When does an out-of-state seller that stores inventory in an Illinois marketplace warehouse have to register and collect Illinois sales or use tax?

Plain-English summary

A trade association wrote to the Illinois Department of Revenue on behalf of a client — an overseas company with no physical presence in the United States — that wanted to distribute its products through an online marketplace platform (referred to as COMPANY.COM in the letter). The plan was to ship products into an Illinois warehouse operated by the marketplace company, and the association asked a series of questions about registration, invoicing, and whether Illinois sales tax or use tax would apply to these sales.

The Department's response is a General Information Letter that lays out the general Illinois nexus framework rather than answering the specific fact pattern definitively, since the Department did not have enough detail about the actual contractual relationship between the client and the marketplace company. The letter explains that Illinois recognizes several types of retailers: an "Illinois Retailer" that makes sales in Illinois and owes Retailers' Occupation Tax, a "retailer maintaining a place of business in Illinois" that must collect Use Tax on behalf of Illinois customers, and an out-of-state retailer with no Illinois nexus that has no collection duty (though its Illinois customers still owe Use Tax on their own). Nexus itself is governed by the two-prong test from Quill Corp. v. North Dakota — due process (purposeful availment of the forum state's market) plus physical presence sufficient to satisfy the Commerce Clause — as well as by Illinois's own post-Hartney Fuel Oil regulations on sourcing sales.

Critically, the letter flags a special rule for exactly this kind of marketplace-warehouse scenario: if a retailer's selling activities occur outside Illinois but the tangible personal property being sold is held in inventory in Illinois at the time of sale (or is subsequently produced in Illinois), the retailer is treated as having nexus and must collect and remit both state and local tax on sales to Illinois customers. The letter also summarizes the history of Illinois's "click-through" and affiliate nexus rules — including the Illinois Supreme Court's 2013 decision striking down the original 2011 click-through law, and the replacement law effective January 1, 2015 — plus rules on local taxes, local sourcing, interstate and foreign-commerce shipment exemptions, resale certificates, and the Department's voluntary disclosure program.

Because this is a GIL rather than a Private Letter Ruling, the Department did not make a binding determination about whether this particular client had nexus; it instead pointed the requester to the applicable regulations and case law so the taxpayer (or its advisor) could apply them to the actual facts.

What this means for you

If you store inventory in an Illinois marketplace warehouse

If your product is held in an Illinois warehouse at the time it is sold — for example, inventory placed with a marketplace fulfillment center in Illinois — you are likely treated as having sufficient nexus to be an Illinois retailer. That means registering with the Department, and collecting and remitting both state and local Retailers' Occupation Tax on the resulting sales, even if your selling activity (taking orders, marketing, contracting) happens entirely outside Illinois. See 86 Ill. Adm. Code 270.115(d)(2).

If you have no Illinois warehouse presence or other physical contact

An out-of-state retailer with no physical presence in Illinois — no office, no agent or representative, no inventory held in the state, and no qualifying contract with an Illinois-based referrer or affiliate — generally has no obligation to register or collect Illinois tax. However, this does not eliminate the tax: the Illinois customer who buys the goods still owes Use Tax and has a duty to self-assess and remit it directly to the Department.

If you use referral, click-through, or commission arrangements with Illinois parties

If you pay an Illinois-based person or website a commission or other consideration for referring customers to you (including through promotional codes or website links), and your cumulative gross receipts from such referred sales exceed $10,000 over the preceding four quarterly periods, you are presumed to be "maintaining a place of business" in Illinois and must collect and remit Illinois Use Tax — unless you can rebut that presumption by showing the referral activity didn't meet constitutional nexus standards. See 35 ILCS 105/2(1.1).

Common questions

Does having no U.S. office automatically mean no Illinois nexus?
Not necessarily. Physical presence for nexus purposes is broader than an office — it includes any agent or representative in Illinois, or, per this letter's inventory rule, having product held in an Illinois warehouse at the time of sale.

What's the difference between Retailers' Occupation Tax and Use Tax here?
Retailers' Occupation Tax is imposed on the retailer for the privilege of selling in Illinois; Use Tax is imposed on the purchaser for using property in Illinois that was bought at retail. If a retailer has nexus, it typically collects Use Tax from the purchaser at the time of sale and can offset its own Retailers' Occupation Tax liability against that collected amount.

If my client has no Illinois nexus, does the transaction escape tax entirely?
No. The Illinois purchaser still owes Use Tax on the purchase and must self-assess and remit it to the Department directly, even though the out-of-state seller has no collection obligation.

What if my client is worried it should have been registered and collecting tax all along?
The letter points to the Department's Board of Appeals voluntary disclosure program, which can provide limited liability relief for taxpayers who come forward and disclose past liabilities. See 86 Ill. Adm. Code 210.126.

Citations and references

• Retailers' Occupation Tax Act registration requirement — 35 ILCS 120/2a
• Affiliate/referral ("click-through") nexus provisions — 35 ILCS 105/2(1.1); 35 ILCS 110/2(1.1); 35 ILCS 105/2(1.2)
• Local government taxing authority — Illinois Municipal Code, 65 ILCS 5; Counties Code, 55 ILCS 5; Special Districts, 70 ILCS 5 through 70 ILCS 3720
• Retailers' Occupation Tax imposition — 86 Ill. Adm. Code 130.101
• Interstate/foreign-commerce shipment exemptions — 86 Ill. Adm. Code 130.605(d), (f), (g)
• Resale certificates and determination of resale character — 86 Ill. Adm. Code 130.1401(a); 86 Ill. Adm. Code 130.1405
• Use Tax imposition and credit for Retailers' Occupation Tax paid — 86 Ill. Adm. Code 150.101; 86 Ill. Adm. Code 150.130
• "Retailer maintaining a place of business in Illinois" definition and registration — 86 Ill. Adm. Code 150.201(i); 86 Ill. Adm. Code 150.801
• Voluntary disclosure program — 86 Ill. Adm. Code 210.126
• Nexus/sourcing regulations following Hartney Fuel Oil — 86 Ill. Adm. Code 270.115; 86 Ill. Adm. Code 270.115(b)(2); 86 Ill. Adm. Code 270.115(d)(2) (inventory-in-Illinois rule)
• PLR and GIL procedures — 2 Ill. Adm. Code 1200.110 (PLRs); 2 Ill. Adm. Code 1200.120 (GILs)
• Hartney Fuel Oil Co. v. Hamer, 2013 IL 115130, 376 Ill. Dec. 294 (2013)
• Quill Corp. v. North Dakota, 112 S.Ct. 1904 (1992)
• Brown's Furniture, Inc. v. Zehnder, 171 Ill.2d 410 (1996)
• Performance Mktg. Ass'n, Inc. v. Hamer, 998 N.E.2d 54 (2013)
• Ex-Cell-O Corp. v. McKibbin, 383 Ill. 316 (1943)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2017.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2017/st-17-0015-gil.pdf

Original ruling text

ST 17-0015-GIL 05/31/2017 NEXUS
This letter discusses the rules regarding nexus. See Hartney Fuel Oil Co. v. Hamer, 2013 IL
115130, 376 Ill. Dec. 294 (2013). See 86 Ill. Adm. Code 270.115. (This is a GIL.)

May 31, 2017

Dear Xxxxx:
This letter is in response to your letter dated January 30, 2017, in which you requested
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, the GROUP in STATE have been promoting bilateral business relations between
the United States and COUNTRY for over 60 years.
We have a question regarding the Illinois Sales Tax. We would very much appreciate if
you could help us in this matter.
To provide some background information:
One of our clients – a COUNTRY company with no physical presence in the US –
would like to distribute its products through COMPANY. Therefore the client will send
products to an NAME warehouse of COMPANY in Illinois.
Would you please confirm and comment on the following below:

1. Our client needs to fill REG 1 Form – for Foreign National Incorporates and Fax it to
   217-785-6013. Where it Says “Social Sec No” it shall be stated “Foreign
   Nationality.” Online registration is requiring a Social Security Number.
2. There is no punishment on a late registration in Illinois for our client, if COMPANY is
   first using an NAME warehouse outside of Illinois and then distributes our client’s
   products to the warehouse in Illinois without giving notice to our client in advance.

ST 17-0015-GIL
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3. Our client needs to update its registration information monthly and inform the
   department of revenues in Illinois about his last transactions.
4. COMPANY unfortunately does not give any information about correct invoicing in
   Illinois. Does our client need to print a Tax Identification Number on the
   invoice regardless weather [sic] it is an interstate commerce (use tax) or a
   domestic commerce (sales tax)? Are there other requirements?
5. Sales Tax of 6 1/4% only occur, if both the end-user and the NAME warehouse are
   located in Illinois, regardless of the district inside Illinois. Are there any differences
   between the districts of Illinois? May the responsibility to collect sales tax be
   devolved on COMPANY?
6. Use Tax of 6 ¼% occur, if the NAME warehouse is located outside of Illinois and the
   purchasing end-user is located in Illinois.
7. Assuming that the NAME warehouse is located outside of Illinois, the end-user is
   obliged to transfer use tax to the Department of Revenues in Illinois. Is there a
   punishment on our client on failure to collect use tax? Is COMPANY generally
   collecting use tax instead of the end-user?
8. Illinois is an origin-based sales tax state.

9. With respect to the question above would you please comment on 2011
   Main Street Fairness Act (“amazon tax law”) regarding the conflict with
   the Internet Tax Freedom Act?

10. Illinois is not imposing additional taxes on such interstate commerce where
    from the NAME warehouse in Illinois products are being shipped to a foreign
    state.
    We would appreciate if you could respond in writing (via mail).
    Although it is explained on your homepage that your Department cannot respond
    via e-mail, we would like to give your our e-mail address just in case.
    EMAIL.COM

DEPARTMENT’S RESPONSE:
Retailers’ Occupation Tax and Use Tax
The Illinois Retailers' Occupation Tax Act imposes a tax upon persons engaged in this State in
the business of selling tangible personal property to purchasers for use or consumption. See 86 Ill.
Adm. Code 130.101. In Illinois, Use Tax is imposed on the privilege of using, in this State, any kind of
tangible personal property that is purchased anywhere at retail from a retailer. See 86 Ill. Adm. Code

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150.101. These taxes comprise what is commonly known as “sales” tax in Illinois. If the purchases
occur in Illinois, the purchasers must pay the Use Tax to the retailer at the time of purchase. The
retailers are then allowed to reduce the amount of Use Tax they must remit by the amount of
Retailers' Occupation Tax liability which they are required to and do pay to the Department with
respect to the same sales. See 86 Ill. Adm. Code 150.130.
Registration
Section 2a of the Retailers’ Occupation Tax Act, 35 ILCS 120/2a, makes it unlawful for any
person to engage in the business of selling tangible personal property at retail in Illinois without first
obtaining a certificate of registration from the Illinois Department of Revenue. However, persons who
exclusively make either wholesale sales and/or exempt sales are not required to register and remit
Retailers' Occupation Tax. The tax applies only to sales of tangible personal property for use and
consumption, and not for resale. Consequently, if all of your sales are for resale, you will not be
required to register, file returns and remit tax. You may, however, want to obtain a resale number
from the Department so that you have the ability to provide your suppliers with valid Certificates of
Resale. See 86 Ill. Adm. Code 130.1405. So long as you do not make taxable retail sales, and
engage exclusively in wholesale and/or exempt transactions, registration for a resale number will not
expose you to reporting and tax remittance requirements. If, however, you make any sales at retail
(non-resale or sales to end users), you will be required to register to collect and remit taxes.
To register with the Department the company must provide us a taxpayer identification
number. One can be obtained from the United States Internal Revenue Service.
Nexus
An “Illinois Retailer” is one who makes sales of tangible personal property in Illinois. 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. Our regulations were amended in response to the
Illinois Supreme Court’s decision in Hartney Fuel Oil Co. v. Hamer, 2013 IL 115130. The regulations
specify the selling activities that trigger Retailers’ Occupation Tax liability in Illinois. See 86 Ill. Adm.
Code 270.115.
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

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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.
Beginning July 1, 2011, the definition of a “retailer maintaining a place of business” was
amended to include additional types of retailers. A retailer maintaining a place of business also
includes a retailer having a contract with a person located in this State under which:
A.

The retailer sells the same or substantially similar line of products as the person located
in this State and does so using an identical or substantially similar name, trade name, or
trademark as the person located in this State; and

B.

The retailer provides a commission or other consideration to the person located in this
State based upon the sale of tangible personal property by the retailer. See 35 ILCS
105/2(1.2).

These provisions only apply if the cumulative gross receipts from sales of tangible personal
property by the retailer to customers in this State under all such contracts exceed $10,000 during the
preceding 4 quarterly periods. Please note that in Performance Mktg. Ass'n, Inc. v. Hamer, 998
N.E.2d 54 (2013) the Illinois Supreme Court struck down 35 ILCS 105/2(1.1) and 35 ILCS 110/2(1.1),
a “click-thru nexus provision” enacted in 2011. However, new provisions became effective January 1,
2015. The following provisions address the court’s concerns in Performance Mktg. Ass'n, Inc. v.
Hamer, 998 N.E. 2d 54 (2013).
Beginning January 1, 2015, a retailer maintaining a place of business also includes a retailer
having a contract with a person located in this State under which the person, for a commission or
other consideration based upon the sale of tangible personal property by the retailer, directly or
indirectly refers potential customers to the retailer by providing to the potential customers a
promotional code or other mechanism that allows the retailer to track purchases referred by such
persons.
Examples of mechanisms that allow the retailer to track purchases referred by such persons
include but are not limited to the use of a link on the person's Internet website, promotional codes
distributed through the person's hand-delivered or mailed material, and promotional codes distributed
by the person through radio or other broadcast media. These provisions apply only if the cumulative
gross receipts from sales of tangible personal property by the retailer to customers who are referred
to the retailer by all persons in Illinois under such contracts exceed $10,000 during the preceding 4
quarterly periods ending on the last day of March, June, September, and December. A retailer
meeting these requirements shall be presumed to be maintaining a place of business in Illinois but
may rebut this presumption by submitting proof that the referrals or other activities pursued within this

ST 17-0015-GIL
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State by such persons were not sufficient to meet the nexus standards of the United States
Constitution during the preceding 4 quarterly periods. See 35 ILCS 105/2(1.1).
Your letter mentions that your client sells its products via the COMPANY.COM platform. Your
client may not have a collection obligation in Illinois if it does not meet any of the nexus requirements
outlined above. However, please be advised that a special rule exists when a retailer’s selling
activities take place outside of Illinois but the tangible personal property sold is in an inventory in the
possession of the retailer located within a jurisdiction in Illinois at the time of sale or is subsequently
produced by the retailer in the jurisdiction. Please see 86 Ill. Adm. Code 270.115(d)(2). If your client
falls within this description, your client would be required to collect and remit taxes, both State and
local, on sales to Illinois customers.
Local taxes
Generally, home rule and non-home rule municipalities, counties, school districts and special
districts may impose local occupation taxes. See Illinois Municipal Code (65 ILCS 5) and Counties
Code (55 ILCS 5). Special Districts (for example, airport, forest preserves, fire protection, park,
sanitary, transit and water) can be found in Chapter 70 of the Illinois Complied Statutes beginning
with 70 ILCS 5 and ending at 70 ILCS 3720. Not all units of local government impose a local
occupation tax, and not all units of local government impose the same rate of tax. A tax rate finder is
located on the Department’s website.
Local sourcing
The determination where the retailer in the business of selling is a fact-specific inquiry. 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".
Ex-Cell-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).
Interstate shipments
The Department’s regulation regarding Sales of Property Originating in Illinois, 86 Ill. Adm.
Code 130.605(d) provides that tax does not apply to gross receipts from sales in which the seller
either by carrier (when the carrier is not also the purchaser) or by mail, under the terms of his
agreement with the purchaser, delivers the goods from a point in this State to a point outside this
State not to be returned to a point within this State. The fact that the purchaser actually arranges for
the common carrier or pays the carrier that effects delivery does not destroy the exemption. However,

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it is critical that the seller is shown as the consignor or shipper on the bill of lading. If the purchaser is
shown as either the consignor or the shipper, the exemption will not apply.
Please note that under Section 130.605(g), retailers who ship property to freight forwarders
who take possession of the property in Illinois and ship the property to foreign countries, not to be
returned to the United States, are making exempt sales in foreign commerce and do not incur
Retailers' Occupation Tax liability on the gross receipts from those sales. However, there is no
exemption for property delivered in Illinois to foreign vessels. If foreign vessels purchase items of
tangible personal property from Illinois retailers and have those items delivered to the vessels in an
Illinois port, the sale is made in Illinois, the purchaser takes possession of the items in Illinois, and
therefore, the sale is taxable. In order to reflect this exemption on the ST-556 form, one should check
the "other" box and note that the sale was made into foreign commerce.
To establish that the gross receipts from any given sale are exempt because the tangible
personal property is delivered by the seller from a point within this State to a point outside this State
under the terms of an agreement with the purchaser, the seller will be required to retain in his
records, to support deductions taken on his tax returns proof that satisfies the Department that there
was an agreement and a bona fide delivery outside this State of the property that is sold. See 86 Ill.
Adm. Code 130.605(f).
Character of sale
We do not have any knowledge of the contractual relationship between you and COMPANY
and cannot provide any guidance regarding the parties’ tax collection obligations. However, it is a
seller’s responsibility to determine the character of the sale at the time of the sale. A person who
sells tangible personal property to a purchaser who may use or consume such property within the
meaning of the Act, but who also may resell such property, must determine, at the time when he sells
the property to such purchaser, whether the purchaser is buying the property "for use or
consumption" within the meaning of the Act or whether the purchaser is buying the property "for
resale". Section 2c of the Act provides that purchasers of tangible personal property for resale shall
apply to the Department for resale numbers. In determining whether a sale is for resale, the seller
shall request that the purchaser provide a resale number and certification that the sale is for resale.
This determination is required in order that the seller may properly file the returns required by the Act
and compute his tax liability. So long as the seller obtains a certificate of resale from the purchaser
that contains all information required by Section 130.1405, the seller need not verify that the tangible
personal property he sells for resale is actually resold. See 86 Ill. Adm. Code 130.1401(a).
Voluntary disclosure
If your client is concerned that it may owe Illinois sales tax, it may want to contact the
Department’s Board of Appeals. The Board of Appeals administers a voluntary disclosure program
that can provide for limited liabilities for participants who come forward and disclose their liabilities.
Please see 86 Ill. Adm. Code 210.126 for information about the voluntary disclosure program.
I recommend that your client review the Department’s regulations, specifically 86 Ill. Adm.
Code Parts 130 and 150, regarding the Retailers’ Occupation Tax Act and the Use Tax Act. The
Department’s regulations and information regarding registration, filing returns and remitting tax can be
found on our website at www.tax.illinois.gov.

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I hope this information is helpful. If you require additional information, please contact the
Department’s Taxpayer Information Division at (217) 782-3336.

Very truly yours,

Richard S. Wolters
Associate Counsel

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