required to allocate or apportion income to Illinois under Article 3 of the IITA does not, by itself, create a presumption of nexus.

The Department also cited two cases that lean toward no nexus for agencies like this one, again without applying them to the taxpayer's specific facts: Scioto Ins. Co. v. Oklahoma Tax Comm'n held that merely receiving payments from an in-state customer with no other in-state contacts was insufficient nexus under the Due Process Clause, and State Bd. of Ins. v. Todd Shipyards Corp. held that insuring risk on in-state property alone, without more, is not a valid basis to assert nexus (the insurer there had no Texas license, office, agents, solicitation, or claims investigation in Texas). IDOR never said whether these principles mean this particular agency has or lacks nexus — it left that determination unresolved.

What this means for you

Independent insurance agents and agencies working remotely

If you hold non-resident licenses and serve a small number of out-of-state clients purely by phone or email, with no travel and no physical presence in that state, this GIL shows the Department will not give you a yes/no answer through a general information letter. IDOR treats nexus as fact-specific and reserves case-by-case determinations for audit or a Private Letter Ruling (PLR) process, not a GIL.

Small-business owners assessing multistate income tax nexus

The ruling is useful as a map of the legal test rather than a verdict. It confirms that simply being required to apportion income to Illinois under Article 3 of the IITA does not by itself create a presumption of nexus, and it flags case law (Scioto, Todd Shipyards) suggesting that remote sales or insuring in-state risk, without more (no license use in-state, no office, no agents, no solicitation, no claims work performed in the state), may not be enough to establish nexus. But none of that was applied conclusively to this taxpayer.

Accountants and tax professionals

Because IDOR "does not issue letter rulings on nexus," a client with a similar fact pattern cannot get a binding answer this way. A PLR under 2 Ill. Adm. Code 1200.110 is the Department's binding-ruling avenue, though nexus questions may still be treated as too fact-specific even there. Absent clear guidance, document all contacts with the state (license use, solicitation, presence, revenue share) to support a nexus position if challenged.

Common questions

Q: Did Illinois say whether this insurance agency has nexus?
A: No. The Department explicitly stated that nexus determinations are inherently fact specific and that IDOR does not issue letter rulings on nexus, so it never answered the taxpayer's specific yes/no question.

Q: Does having non-resident insurance licenses in Illinois create nexus by itself?
A: The ruling does not say. It describes the agency's licenses as one of the facts but does not conclude whether they contribute to nexus.

Q: Does being required to apportion income to Illinois mean a taxpayer has nexus?
A: No. IDOR's own regulation, 86 Ill. Adm. Code 100.9720(a), states that an Article 3 apportionment/allocation requirement does not by itself create a presumption of nexus.

Q: Do the cases IDOR cited mean remote insurance agencies never have Illinois nexus?
A: Not necessarily. IDOR cited Scioto Ins. Co. and Todd Shipyards as supporting authority for when nexus is lacking, but it did not apply either case to this taxpayer's facts or state a conclusion. Each case turned on its own combination of licensing, offices, agents, solicitation, and claims activity in the taxing state.

Q: Where can a taxpayer get a binding nexus determination from Illinois?
A: This GIL suggests that even a binding Private Letter Ruling process may not resolve nexus questions, since IDOR describes nexus as inherently fact-specific. Taxpayers may need to rely on audit, litigation, or their own risk assessment using the cited statutes and case law.

Citations and references

Statutes and rules:

• 35 ILCS 5/201(a) (IITA imposition of income tax on individuals, corporations, trusts, and estates)
• 35 ILCS 5/304(b) (IITA sourcing of insurance company receipts to Illinois based on direct premiums written)
• 86 Ill. Adm. Code 100.9720(a) (nexus for non-resident taxpayers earning Illinois income)

Case law cited by the Department:

• Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977)
• Quill Corp. v. North Dakota, 504 U.S. 298 (1992)
• Scioto Ins. Co. v. Oklahoma Tax Comm'n, 279 P.3d 782 (Okla. 2012)
• State Bd. of Ins. v. Todd Shipyards Corp., 82 S. Ct. 1380 (1962)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/income-tax/2023.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/income-tax/2023/it23-0004-gil.pdf

Original ruling text

IT-23-0004-GIL 05/31/2023 NEXUS
Whether insuring risk in Illinois constitutes nexus (This is a GIL).
May 31, 2023
NAME/ADDRESS
Dear NAME:
This letter is in response to your letter dated May 14, 2021, in which you
requested information about whether a foreign insurer has nexus and would be required
to file an Illinois income tax return. 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 an insurance agency based in STATE with a small amount of our
receipts allocated from Illinois. We never travel to the state and do not have any
physical presence here. We hold non-resident insurance licenses (one for me, and
one for the agency) allowing us to service IL clients.
Other facts:
•
•
•

We are an LLC with S-Corp Election with the IRS. The only owners of the
LLC are my wife and I.
We have 2 clients in Illinois which have given us YEAR revenues of $$$$
and which is %% of our annual nationwide revenue.
All clients were obtained by them contacting us by phone and/or email. We
are attempting to determine if we must file state equivalent of the 1120S.

I contacted NAME (Badge number #####) at ###-###-#### and was unable
to get a firm answer. He said it was a pretty gray area.
Please reply by phone or email if you have any questions.

BUSINESS.
Page 2
May 25, 2023
We would appreciate a speedy reply as we need to file the tax return, if
necessary. We would also like to know what would trigger nexus in the state.
DEPARTMENT’S RESPONSE:
Section 201(a) of the Illinois Income Tax Act (IITA) imposes a tax measured by
net income on individuals, corporations, trusts and estates for the privilege of earning or
receiving income in or as a resident of this State. Pursuant to IITA Section 304(b),
insurance company receipts are sourced to Illinois based on direct premiums written.
IDOR’s administrative rules on nexus, 86 Ill. Admin. Code 100.9720(a), further provide:
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.
Nexus determinations are inherently fact specific, and IDOR does not issue letter
rulings on nexus. In Scioto Ins. Co. v. Oklahoma Tax Comm’n, 279 P.3d 782 (Okla.
2012), the Oklahoma Supreme Court held that merely receiving payments from an instate customer with no other contacts in the taxing jurisdiction was insufficient to
constitute nexus under the Due Process Clause. In State Bd. Of Ins. v. Todd Shipyards
Corp., 82 S. Ct. 1380 (1962), the U.S. Supreme Court ruled that insuring risk on
property located in the state without more is not a valid basis to assert nexus. In support
of its decision, the Court found:
The insurance transactions involved in the present litigation take place
entirely outside Texas. The insurance, which is principally insurance
against loss or liability arising from damage to property, is negotiated and
paid for outside Texas. The policies are issued outside Texas. All losses
arising under the policies are adjusted and paid outside Texas. The
insurers are not licensed to do business in Texas, have no office or place
of business in Texas, do not solicit business in Texas, have no agents in
Texas, and do not investigate risks or claims in Texas.
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,
Brian Fliflet
Deputy General Counsel