Where did an Illinois distributor source local tax on warehouse walk-ins and sales processed through a separate headquarters office?

Plain-English summary

A multistate distributor sold fertilizers, chemicals, seed, athletic-field products, ice melt, and accessories. After acquiring an Illinois division, it operated an Illinois headquarters office and a separate warehouse.

For warehouse walk-in customers, the warehouse manager entered the order, issued the invoice, collected payment, and supplied inventory at the warehouse. IDOR found at least three primary selling activities there and sourced those sales to the warehouse city.

For other Illinois sales, no single location had three primary activities, so IDOR also weighed secondary activities. The Illinois headquarters issued invoices and served as the principal selling office; procurement, local price setting, purchase-order receipt, title passage, and product displays also occurred there. IDOR sourced those non-walk-in Illinois sales to the headquarters city.

Sales from the distributor's out-of-state location to Illinois customers required collection of Illinois Use Tax at 6.25%.

What this means for you

Local sourcing followed the composite of selling activities, not a single formal step. Warehouse pickup created a different result when the warehouse also bound the sale, invoiced, collected payment, and held the inventory.

This PLR states that it ceases to bind IDOR ten years after September 26, 2016—September 26, 2026—or earlier if relevant law, rules, case law, or facts change.

Common questions

Where were warehouse walk-ins sourced? To the warehouse city.

Where were the division's other Illinois sales sourced? To its Illinois headquarters city.

What rate applied to sales from the out-of-state location? 6.25% Use Tax.

Can another distributor rely on this PLR? No.

Citations and references

• 86 Ill. Adm. Code 270.115(b) and (c).
• 86 Ill. Adm. Code 150.801.
• Hartney Fuel Oil Co. v. Hamer, 2013 IL 115130.
• 2 Ill. Adm. Code 1200.110(e).

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2016.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2016/st-16-0012-plr.pdf

Original ruling text

ST 16-0012-PLR 09/26/2016

LOCAL TAXES

The occupation of selling is comprised of the composite of many activities extending from the
preparation for, and the obtaining of, orders for goods to the final consummation of the sale by
the passing of title and payment of the purchase price. Thus, establishing where "the taxable
business of selling is being carried on" requires a fact-specific inquiry into the composite of
activities that comprise the retailer’s business. 86 Ill. Adm. Code 270.115. (This is a PLR.)

September 26, 2016

RE: ABC: Private Letter Ruling Request
Dear Xxxxx:
This letter is in response to your letter dated April 13, 2016 and the supplemental information
you provided on August 9, 2016, 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.
Review of your request disclosed that all the information described in paragraphs 1 through 8
of Section 1200.110 appears to be contained in your request. This Private Letter Ruling will bind the
Department only with respect to ABC, for the issue or issues presented in this ruling, and is subject to
the provisions of subsection (e) of Section 1200.110, governing expiration of Private Letter Rulings.
Issuance of this ruling is conditioned upon the understanding that neither ABC nor a related taxpayer
is currently under audit or involved in litigation concerning the issues that are the subject of this ruling
request. In your letter you have stated and made inquiry as follows:
As counsel for and on behalf of ABC, we hereby formally request a Private Letter
Ruling, pursuant to 2 Ill. Admin. Code § 1200.110, from the Illinois Department of
Revenue (“Department”), confirming that (a) ABC has 3 sales locations, one located
outside of Illinois and two located in Illinois; (2) for sales from the out-of-state location
ABC should continue to remit tax to the Department on sales to Illinois customers at the
rate of 6.25%; and (3) for sales from the new Illinois locations, depending on where the
selling activities occur, ABC should source the sales to either its principal offices in
Illinois which are in CITY 1, Illinois or to its warehouse which is in CITY 2, Illinois. To
the best of the knowledge of both ABC and ABC’s representative the department has
not previously ruled on the same or a similar issue for ABC or a predecessor and ABC

or any representatives have not previously submitted the same or a similar issue to the
Department but withdrew it before a letter ruling was issued.
ABC is not currently under audit by the Department regarding this issue. In addition,
ABC is unaware of any authority contrary to its views expressed in this request.
Furthermore, we ask that our client’s name, address, and any contract or exhibits
attached be kept confidential and deleted from the publicly disseminated version of the
private letter ruling.
FACTS
ABC is a green industry distributor offering fertilizers, chemicals, grass seed, athletic
field products, ice melt, and accessories to the golf, lawn care, landscape, and athletic
field markets. Headquartered in CITY 3, STATE, ABC has expanded to service eight
states with its various warehouses. ABC’s inventory is stored at the warehouses
located outside of Illinois, with some stored at headquarters. In addition, some of ABC’s
sales representatives have inventory stored on hand.
ABC has dozens of sales representatives whom work out of home offices, none of
which are located in Illinois. Solicitation activities occur at and sales are primarily
generated by on-site customer visits by sales representatives. An order is given by the
customer to the sales representative (in person, by e-mail, text or phone). ABC does
not engage in any conditional sales.
Invoices are issued by and payment is tendered to the STATE office. ABC engages in
activities to procure goods for sale from its STATE office. In addition, the location of
ABC’s officers, executives and employees with authority to set prices are at the STATE
office. Purchase orders are received, accepted and processed at the STATE Office and
title passes at the STATE office. Finally, ABC displays goods to prospective customers
at the STATE office.
ABC is currently registered with the Department as an out-of-state retailer and remits
tax to the Department on sales to Illinois customers of at a rate of 6.25%.

As of March 1, 20XX, ABC acquired 100% of the stock of XYZ of Illinois. XYZ of Illinois
now operates as a division of Taxpayer and is known as ABC dba XYZ. XYZ’s home
office is based in CITY 1, Illinois and XYZ services primarily the state of Illinois. XYZ
has a warehouse which was previously located in CITY 4, Illinois and has been recently
relocated to CITY 2, Illinois (“Warehouse”). To inform the Department of the acquisition
of XYZ that will operate at locations in Illinois in which ABC was not previously
registered, ABC will file Form Reg-3-C, Business Information Update, to add the XYZ
CITY 1, Illinois location as a second location (the first of which is in the state of Illinois)
and the XYZ CITY 2, Illinois location as the third location.
As for XYZ, a large percentage of its inventory is in the Warehouse. In addition, some
of XYZ’s sales representatives have inventory stored on hand.

XYZ has 6 sales representatives whom work out of home offices, and report to the CITY
1 headquarters. Solicitation activities occur at and sales are primarily generated by onsite customer visits by sales representatives. These activities are supported by sales
and marketing efforts directed from the CITY 1 office. An order is processed as follows:
(1) the customer gives the sales representative an order (in-person, by e-mail, text or
phone); (2) the sales representative enters the order into the system as a “Quote” and
then notifies the CITY 1 office to turn the “Quote” into an “Order”; and (3) the order is
then processed and sent to the Warehouse for delivery scheduling. Most administrative
activities, i.e., expense management, sales order entry, invoicing, etc. are performed at
the CITY 1 office. XYZ does not engage in any conditional sales.
In substantially all cases, invoices are issued by the CITY 1 Office though payment is
remitted to the CITY 3, STATE office. There is 1 exception with respect to “Walk In”
customers at the Warehouse. A small percentage of XYZ’s business will drive to the
Warehouse to pick up product. In these cases the order is generated via a phone call
ahead of the pick up or in-person. These customers pay with credit, cash or check.
Here, the “order” is entered in the system by the Warehouse manager, the invoice is
issued by the Warehouse and the money is collected at the Warehouse. The money is
then sent to CITY 3, STATE to be deposited into the bank.
XYZ engages in activities to procure goods for sale from its CITY 1 office. In addition,
the location of XYZ’s employees with authority to set prices are at the CITY 1 office,
though XYZ does get direction and pricing from ABC in the form of Price List Masters.
XYZ does have discretion to change prices based on local competitive issues.
Purchase orders are received, accepted and processed at the CITY 1 office and with
exception of the orders for Walk-In customers, title passes at the CITY 1 office. Finally,
XYZ displays goods to prospective customers at both the CITY 1 office and the
Warehouse.
ILLINOIS LAW AND ANALYSIS
The Illinois Retailers’ Occupation Tax is a gross receipts tax imposed on the privilege of
engaging in the business of selling at retail. 35 ILCS 120/2. For the tax to apply, the
retailing must occur in the state. In-state retailing activity is subject to the 6.25% statelevel Retailers’ Occupation Tax. Many local governmental units also impose their own
additional local Retailers’ Occupational Taxes. Sourcing is generally to the location
where the retailing activity is considered to have occurred. The retailer collects the
applicable amount of tax from the customer.1 The retailer reports the gross receipts and
tax amounts to the Illinois Department of Revenue on a jurisdiction-by-jurisdiction basis,
which allows the state to distribute the 1.25% local share of the 6.25% state Retailers’
Occupational Tax rate, and any additional local Retailers’ Occupation Taxes, to the
appropriate local government entities in whose jurisdiction the retailing activity was
sourced.

Technically, what is collected from the customer is the 6.25% Use Tax plus reimbursement for any applicable local Retailers’
Occupation Taxes.
1

Out-of-state retailing activity is not subject to Retailers’ Occupation Tax, since the
potentially taxable privilege of selling at retail is occurring outside of the state’s
jurisdiction. The use of tangible personal property in the state, however, is still subject
to Use Tax. An out-of-state retailer having nexus with Illinois must collect and remit
6.25% Use Tax on sales for use in Illinois. 35 ILCS 105/3-45. There are no additional
local use taxes administered by the Department of Revenue on sales of general
merchandise; the rate of Use Tax paid to the state on such sales is always 6.25%. The
1.25% local portion of the 6.25% Use Tax rate is distributed according to a formula that
benefits all localities in Illinois, and with the City of Chicago and the Regional
Transportation Authority receiving set percentages of statewide Use Tax revenue. 2 The
sourcing of sales for Retailers’ Occupation Tax and Use Tax purposes thus determines
which local governments will receive distributions of tax monies.
Illinois sources sales for local tax purposes based on where the seller’s predominant
and most important sales activities take place. There are several factors which should
be taken into consideration according to the Department’s rules.
Specifically, the Department adopted new sourcing rules on June 25, 2014. 86 Ill.
Admin. Code §§ 270.115 and 693.115. The rules implement retailers’ occupation tax
(i.e. sales tax) statutes, which allow municipalities, counties and other municipal
corporations to impose taxes on persons “engaged in the business of selling” in their
jurisdictions. The new regulation applies on both interstate and intrastate commerce.
These rules were adopted in response to the Illinois Supreme Court’s decision in
Hartney Fuel Oil Co. V Hamer, 376 Ill. Dec. 294 (11/21/13) in which the court held that a
determination of whether a seller is “engaged in the business of selling” in a particular
jurisdiction within the meaning of the retailers’ occupation tax acts requires an analysis
of where the retailer engages in the “composite of activities” that comprise its business.
Under the rule, the seller incurs local tax in the jurisdiction where the seller’s
predominant and most important sales activities takes [sic] place.
Under the rule, a retailer is “engaged in the business of selling in” a particular taxing
jurisdiction if it conducts at least three of the following five “primary selling activities”
there:

1. The location of sales personnel who can both solicit and make sales;
2. The location where the seller takes action that binds it to the sale (i.e.
   the location where the seller’s personnel perform the final action
   necessary to commit the seller to the sale);
3. The location where payment is tendered and received, or from which
   invoices are issued;
4. The location of inventory if tangible personal property that is sold is in
   the retailer’s inventory at the time of its sale or delivery; and
5. The location of the retailer’s headquarters or principal place of its
   business of selling.

2

See 35 ILCS 105/9 (transferring 20% of Use Tax revenue to the State and Local Sales Tax Reform Fund); 30 ILCS 105/6z-17
(providing for the distribution of monies in the State and Local Sales Tax Reform Fund.)

86 Ill. Admin. Code § 270.115(c)(1)(2). If no single Illinois jurisdiction is the place of
three or more primary selling activities, the sale will be sourced to either the locality
where its inventory is located or where its principle place of business is located and the
following six additional or “secondary” selling activities must be considered along with
the primary selling activities to determine in which of the two locations the retailer
engaged in the business of selling with respect to the given sale:

1. The location where marketing and solicitation occur;
2. The location of the seller’s own product procurement activities;
3. The location where the retailer sets its prices;
4. The location where purchase orders are received;
5. The location where title passes; and
6. The showroom or other display location.
   Id. In addition to the above guidelines, the regulations also provide that there is a
   presumption that when sales occur over the Internet, the predominant selling activities
   occur outside the state. However, if a seller satisfies these criteria outside Illinois, but
   sells inventory located within Illinois at the time of sale, the location of the inventory
   serves as the sole test as to where the sale occurred.
   The instructions to Form ST-1, Sales and Use Tax and E911 Surcharge Return, provide
   that if a taxpayer has one business that sells items at more than one location (site), the
   taxpayer must collect and remit sales and use taxes according to the rates of each
   particular location. The taxpayer must complete and attach Form ST-2, Multiple Site
   Form, to your ST-1 to show the breakdown of taxes collected and paid from each site.
   In addition, Step 3 of Form ST-1 provides for two separate calculations of tax for sales
   from locations within Illinois and sales from locations outside Illinois.
   Because Illinois determines tax based on where sales where made (from locations
   within or outside of Illinois), the determination of how to source the sales of the out-ofstate locations will be made on a separate basis from the in-state locations. With
   respect to sales from the out-of-state location to Illinois customers, ABC should continue
   to remit tax to the Department on those sales at a rate of 6.25%. However, with respect
   to sales from the in-state-locations, ABC should source all of its sales, except with
   respect to sales to Walk-In customers, to CITY 1, Illinois. For sales to Walk-In
   customers at the Warehouse, those sales should be sourced to CITY 2, Illinois.
   Specifically with respect to the sourcing of a majority of the sales of XYZ, except for the
   sales to Walk-In Customers, a review of XYZ’s activities shows that 2 of the primary
   selling activities occur in CITY 1. The location from which invoices are issued is CITY 1,
   Illinois. In addition, the location of XYZ’s principal place of business of its selling is in
   CITY 1. However, since there is no single Illinois jurisdiction where three or more
   primary selling activities occur, sales will be sourced to either the locality where the
   Warehouse is located or to CITY 1 (headquarters) depending on the six “secondary”
   selling activities. A review of the six secondary selling activities of XYZ shows that a
   majority of those activities occur in CITY 1, rather than at the locality where the
   Warehouse is located. Specifically, all of the following activities occur in CITY 1:

product procurement, setting of prices, receipt of purchase orders, passage of title, and
display of goods. Therefore, based on the facts presented herein, pursuant to Illinois
law, with the exception of sales to Walk-In Customers, ABC should source the sales of
XYZ for local tax purposes to CITY 1.
As for sales to Walk-In Customers, a review of the activities for these sales shows that 3
of the primary selling activities occur in CITY 2, Illinois. Specifically, the location where
XYZ takes action to bind itself to the sale, the location where payment is tendered and
invoices are issued and the location where inventory is at the time of sale to these
Walk-In Customers is CITY 2. Therefore, with respect to the sales to Walk-In
Customers, ABC should source these sales for local tax purposes to CITY 2.
REQUEST FOR RULING
Pursuant to 2 Ill. Admin. Code Section 1200.110, ABC respectfully requests that the
Department of Revenue Issue a private letter ruling declaring that (1) ABC has 3 sales
locations, one located outside of Illinois and two located in Illinois; (2) for sales from the
out-of-state location ABC should continue to remit tax to the Department on sales to
Illinois customers at a rate of 6.25%; (3) for sales to Walk-In Customers only, ABC
should source the sales to CITY 2, Illinois, where the Warehouse is located, and (4) for
all other sales by XYZ, ABC should source the sales to the principal offices of XYZ
which are in CITY 1, Illinois.
If you concur, please issue your favorable ruling to the undersigned. If you do not
concur, please advise so that we may discuss your reasoning before an adverse ruling
is issued. A Power of Attorney authorizing our representation of ABC is enclosed.
DEPARTMENT’S RESPONSE:
In response to the Illinois Supreme Court decision in Hartney Fuel Oil Co. v. Hamer, 2013 IL
115130, 376 Ill. Dec. 294 (2013), the Illinois Department of Revenue revised the administrative rules
that govern the sourcing of local retailers’ occupation taxes. See, for example, 86 Ill. Adm. Code
270.115. The rules provide that:
The occupation of selling is comprised of "the composite of many activities extending
from the preparation for, and the obtaining of, orders for goods to the final
consummation of the sale by the passing of title and payment of the purchase price". ExCell-O Corp. v. McKibbin, 383 Ill. 316, 321 (1943). Thus, establishing where "the taxable
business of selling is being carried on" requires a fact-specific inquiry into the composite
of activities that comprise the retailer’s business. Hartney Fuel Oil Co. v. Hamer, 2013
IL 115130, paragraph 32 (citing Ex-Cell-O Corp. v. McKibbin, 383 Ill. 316, 321-22 (1943).
86 Ill. Adm. Code 270.115(b)(2)
Based on a review of the activities described in your letter and the supplemental information
provided to the Department, and an analysis of the Department’s regulations found at 86 Ill. Adm.
Code 270.115, the Department finds that, with respect to walk-in customers at the warehouse in CITY
2, Illinois, ABC is engaged in three or more primary selling activities in CITY 2 and therefore these
sales should be sourced to CITY 2. See 86 Ill. Adm. Code 270.115(c)(2). For all other Illinois sales,

you represent that ABC does not engage in three or more primary selling activities in one location.
Therefore, under the regulation, we also look at ABC’ secondary selling activities to determine where
ABC is engaged in the business of selling with respect to these sales. Based on a review of the
primary and secondary selling activities described in your letter and the supplemental information
provided to the Department, and an analysis of the Department’s regulations found at 86 Ill. Adm.
Code 270.115, the Department finds that, for all Illinois sales other than walk-in sales at the CITY 2
warehouse, ABC is engaged in the business of selling in CITY 1, Illinois and therefore these sales
should be sourced to CITY 1, Illinois. Finally, the Department finds that, with respect to sales from its
out-of-state location to Illinois customers, ABC should collect Use Tax at the rate of 6.25%. See 86
Ill. Adm. Code 150.801.
The factual representations upon which this ruling is based are subject to review by the
Department during the course of any audit, investigation, or hearing and this ruling shall bind the
Department only if the factual representations recited in this ruling are correct and complete. This
Private Letter Ruling is revoked and will cease to bind the Department 10 years after the date of this
letter under the provisions of 2 Ill. Adm. Code 1200.110(e) or earlier if there is a pertinent change in
statutory law, case law, rules or in the factual representations recited in this ruling.
I hope this information is helpful. If you have further questions concerning this Private Letter
Ruling, you may contact me at (217) 782-2844. If you have further questions related to the Illinois
sales tax laws, 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
Chairman, Private Letter Ruling Committee
RSW:SM:bkl