Would IDOR give yes-or-no answers to a 2013 nexus survey, and what historical guidance did it provide instead?

Plain-English summary

A tax publisher asked IDOR to complete a detailed multistate questionnaire with yes-or-no answers about nexus-creating activities and other state-tax topics. IDOR declined: nexus determinations were too fact-specific to answer in that format through a General Information Letter.

Instead, IDOR summarized several historical rules as of December 31, 2012:

• An “Illinois retailer” accepted purchase orders in Illinois or maintained Illinois inventory and filled Illinois orders from it. That retailer owed Retailers' Occupation Tax and collected the purchaser's corresponding Use Tax.
• A “retailer maintaining a place of business in Illinois” registered as an Illinois Use Tax collector and collected Use Tax even when it did not itself owe Retailers' Occupation Tax.
• Under the then-controlling Quill physical-presence framework, an Illinois agent or representative could create presence even if not a sales representative. Repetitive delivery and installation in Illinois could trigger collection responsibility.
• An out-of-state retailer without sufficient nexus did not collect Illinois Use Tax, but its Illinois customers still had to self-assess and remit the tax.

The letter also summarized other survey topics. Canned software was taxable even when electronically delivered; custom software could be nontaxable; and a canned-software license avoided Retailers' Occupation Tax only if it met every criterion in Section 130.1935(a)(1), including a written agreement signed by both licensor and customer. Merely clicking an online acceptance box did not satisfy that signature requirement. Viewing or downloading video, text, and other data was not treated as transferring tangible personal property, but canned software remained taxable regardless of delivery method.

IDOR also pointed to 2011 affiliate and internet-link legislation and stated that Illinois was not a member of, or compliant with, the Streamlined Sales and Use Tax Agreement at that time.

Common questions

Did IDOR answer each nexus activity with yes or no? No. It said the analysis was too fact-specific.

Did repetitive delivery and installation matter? Under the historical framework described in the letter, yes; it could create physical presence and Use Tax collection duties.

Was electronically delivered canned software taxable? Yes. Delivery method did not change its treatment.

Did click-through acceptance satisfy the exempt-license signature requirement? No. The letter required written signatures of both licensor and customer.

Citations and references

• Quill Corp. v. North Dakota, 112 S. Ct. 1904 (1992)
• Brown's Furniture, Inc. v. Zehnder, 171 Ill. 2d 410 (1996)
• 86 Ill. Adm. Code 150.201(i) and 150.801
• 86 Ill. Adm. Code 130.1935(a)(1), (c)
• P.A. 96-1544 and P.A. 92-221

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2013.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2013/st-13-0006.pdf

Original ruling text

ST 13-0006-GIL 01/30/2013 NEXUS
This letter responds to questionnaire regarding nexus. See Quill Corp. v. North Dakota,
112 S.Ct. 1904 (1992). (This is a GIL.)
January 30, 2013
Dear:
This letter is in response to your e-mail dated November 9, 2012, 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 2013 COMPANY Survey
on behalf of your state. Attached is an excel spreadsheet containing questions. One
column of the spreadsheet has all of your state’s responses for 2012. An adjacent
column is there for you to record your responses for 2013. To avoid any errors, please
fill out the 2013 column even if the answer has not changed from 2012.
If you would like to add or change information you have previously recorded in the
comments section, please make those modifications in red font.
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 at X.
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, 2012.
Some new questions have been added to this year’s questionnaire. The new questions
and subsections are denoted in blue font.
Other questions that have appeared in previous years have been deleted, including
questions regarding net operating losses.
As in previous years, the questionnaire asks you about nexus-creating activities for
income tax and sales tax purposes, deductions for state and local income taxes,
conformity to federal I.R.C. §338(h)(10) elections, conformity to the I.R.C. §108
exclusion of income from discharge of indebtedness, the tax treatment of intangible

ST 13-0006-GIL
January 30, 2013
Page 2
holding companies, and whether your state employs a throwback and/or throwout rule.
It also asks about reportable transaction and disclosure requirements and treatment of
net operating losses. In addition, it asks you to indicate the extent of your state’s
conformance to the Streamlined Sales and Use Tax Agreement.
Your responses, along with the responses we receive from other states, will be
published by COMPANY, a leading publisher of international, federal, and state tax
analysis. More information about COMPANY can be found at XX.
Please return your questionnaire to us by January 30, 2013. Your completed excel
spreadsheet should be emailed to me at X.
I look forward to working with you.
......
In your questionnaire, you have stated, in part, as follows:

XI.

Sales Tax Nexus Policies

A.
B.
C.

Please identify any statute, regulation, or administrative pronouncement
that sets forth your state’s sales tax nexus policy.
Sourcing and Method of Delivery
Social Media Coupons

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.

ST 13-0006-GIL
January 30, 2013
Page 3

A.
B.
C.
D.
E.
F.
G.
H.
I.
J.
K.
L.

General Activities
Remote Sales
Temporary or Sporadic Presence
Activities of Unrelated Parties
Financial Activities
Activities with Affiliates
Internet Activities
Activities Related to Digital Property
Distribution and Delivery
Third-Party Solicitation Activities and Attributional Nexus
Transactions Involving Franchise Agreements
Conformity to Streamlined Sales and Use Tax Agreement (SSUTA)
Provisions (as of Jan. 1, 2013)

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

ST 13-0006-GIL
January 30, 2013
Page 4
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.

ST 13-0006-GIL
January 30, 2013
Page 5
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.
ACTIVITIES WITH AFFILIATES
You have asked a number of questions under the umbrella caption “activities with affiliates”.
Although we are unable to answer each specific question in the context of a General Information
Letter, we note that one topic you ask about is the use of common trade names. In 2011, Illinois
enacted a law that requires remote sellers to collect Use Tax in certain situations in which the remote
seller makes sales through a link on the Internet website of a person located in Illinois and certain
situations in which the remote seller sells the same or substantially similar line of products as a
person located in Illinois and does so using an identical or substantially similar name, trade name, or
trademark as the person located in Illinois. See P.A. 96-1544.
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 92221, 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.
Sincerely,

Samuel J. Moore
Associate Counsel