Did Illinois decide whether a New York maintenance contractor using Illinois subcontractors had nexus or approve its proposed prospective settlement?

Plain-English summary

Illinois did not decide whether the New York general contractor had nexus from repeatedly hiring Illinois subcontractors for customer maintenance and repair work. It said nexus required facts best gathered by an auditor and provided only the 2010 physical-presence framework.

Under that framework, an agent or representative could create physical presence even without an Illinois office, and the representative did not need to be a sales representative. The GIL also distinguished an Illinois retailer from an out-of-state retailer maintaining a place of business and from a retailer without sufficient nexus whose Illinois customers self-assessed Use Tax.

The contractor proposed registering and filing prospectively from July 1, 2010 while Illinois agreed that no returns were due for the earlier period. The Department did not approve that proposal. It said only that a copy would be forwarded to Department litigators, who would contact the requester.

What this means for you

Do not treat subcontractors as automatically harmless or automatically nexus-creating based on this GIL. Analyze their authority, activities, frequency, and relationship under current law, and use current voluntary-disclosure procedures for prior periods.

Common questions

Q: Did the GIL decide that the subcontractors created nexus?
A: No. The Department refused to make a nexus determination.

Q: Was the proposed prospective-only filing agreement accepted?
A: No acceptance appears in the GIL; the proposal was merely forwarded for review.

Citations and references

• 86 Ill. Adm. Code 150.201(i) and 150.801
• Quill Corp. v. North Dakota, 112 S. Ct. 1904 (1992)
• 2 Ill. Adm. Code 1200.110 and 1200.120

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-10-0050.pdf

Original ruling text

ST 10-0050-GIL 06/03/2010 NEXUS
This letter discusses nexus. See Quill Corp. v. North Dakota, 112 S.Ct. 1904 (1992). (This is
a GIL.)

June 3, 2010

Dear Xxxxx:
This letter is in response to your letter dated May 14, 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:
As a follow up to our request for a Voluntary Disclosure dated March 31, 2010 we have
been advised by your department to contact you for a ‘nexus ruling’ AND
PROSPECTIVE NEXUS SETTLEMENT.
We have a client which is a company, based in New York that would like a
ruling/determination/settlement as to whether or not it has nexus in Illinois (‘State’). The
facts are as follows:
Our client began business shortly after January 2, 2009. Our client is a
general contractor who typically performs light maintenance and repair
services for businesses such as retail stores and shopping center.
Customers will call our client for certain maintenance or repairs and our
client will outsource or subcontract the work to in-state subcontractors or
companies.
As the general rule (outside of New York) our client did not charge the
customer sales tax. However, the subcontractor charges our client sales
tax on materials.

For example, a typical scenario is that a retail store will call our client to
replace and change a light bulb. Our client will contact an in-state
independent contractor. The contractor will charge our client the following:
Charge by in-state independent contractor to our client:
Parts and tax: $8.00
Labor: $72.00
Our client will then charge the customer the following:
Charge by our client to customer:
Parts: $10
Labor: $90
To date, the amount of in State work has not been a material portion of the client’s
revenue. They do not believe that their presence in the State has exceeded the ‘de
minimis’ threshold to create nexus. As of March 31, 2010 our client was not registered,
nor did the client collect ANY State tax or issued any State exemption documents.
However we are currently reviewing this position and would like to register, collect and
remit tax as soon as reasonably possible.
Our client has had no prior contact with the State revenue authorities and is not
currently under audit by the State.
Please provide us with a ruling on whether or not our client has nexus in your state.
WE RESPECTFULLY REQUEST, to be allowed to enter into an agreement where
the client voluntarily comes forward and agrees to register, collect, pay and remit
all applicable state sales and use taxes from the period from July 1, 2010 into
perpetuity. In return, we are looking for the state to agree that no returns were
due for the period January 2, 2009 through June 30, 2010.
Additionally, the client would agree to file state income tax returns for the
calendar year 2010 and into perpetuity.
Thank you for your time and effort regarding this matter. Please address all inquiries or
requests for information to my attention at the address above. Furthermore, I can be
reached by phone, by fax, or by email.

DEPARTMENT’S RESPONSE:
The Department declines to make nexus determinations in the context of Private Letter Rulings
or General Information Letters because the amount of information required to make those
determinations is often best gathered by an auditor. The following information outlines the principles
of nexus. We hope it is helpful to you.
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. If a vendor attends an Illinois trade show and

accepts a purchase order at that show, that vendor would be making an Illinois retail sale subject to
Retailers’ Occupation Tax. This would be true even if the vendor later shipped the item or goods from
an out-of-State location to the Illinois customer.
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 a 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 see Brown’s Furniture, Inc. v. Wagner, 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. In
such instances, those customers must remit their Illinois Use Tax along with a completed Form ST44, Illinois Use Tax Return unless they are otherwise registered or are required to be registered with
the Department and remit their Illinois Use Tax with a Form ST-1, Illinois Sales and Use Tax Return.
Many retailers that do not have nexus with the State have chosen to voluntarily register as Use Tax
collectors as a courtesy to their Illinois customers so that those customers are not required to file
returns concerning the transactions with those retailers.
We are forwarding a copy of your letter regarding your proposed agreement to our litigators in
the Department’s Chicago Office. They will contact you shortly about your proposal.
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,

Terry D. Charlton
Senior Counsel, Sales & Excise Taxes
TDC:msk