What historical 2010 Illinois guidance did the Department give on sales-tax nexus, software, and digital downloads?

Plain-English summary

Historically, this 2010 GIL applied a physical-presence nexus framework and said repetitive delivery and installation in Illinois triggered Use Tax collection duties. Physical presence could arise through an agent or representative and was not limited to an office or building.

An Illinois retailer accepting orders in Illinois or filling Illinois orders from in-state inventory owed Retailers' Occupation Tax. A retailer maintaining a place of business in Illinois collected Use Tax. Under the historical guidance, an out-of-state seller without sufficient nexus did not collect, but its Illinois customers still owed and self-assessed Use Tax.

The GIL also treated prewritten software and updates as taxable regardless of electronic delivery, subject to the listed license criteria and custom-software rules. Mere viewing or downloading of video, text, and other data was not treated as tangible personal property.

What this means for you

Use this page to understand the Department's 2010 position, not as a current nexus checklist. For software, separate prewritten code from custom programs and from content-only downloads.

Common questions

Q: Did repetitive delivery and installation create nexus under the 2010 GIL?
A: Yes, under its historical physical-presence analysis.

Q: Did downloaded prewritten software escape tax?
A: No. Delivery method did not change its treatment.

Citations and references

• 86 Ill. Adm. Code 150.201(i) and 150.801
• 86 Ill. Adm. Code 130.1935 and 130.1935(a)(1), (c)
• Quill Corp. v. North Dakota, 112 S. Ct. 1904 (1992), as cited in the GIL
• Brown's Furniture, Inc. v. Zehnder, 171 Ill. 2d 410 (1996)

Subject

Nexus

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2010.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2010/st-10-0010.pdf

Original ruling text

ST 10-0010-GIL 02/26/2010 NEXUS
This letter discusses nexus. See Quill Corp. v. North Dakota, 112 S.Ct. 1904 (1992). (This is a
GIL.)

February 26, 2010

Dear Xxxxx:
This letter is in response to your e-mail dated January 21, 2010, in which you request
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 questionnaire for the 2010 Survey
on behalf of your state. Attached below is an excel spreadsheet for you to record
your responses.
If you have any questions about this or if there is any way I can help you to complete
this year’s questionnaire, please contact me.
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 questionnaire should be completed based on state law as of December 31, 2009.
Your responses, along with the responses we receive from other states, will
published by a leading publisher.

be

Please return the completed questionnaire to us by February 22, 2010. After answering
the new questions and updating your responses from last year, please e-mail the excel
spreadsheet to me.
I look forward to working with you.

......
In your questionnaire, you have stated, in part, as follows:
XI.

Sales Tax Nexus Policies

Please identify any statute, regulation, or administrative pronouncement that sets forth
your state’s sales tax nexus policy.
XII.

Sales Tax Nexus Creating Activities

Please indicate ‘yes’ or ‘no’ to show whether each of the following activities or
relationships performed by an out-of-state corporation would, by itself, create
substantial nexus with your state for purposes of triggering the imposition of sales tax
collection requirements on the corporation. When determining whether the listed
activity/relationship would create substantial nexus, assume that each item is the only
activity/relationship the corporation has in your state. Also assume that the out-of-state
corporation has no property or employees located in your state.
A ‘yes’ response means that an out-of-state corporation's performance of the listed
activity/relationship would, by itself, create substantial nexus and trigger the imposition
of sales tax collection requirements on the corporation. A ‘no’ response means that an
out-of-state corporation's performance of the listed activity/relationship would not, by
itself, trigger nexus for purposes of your state's sales tax.
For the questions that you believe require more than a ‘yes’ or ‘no’ answer, please set
forth in the comments section the factors that your state would consider in making a
nexus determination.
A.

General Activities

B.

Remote Sales

C.

Temporary or Sporadic Presence

D.

Activities of Unrelated Parties

E.

Financial Activities

F.

Activities with Affiliates

G.

Internet Activities

H.

Activities Related to Digital Property (New for 2010)

I.

Conformity to Streamlined Sales and Use Tax Agreement (SSUTA)
Provisions (as of January 1, 2010)

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 either accepts purchase orders in the State of Illinois or
maintains an inventory in Illinois and fills Illinois orders from that inventory. 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.
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
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.
COMPUTER SOFTWARE AND DIGITAL GOODS
Generally, retail sales or transfers of “canned” computer software are taxable in Illinois
regardless of the means of delivery. For instance, the sale or transfer of canned computer software
downloaded electronically would be taxable. However, if the computer software consists of custom
computer programs, then the sales of such software may not be taxable retail sales. See 86 Ill. Adm.
Code 130.1935(c). Custom computer programs or software must be prepared to the special order of
the customer.
Charges for updates of canned software are fully taxable pursuant to Section 130.1935. If the
updates qualify as custom software under Section 130.1935(c), they may not be taxable. If

transactions for the licensing of computer software meet all of the criteria provided in subsection
(a)(1) of Section 130.1935, neither the transfer of the software nor the subsequent software updates
will be subject to Retailers' Occupation Tax. A license of software is not a taxable retail sale if:
A) It is evidenced by a written agreement signed by the licensor and the customer;
B) It restricts the customer’s duplication and use of the software;
C) It prohibits the customer from licensing, sublicensing or transferring the software to a third
party (except to a related party) without the permission and continued control of the licensor;
D) The licensor has a policy of providing another copy at minimal or no charge if the customer
loses or damages the software, or permitting the licensee to make and keep an archival copy,
and such policy is either stated in the license agreement, supported by the licensor’s books
and records, or supported by a notarized statement made under penalties of perjury by the
licensor; and
E) The customer must destroy or return all copies of the software to the licensor at the end of
the license period. This provision is deemed to be met, in the case of a perpetual license,
without being set forth in the license agreement.
Please note that it is very common for software to be licensed over the internet and the
customer to check a box that states that they accept the license terms. Acceptance in this manner
does not constitute a written agreement signed by the licensor and the customer for purposes of
subsection (a)(1)(A) of Section 130.1935. To meet the signature requirement for an exempt software
license, the agreement must contain the written signature of the licensor and customer.
A license of canned software is subject to Retailers' Occupation Tax liability if all of the criteria
set out in 86 Ill. Adm. Code 130.1935(a)(1) are not met.
The Department does not consider the viewing and downloading of video, text and other data
over the internet to be the transfer of tangible personal property. Therefore, such viewing and/or
downloading activity over the internet would not be subject to liability under the Retailers' Occupation
Tax Act, Use Tax Act, Service Occupation Tax Act, or Service Use Tax Act. Please note, however,
the transfer of any canned software (or update of canned software) is considered the transfer of
tangible personal property and will be subject to Retailers' Occupation Tax and Use Tax liability,
regardless of the means of delivery. See 86 Ill. Adm. Code 130.1935(a). The transfer or sale of
canned software downloaded electronically would be taxable.
STREAMLINED SALES AND USE TAX AGREEMENT (SSUTA)
Illinois is not a member of to the SSUTA and is not in compliance with the SSUTA. Public Act
92-221, effective August 2, 2001, created the Simplified Sales and Use Tax Administration Act, which
authorized Illinois to enter into multistate discussions to review and/or amend the Streamlined Sales
and Use Tax Agreement and which authorized the Illinois Department of Revenue to enter into the
Streamlined Sales and Use Tax Agreement. Illinois has not enacted the conforming legislation
required to be in compliance with the Agreement. However, beginning on September 1, 2009, Illinois
began taxing candy, soft drinks, and grooming and hygiene products using definitions similar to
SSUTA definitions.
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
RSW:msk