Did selling gift codes or cards through Illinois retailers create nexus, and when was Illinois sales tax due on the gift-code transaction?

Plain-English summary

Illinois did not determine whether the gift-code issuer or affiliated Internet retailers had nexus. The Department said a PLR required an identified taxpayer and that nexus could not be decided in a GIL. It supplied the 2010 physical-presence principles instead, including that an agent or representative could create presence even without an office.

The Department did give a general answer about the product. A card or coupon that entitled its purchaser to redeem for tangible personal property was an intangible right, so the sale of the card or code itself was not subject to Retailers' Occupation Tax. When the code was redeemed for tangible personal property, the retailer transferring the property owed tax on its gross receipts. Tax was due on the purchased item's selling price whether the gift card paid all or only part of it.

The response did not adopt the requester's analysis that sales through Illinois wholesalers or retail establishments, processor activity, affiliate relationships, or direct sales to Illinois establishments would leave every entity without nexus.

What this means for you

Separate gift-code issuance from the later sale of goods, and analyze nexus for every participant based on current facts. The GIL supports the timing of tax at redemption, not a no-nexus safe harbor.

Common questions

Q: Was the sale of the gift code itself taxable?
A: No. The Department characterized the code as an intangible redemption right.

Q: When was tax due?
A: When a retailer redeemed the code for tangible personal property and made the retail sale.

Q: Did Illinois approve the issuer's and affiliates' no-nexus analysis?
A: No. The Department refused to decide nexus in the GIL.

Citations and references

• 86 Ill. Adm. Code 150.201(i) and 150.801
• Quill Corp. v. North Dakota, 112 S. Ct. 1904 (1992)
• Brown's Furniture, Inc. v. Zehnder, 171 Ill. 2d 410 (1996)
• 2 Ill. Adm. Code 1200.120(b) and (c)

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-10-0052.pdf

Original ruling text

ST 10-0052-GIL 06/04/2010 NEXUS
This letter discusses nexus. See Quill Corp. v. North Dakota, 112 S.Ct. 1904 (1992). (This is a
GIL.)

June 4, 2010

Dear Xxxxx:
This letter is in response to your letter dated October 29, 2009, 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:
FIRM submits this Anonymous Ruling Request on behalf of its client, respectfully
requesting a ruling on whether certain affiliated out-of-state companies are required to
register to collect and remit Illinois’ Retail Occupations Tax [sic] or Use Tax as a result
of specified activities in Illinois.
I.

Facts

This ruling request relates to the sale and distribution of gift codes to consumers located
in Illinois. The gift codes may be redeemed to purchase goods and services from
retailers who sell over the Internet.
‘Gift Code Issuer’ sells gift codes directly to consumers over the Internet. Consumers
purchasing gift codes over the Internet may choose to receive the gift code by e-mail, by
printing a gift certificate on their printer, or by receiving a tangible gift card via mail.
Gift Code Issuer also sells gift codes to unrelated, third party wholesalers
(‘Wholesalers’).
Wholesalers sell the gift codes to brick-and-mortar retail
establishments (‘Retail Establishments’) for resale or sell the gift codes directly to
consumers, who will purchase the gift codes while at Retail Establishment locations.
Gift codes sold to consumers at Retail Establishments are transferred to the consumer

using a tangible gift card. The Retail Establishments are located in numerous states,
not including Illinois.
Gift cards used to transfer the gift codes are imprinted with the name of an Internet
marketplace (‘Internet Marketplace’). The Internet Marketplace is operated by ‘Website
Operator,’ and affiliated of Gift Code issuer. The Internet Marketplace provides a virtual
marketplace where consumers may purchase tangible personal property and services
from various ‘Internet Retailers.’
Two of the Internet Retailers are affiliated with Gift Code Issuer and Website Operator
(‘Affiliate Internet Retailers’). Affiliate Internet Retailers sell services and tangible
personal property to consumers via the Internet. All tangible personal property sold by
the Affiliate Internet Retailers is delivered to consumers via common carrier.
The Internet Marketplace also includes numerous Internet Retailers that are not related
to Gift Code Issuer, Website Operator or the Affiliate Internet Retailers. Consumers
may use the value contained in the gift codes to purchase goods and services from
either Affiliate Retailers or unrelated Internet Retailers via the Internet Marketplace.
When the gift code is redeemed, the Website Operator generates a receivable to collect
the amount of the redemption from Gift Code Issuer, and generates a payable to pay
the amount of the redemption to the Internet Retailers. These redemption terms are the
same whether the Internet Retailer is an Affiliate Internet Retailer or an unrelated, third
party Internet Retailer.
Gift Code Issuer contracts with an independent, third party (‘Processor’) to arrange for
the production of tangible gift cards to transfer gift codes sold at Retail Establishment
locations. The tangible gift cards are distributed to the Retail Establishments by the
Wholesalers. The tangible gift card is provided for the benefit of the party selling the gift
code to the consumer as the card provides a physical medium to transfer the gift code.
Gift Code Issuer does not own or have title to the tangible gift card at any point in time,
nor does the tangible gift card have value independent from the gift code.
Gift codes are sold to consumers using alternative methods. When a consumer seeks
to purchase a gift code at a Retail Establishment, Gift Code Issuer sells the gift code to
the Wholesaler. The Wholesaler sells the gift code to the Retail Establishment (who
sells it to the consumer). Alternatively, the Wholesaler may sell the gift code to the
consumer directly, and provide the Retail Establishment a commission. Gift Code
Insurer retains title to the gift code until these sale transactions take place.
The gift code does not have any value until the gift code is activated with a specific
dollar value. Once a gift code is sold, the Retail Establishment commences the
activation of the purchased gift code using electronic equipment that is owned by the
Retail establishment and connected to the Wholesaler’s network.
The Retail
Establishment transmits to the Wholesaler the information necessary to activate the gift
code. The Wholesaler then transmits this information to Processor, and Processor
transmits this information to Gift Code Issuer. Gift Code Issuer pays Processor a
processing and fixed card fee at the time of activation.
Under the proposed transactions (‘Proposed Transactions’), Wholesalers would begin
selling gift codes to Retail Establishments located in Illinois or directly to Illinois
consumers at Retail Establishment locations. Gift code Issuer and Affiliate Internet

Retailers are not physically present in Illinois, as none of these entities have offices,
employees, tangible personal property or real property located within the state.
II.

Issues

1.
Are sales of gift codes to Illinois residents subject to one of Illinois’s [sic] sales or
use taxes?
2.
Under the Proposed Transactions, will Gift Code Issuer be required to register to
collect and remit one of Illinois’ sales or use taxes?
3.
Under the Proposed Transactions, will the Affiliate Internet Retailers be required
to register to collect and remit one of Illinois’ sales or use taxes on their separate sales
of tangible personal property to consumers located in Illinois?
4.
Would the above conclusions change if Gift Code Issuer sold the gift codes
directly to Retail Establishments located in Illinois?
III.

Legal Framework for Analysis
A.

U.S. Constitution

Federal constitutional limitations, as well as limitations imposed by federal law, are the
foundation for state taxation. The Commerce Clause limits the states from levying a tax
on income that is unduly burdensome on interstate commerce. The U.S. Supreme
Court has held that a tax on interstate commerce is permissible under the Commerce
Clause if the tax is: (1) applied to an activity with substantial connection (nexus) to the
state; (2) is fairly apportioned; (3) does not discriminate against interstate commerce;
and (4) is fairly related to the services provided by the taxing state. Complete Auto
Transit, Inc. v. Brady, 430 U.S. 274 (1977). The Due Process Clause also prevents a
state from taxing a business unless the business has some connection with the taxing
state. There must be a definite link or minimum connection between the in-state
activities of the taxpayer and the state before the state may impose its tax.
In its analysis of sales and use tax nexus, the U.S. Supreme Court has emphasized that
physical presence is required in order to create Commerce Clause substantial nexus.
In Quill Corp. v. North Dakota, 504 U.S. 298 (1992), the U.S. Supreme Court held that
the Commerce Clause bars a state from imposing a use tax collection duty on an out-ofstate seller with no physical presence in the state. Thus, the ‘bright-line’ physical
presence standard first established by the Supreme Court in National Bellas Hess v.
Department of Revenue, 386 U.S. 753 (1967), was reaffirmed by the Court in Quill and
continued to govern today.
The Supreme Court has also held that ‘the crucial factor governing nexus is whether the
activities performed in this state on behalf of the taxpayer are significantly associated
with the taxpayer’s ability to establish and maintain a market in this state for the sales.’
Tyler Pipe Industries, Inc. v. Dept. of Revenue, 483 U.S. 232 (1987) (internal quotes
omitted). Thus, when considering ‘attributional nexus’ fact patterns, the state is bound
to consider both the substantial nexus – i.e., physical presence – of an entity’s
representative, as well as whether the presence of said representative is specifically
directed to ‘establishing and maintaining a market’ in the state for the sales at issue.

B.

Illinois’s [sic] Sales and Use Taxes
1.

Imposition of Tax

The Illinois Retailers' Occupation Tax (‘ROT’) is a sales tax imposed upon persons
engaged in the business of selling tangible personal property at retail. 35 Ill. Comp.
Stat. § 120/2-10. The Illinois Use Tax (‘UT’) is a complementary use tax imposed upon
the privilege of using tangible personal property in Illinois. 35 Ill. Comp. Stat. § 105/3.1
Illinois does not specifically define the term ‘tangible personal property’ in its statutes or
regulations. ‘However, Illinois courts have generally understood tangible personal
property to mean all material things with intrinsic value except real property such as
land, buildings, and attached fixtures, or intangibles such as stocks, bonds, cash,
copyrights and licenses.’ Ill. Private Ltr. Rul. No. ST 07-0001-PLR (May 1, 2007) (citing
Farrand Coal Company v. Halpin, 10 Ill. 2d 507 (1957); Administrative Hearing Decision
No. UT 02-2, Dept. of Revenue v. John Doe (April 30, 2002)).
On several occasions, the Department of Revenue has ruled that gift certificates are
intangible property, the sale of which is not subject to Illinois ROT or UT:
The sale of gift certificates represents an intangible right to purchase
merchandise at some future time. Therefore, sales of gift certificates are
not subject to [ROT] liability because they are considered sales of
intangibles. However, when the gift certificates are redeemed on the
purchase of tangible personal property, tax is due on the selling price of
that property, whether partially or wholly funded by the gift certificate.
Ill. Dept. of Rev, General Info. Ltr. No. ST 07-0063-GIL (June 12, 2007); see also Ill.
Dept. of Rev. General Info. Ltr. No. ST 06-0125-GIL (June 7, 2006); Ill. Dept. of Rev.
General Info. Ltr. No. ST 06-0109 (April 28, 2006) (holding that the sale of ‘points’
enabling the owner to later acquire tangible personal property were intangible rights
analogous to gift certificates, and thus their sale was not subject to tax).
2.

Registration and Collection Requirement

Illinois imposes a registration and collection requirement on persons engaged in the
business of selling tangible personal property at retail. 35 Ill. Comp. Stat. § 120/2. A
‘retailer’ is defined as a person engaged in the business of making sales at retail. 35 Ill.
Comp. Stat. § 105/2. A ‘sale at retail’ is defined as the transfer of ownership of tangible
personal property for the purpose of use, and not for the purpose of resale. 35 Ill.
Comp. Stat. § 105/2.
In addition, in order for a retailer to be subject to Illinois’ sales/use tax jurisdiction, the
retailer must maintain a ‘place of business’ in Illinois. 35 Ill. Comp. Stat. § 105/2. A
‘place of business’ includes an office, distribution house, sales house, warehouse or
other place of business. 35 Ill. Comp. Stat. § 105/2. Additionally, a ‘place of business’
in the state includes any agent or other representative ‘operating within the state under
1

Illinois also imposes a Service Occupation Tax (‘SOT’) upon persons engaged in the business of selling services. 35 Ill. Comp. Stat.
§ 115/3-40. The SOT is imposed upon the transfer of tangible personal property acquired as an incident to the purchase of service,
and thus only applies if tangible personal property is actually transferred. 35 Ill. Comp. Stat. § 115/3-40. The Illinois Service Use Tax
(‘SUT’) is a complementary use tax imposed upon the use of tangible personal property ‘acquired as an incident to the purchase of
service.’ 35 Ill. Comp. Stat. § 110/3.

the authority of the retailer or its subsidiary, irrespective of whether such place of
business or agent or other representative is located here permanently or temporarily, or
whether such retailer or subsidiary is licensed to do business in this State.’ 35 Ill.
Comp. Stat. § 105/2.
Illinois regulations provide some additional guidance. According to the regulations, a
‘retailer maintaining a place of business in this state’ also includes the following:
(1)

A retailer having or maintaining, directly or through a subsidiary, an office,
distribution house, sales house, warehouse, or other place of business; or
having an agent or other representative operating in the state under the
authority of a retailer or its subsidiary;

(2)

Soliciting orders for tangible personal property by means of
telecommunication or television shopping system with the intent to be
broadcast in the state;

(3)

Soliciting orders for tangible personal property by means of advertising
pursuant to a contract with a broadcaster or publisher located in the state;

(4)

Soliciting orders for tangible personal property by mail, if the solicitation is
substantial and recurring, and the retailer benefits from banking, financing,
debt collection, telecommunication, or marketing activities in the state, or
benefits from the location of repair, service, or installation facilities in the
state;

(5)

Being owned by or controlled by the same interests that own or control
any retailer engaging in business in the same or similar line of business in
this State;

(6)

Having a franchisee or licensee operate under the retailer’s trade name;

(7)

Soliciting orders over cable television in the state pursuant to a contract
with a cable television operator located in the state; and

(8)

Engaging in activities in Illinois that would result in nexus under the law of
the retailer’s domicile.

86 Ill. Adm. Code § 150.201(i).
3.

Affiliate Nexus

As discussed above, subsection (5) of Regulation 150.201 contains an ‘affiliate nexus’
provision. This provision contains two requirements that must be met before the
Department may impose tax collection responsibilities upon a retailer with affiliates in
the state, namely: (1) the in-state retailer and out-of-state retailer must be ‘controlled’ by
the same interests; and (2) the in-state retailer must engage in the ‘same or similar line
of business’ in Illinois as the out-of-state retailer. Neither the Illinois Department of
Revenue nor the courts have developed a test to define the term ‘same or similar line of
business.’ However, the statutory language suggests that for activities to be considered
in the ‘same line of business,’ the retail activities of the in-state and out-of-state retailers
must be closely related to each other (e.g., same product lines).

There is also a wide range of interpretative guidance in Illinois with respect to
attributional nexus. In Illinois General Information Letter ST 99-0364-GIL (Nov. 29,
1999), an out-of-state company had a mail order business that solicited and sold to
Illinois residents. The company had no other contacts with the state, and thus was not
collecting Illinois sales or use taxes on its direct mail sales. The out-of-state company
was planning to set up agency agreements with retailers based in Illinois, and inquired
as to whether these agency agreements would create nexus with Illinois, and require
the company to collect use and sales tax on its direct mail sales. The Department
stated that agency agreements with in-state retailers generally did not create nexus with
Illinois, as long as the retailers resold the products only on their own behalf. The
Department suggested that there would be nexus if the retailers were divisions of the
out-of-state company, were authorized to solicit orders on behalf of the out-of-state
company, or were otherwise authorized to act as representatives of the out-of-state
company in any other capacity.
In Illinois General Information Letter ST 99-0352-GIL, (Nov. 18, 1999), a company
planned to open a processing facility in Illinois. This facility would receive and process
books that were rejected by customers of an out-of-state publisher. The out-of-state
publisher used only common carriers and the U.S. Postal service to ship the books, and
otherwise had no contacts with Illinois. The processing company inquired as to whether
it would be subject to use taxes or service occupation taxes, and also inquired as to
whether its presence would subject to out-of-state publisher to sales and use tax
collection duties in Illinois. The Department stated that the processor’s presence would
not create nexus between the out-of-state publisher and Illinois, as the out-of-state
publisher was merely using the company in Illinois to deliver or process merchandise.
Also, because the processor was not soliciting sales for the publisher and not otherwise
authorized to act for the publisher, no nexus was created over the out-of-state publisher.
In Illinois General Information Letter ST 95-0519-GIL (Dec. 29, 1995), an out-of-state
company sold consumer goods by mail and telephone. The out-of-state seller
contemplated entering an agreement with a telephone marketing company located in
Illinois. The telephone marketing company would solicit orders by telephone and
forward the orders to a distributor outside of Illinois for shipment. The Department
stated that contracting with the Illinois telemarketer would qualify the out-of-state seller
as a ‘retailer maintaining a place of business in Illinois.’ 86 Ill. Admin. Code 150.201(i).
Accordingly, the company would be required to collect and remit state use tax on sales
to Illinois customer. However, the Department stated that its conclusion was premised
upon the assumption that the telemarketer would act as a sales representative for the
out-of-state company.
IV.

Analysis
A.

Gift Codes Do Not Constitute Tangible Personal Property or Services
Subject to Illinois ROT or UT

Gift codes provide consumers with the right to acquire tangible personal property or
services from Internet Retailers. Thus, gift codes are intangible rights that represent a
form of payment and function as a cash equivalent. Gift codes are not tangible personal
property as they cannot be touched, measured, seen or otherwise perceived by the
senses. Because gift codes are not tangible personal property, the sale of gift codes is
not subject to Illinois ROT or UT. See, Ill. Dept. of Rev. General Info. Ltr. No. ST 07-

0063-GIL (June 12, 2007), see also Ill. Dept. of Rev. General Info. Ltr. No. ST 06-0125GIL (June 7, 2006); Ill. Dept. of Rev. General Info. Ltr. No. ST 06-0109-GIL (April 28,
2006).
B.

Gift Code Issuer Will Not Be Required to Register to Collect Illinois
ROT or UT
1.

Constitutional Limitations

Gift Code Issuer will not be required to register for and collect Illinois ROT or UT as a
result of the Proposed Transactions because Gift Code Issuer will not have a physical
presence in the state. Gift Code Issuer sells gift codes, which are intangible rights to
purchase property from Internet Retailers, and engages in its business from facilities
located wholly outside Illinois. Gift Code Issuer will not have any offices or employees
in Illinois, nor will Gift Code Issuer own real or tangible personal property located within
the state. Therefore, Gift Code Issuer will not satisfy Quill’s physical presence nexus
standard.
Gift Code Issuer will not establish attributional nexus with Illinois because no
representatives will be performing market-related activities in Illinois on Gift Code
Issuer’s behalf. As discussed above, Gift Code Issuer sells gift codes to Wholesalers
for resale; Wholesalers then resell the gift codes to Retail Establishments or directly to
consumers at Retail Establishments.
The activities that will be performed by
Wholesalers and Retail Establishments in Illinois will be performed for the benefit of
those entities and not for Gift Code Issuer’s benefit. Thus, Gift Code Issuer will not
have nexus with Illinois by virtue of others’ Illinois activities.
2.

Illinois Law

Gift Code Issuer will not be required to register to collect and remit Illinois ROT or UT
because Gift Code issuer is not a ‘retailer’ under Illinois law. As discussed above, a
‘retailer’ is defined as a person engaged in the business of making ‘sales at retail,’
which are defined as ‘the transfer of ownership of tangible personal property for the
purpose of use…’ 35 Ill. Comp. Stat. § 105/2. Gift Code Issuer is not a ‘retailer’
because Gift Code Issuer does not make sales of tangible personal property. Rather,
Gift Code Issuer sells gift codes that are not subject to Illinois tax.
Gift Code Issuer will not be required to register to collect and remit ROT or UT because
Gift Code Issuer will not maintain a place of business in Illinois. Gift Code Issuer
conducts its business wholly from outside of the state, and will not have any real or
tangible personal property or employees in the state. Specifically, Gift Code Issuer will
not have an office, distribution house, sales house, warehouse or other place of
business in the state, nor will it have an agent or other representative operating within
Illinois under the authority of Gift Code Issuer or its subsidiary. Further, Gift Code
Issuer will not solicit orders for tangible personal property by means of
telecommunications, advertising, by mail or cable. Nor will Gift Code Issuer have a
franchisee or licensee operating under its trade name.
Finally, Gift Code Issuer will not fall within the state’s affiliate nexus provision. The
affiliate nexus provision under Illinois law has the following two requirement: (1) an instate retailer and out-of-state retailer are ‘controlled’ by the same interests; and (2) the
in-state retailer engages in the ‘same or similar line of business’ in Illinois as the out-of-

state retailer. In this case, the requirements are not met. There is no common interest
controlling Gift Code Issuer and an in-state retailer who is engaged in a similar line of
business in Illinois.
Gift Code Issuer is not subject to Illinois’ registration and collection requirements.
C.

Affiliate Internet Retailers Will Not Be Required to Register and
Collect Illinois ROT or UT
1.

Constitutional Limitations

Affiliate Internet Retailers also will not be required to register and collect Illinois sales
and use tax based upon U.S. Constitutional principles. Affiliate Internet Retailers are
Internet sellers of tangible personal property and services, and engage in business from
facilities located wholly outside Illinois. All deliveries of tangible personal property to
Illinois consumers will continue to be made into the state via common carrier. Affiliate
Internet Retailers will not have any offices or employees in Illinois, nor will they own real
or tangible personal property located in the state. Therefore, Affiliate Internet Retailers
will not satisfy Quill’s physical presence standard..
Affiliate Internet Retailers also lack nexus with Illinois based upon the attributional nexus
standard established in Tyler Pipe because no other entity is performing market-related
activities in Illinois on behalf of Affiliate Internet Retailers. Under the Proposed
Transactions, gift codes will be sold to Illinois consumers at Retail Establishments.
Consumers may redeem the gift codes for goods and services with any Internet Retailer
in the Internet Marketplace, and the terms of redemption are the same whether the
consumer purchases property or services from an affiliate or other Internet Retailer.
Finally, as discussed above, all of the activities performed by Wholesalers and the
Retail Establishments in Illinois will be performed for the benefit of those entities’ own
sales of gift codes within the state. For each of these reasons, Affiliate Internet
Retailers will not acquire nexus with Illinois by virtue of Wholesalers’ or Retail
Establishments’ physical presence or activities within the state.
2.

Illinois Law

Affiliate Internet Retailers will not be required to register to collect and remit Illinois ROT
or UT as a result of the Proposed Transactions because they do not maintain a place of
business within the state. Affiliate Internet Retailers conduct business wholly from
outside of the state, and will not have any real or tangible personal property or
employees in the state. They will not have an office, distribution house, sales house,
warehouse or other place of business in the state, nor will they have an agent or other
representative operating within Illinois under their authority. Further, Affiliate Internet
Retailers will not solicit orders for tangible personal property by means of
telecommunications, advertising, by mail or cable. Nor will Affiliate Internet Retailers
have a franchisee or licensee operating under their trade name.
Affiliate Internet Retailers also will not be required to register to collect and remit Illinois
tax under the state’s affiliate nexus provision. As discussed above, Illinois’ affiliate
nexus provisions have two requirements: (1) an in-state retailer and out-of-state retailer
must be ‘controlled’ by the same interests; and (2) the in-state retailer must engage in
the ‘same or similar line of business’ in Illinois as the out-of-state retailer. Affiliate

Internet Retailers are not related to any in-state retailers who are engaged in a similar
line of business and thus this provision does not apply.
Affiliate Internet Retailers are not subject to Illinois’ registration and collection
requirements.
D.

The Aforementioned Conclusions Will Not Change if Gift Code Issuer
Sells Directly to Retail Establishments Located in Illinois

In the event that Gift Code Issuer sells gift codes directly to Illinois Retail
Establishments for resale to consumers within the state (rather than to Wholesalers),
the aforementioned conclusions will not change. The direct sale of gift codes to Retail
Establishments will not cause Gift Code Issuer or Affiliate Internet Retailers to have a
physical presence in the state, as they will continue to engage in business from facilities
located outside of Illinois, and will not have any offices, employees or property in Illinois.
Moreover, the activities performed by Retail Establishments in Illinois will inure to the
benefit of the Retail Establishments. Retail Establishments will not be performing
market-related activities on Gift Code Issuer’s or Affiliate Internet Retailer’s behalf.
Similarly, Gift Code Issuer’s direct sales to Retail Establishments will not create an
Illinois statutory registration and collection responsibility.
V.

Conclusions

1.

Gift Code issuer will not be subject to Illinois’s [sic] ROT and UT registration and
collection responsibilities under the Proposed Transactions. This conclusion will
not change if Gift Code Issuer sells gift codes directly to Retail Establishments.

2.

Affiliate Internet Retailers will not be subject to Illinois’s [sic] ROT and UT
registration and collection responsibilities under the Proposed Transactions. This
conclusion will not change if Gift Code Issuer sells gift codes directly to Retail
Establishments.

In advance of the issuance of a response to this request for a ruling, we respectfully
request that the Department of Revenue contact us to discuss any facts or questions
that may arise. Please feel free to contact INDIVIDUAL.

DEPARTMENT’S RESPONSE:
A request for a Private Letter Ruling must be made by an identified taxpayer or by a taxpayer's
representative under a power of attorney from that identified taxpayer. The Department will not issue
Private Letter Rulings to taxpayer representatives for anonymous or unidentified taxpayers. The
nature of your letter and the information you have provided require that we respond with a General
Information Letter, 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 1200.120 subsections (b) and (c),
which can be found on the Department's Internet website.
NEXUS

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.
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.
GIFT CODES/CARDS
It is important to note that when a gift card is redeemed, tax is due on the selling price of the
item purchased, whether partially or wholly funded by a gift card. Persons who are engaged in the
business of selling cards or coupons, which entitle purchasers to the right to redeem those cards for
tangible personal property, are not engaged in selling tangible personal property. Rather, they are
making sales of intangibles. Such sales are not subject to the Retailers' Occupation Tax. However,
when those cards or coupons are redeemed for tangible personal property, retailers transferring
tangible personal property incur Retailers' Occupation Tax liability based on their gross receipts from
sales.
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,

Debra M. Boggess
Associate Counsel
DMB:msk