Did paying an independent Illinois business to teach a remote seller's customers create Illinois sales-tax nexus?

Plain-English summary

An out-of-state seller of screen-printing equipment and supplies planned to pay an unrelated Illinois business to teach the seller's course to its customers. The instructors would not be employees, and the seller expected no Illinois property or personnel.

IDOR declined to determine nexus in a GIL because the necessary facts were best gathered by an auditor.

Under the historical 2014 framework described, physical presence was not limited to an office or employee. An agent or representative of the seller could establish presence even if the person was not a sales representative. Repetitive delivery and installation also could create Use Tax collection duties.

The Department did not decide whether the Illinois teaching business acted as the seller's agent or representative or whether the arrangement required registration and collection.

What this means for you

This is historical nexus guidance, not a current-law answer. The requested independent-contractor label did not produce a ruling; the actual relationship and activities required factual review.

Common questions

Did IDOR find nexus? No determination was made.

Did only employees count as physical presence? No, under the historical framework described.

Did IDOR classify the instructor as an agent? No.

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).

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2014.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2014/st-14-0020.pdf

Original ruling text

ST 14-0020-GIL 04/07/2014 NEXUS
This letter discusses nexus. See Quill Corp. v. North Dakota, 112 S.Ct. 1904 (1992). (This is a GIL.)
April 7, 2014
Dear Xxxx:
This letter is in response to your letter we received dated February 10, 2014, 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:
I am writing to obtain a ruling on whether or not COMPANY will become subject to sales
tax collection based on our company’s plans outlined below.
Background
COMPANY sells screen printing equipment and supplies on the Internet and over the
phone. We are headquartered in the STATE 1 and also have facilities in STATE 2 and
STATE 3. We ship via common carrier to all 50 states, including Illinois, but are not
currently subject to sales tax collection requirements in Illinois.
Plans
COMPANY also teaches courses on how to screen print in STATE 1, STATE 2, and
STATE 3, and is looking to expand our class offerings. We have found an existing
business in Illinois that would like to teach our screen printing course. COMPANY will
pay this separate company a fee for teaching COMPANY’s customers how to screen
print. The instructors of the course are not COMPANY employees, and COMPANY will
not have any physical presence or employees in the state of Illinois.
We would like to know if this arrangement will establish nexus for COMPANY` in the
state of Illinois and require us to begin charging sales tax to all of our Illinois customers
going forward. We have reviewed Illinois Department of Revenue Regulation 100.9720
regarding nexus and it does not appear that our actions detailed above will result in
nexus in the state of Illinois. However, to error [sic] on the side of caution, we would like
an official ruling from the State with guidance.
Please contact me directly with any questions or points of clarification. Thank you.
DEPARTMENT’S RESPONSE:

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April 7, 2014

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, which we hope 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.
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.
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,

Cara Bishop

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April 7, 2014

Associate Counsel

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