Does an out-of-state online seller of snack bars owe Illinois sales or use tax, and at what rate, if its products are stocked in an Illinois warehouse?

Plain-English summary

This is a General Information Letter (GIL), which by law is not a binding ruling — it just points the taxpayer to the relevant statutes and regulations. The requester ran an online business selling pre-packaged energy snack bars, with some inventory stocked in an Illinois warehouse through a third-party platform, and asked for a "legal binding" determination of its sales tax collection obligations. The Department explicitly could not give that (a binding answer requires a Private Letter Ruling, not a GIL), so instead it laid out the general nexus and food-taxability rules.

On nexus, the Department explained Illinois' framework for when an out-of-state retailer must collect Illinois Use Tax: under Quill Corp. v. North Dakota, a retailer needs both a due-process connection to Illinois and physical presence there (which can include an agent, a delivery/installation presence, or — critically for this requester — inventory stored in an Illinois warehouse under 86 Ill. Adm. Code 270.115). Separately, Illinois' "click-through" and affiliate-nexus statutes (35 ILCS 105/2(1.1) and (1.2)) can create nexus for referral or shared-branding arrangements above a $10,000 threshold. The Department told the requester that selling through the platform alone might not create nexus, but that renting warehouse space in Illinois could create nexus and trigger a collection duty — it did not resolve this definitively because it depends on facts (e.g., exactly how the warehousing arrangement works).

On the taxability of food, the Department was more concrete: Illinois taxes grocery food at a reduced 1% state rate, while "candy" and food prepared for immediate consumption is taxed at the general 6.25% rate. Because the requester's snack bars "appear to contain flour," they don't meet Illinois' definition of candy (which excludes anything containing flour or requiring refrigeration) — so they qualify for the 1% reduced rate.

What this means for you

Out-of-state online retailers using fulfillment/marketplace platforms

If you sell through a third-party platform and some of your inventory sits in an Illinois warehouse, that alone can create Illinois nexus and a duty to collect and remit Use Tax — the Department flagged this as a real risk in this letter, even though it wouldn't issue a binding conclusion. Selling through the platform itself, without more, may not create nexus by itself. If you want certainty rather than general guidance, you need to request a Private Letter Ruling (under 2 Ill. Adm. Code 1200.110) and disclose the specific facts of your warehousing and platform arrangement.

Snack bar / packaged food manufacturers and sellers

If your product contains flour or requires refrigeration, it cannot be classified as "candy" under Illinois' definition — regardless of how sweet or bar-shaped it is — so it should qualify for the reduced 1% grocery food rate rather than the 6.25% general merchandise rate. Products without flour that combine sweeteners with nuts, fruit, or chocolate in bar/drop/piece form are more likely to be taxed as candy at the higher rate.

Accountants and tax professionals

This letter is a useful map of Illinois' nexus categories — physical presence (including warehoused inventory under 86 Ill. Adm. Code 270.115), agent/representative presence (Brown's Furniture), and statutory click-through/affiliate nexus (35 ILCS 105/2(1.1)-(1.2), post-Performance Marketing) — but remember a GIL is not Department policy and cannot be cited as binding authority for a client's specific facts.

Common questions

Q: Did the Department decide whether this particular business owed Illinois sales tax?
A: No. The requester asked for a "legal binding" ruling, but the Department responded with a GIL, which is explicitly not binding and not a statement of Department policy. It described the applicable rules and flagged that warehousing inventory in Illinois could create nexus, but left the ultimate determination to the facts of the arrangement (or to a future Private Letter Ruling request).

Q: Does having inventory stored in an Illinois warehouse automatically create nexus?
A: The letter treats this as a real risk factor, citing the special rule at 86 Ill. Adm. Code 270.115 for out-of-state sellers with Illinois-stored inventory, and states that if the requester is renting warehouse space in Illinois, "this could create nexus." It stops short of an unconditional yes.

Q: Are the snack bars taxed as candy or as food?
A: The Department concluded the snack bars "appear to contain flour," and since Illinois' candy definition excludes anything containing flour or requiring refrigeration, they don't qualify as candy — so they're taxed at the reduced 1% rate that applies to grocery food, not the 6.25% general merchandise rate.

Q: What is the difference between a GIL and a PLR in Illinois?
A: A Private Letter Ruling (PLR) is binding on the Department for the specific taxpayer and facts presented, and requires following the procedures in 2 Ill. Adm. Code 1200.110. A General Information Letter (GIL), like this one, only points the taxpayer to relevant regulations and other sources — it is not a statement of Department policy and is not binding, per 2 Ill. Adm. Code 1200.120.

Q: What triggers Illinois "click-through" or affiliate nexus?
A: Under 35 ILCS 105/2(1.1), a retailer that pays Illinois-based persons a commission for referring customers via promotional codes or website links is presumed to have nexus once cumulative referred sales exceed $10,000 over the preceding four quarters (this replaced a prior version struck down in Performance Mktg. Ass'n, Inc. v. Hamer). A related affiliate-nexus rule at 35 ILCS 105/2(1.2) applies to retailers sharing a name/trademark and commission arrangement with an Illinois-based business, subject to the same $10,000 threshold.

Citations and references

• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax imposition)
• 86 Ill. Adm. Code 130.310 (taxability of food)
• 86 Ill. Adm. Code 150.101 (Use Tax imposition)
• 86 Ill. Adm. Code 150.130 (Use Tax credit for Retailers' Occupation Tax paid)
• 86 Ill. Adm. Code 150.201(i) (definition of retailer maintaining a place of business in Illinois)
• 86 Ill. Adm. Code 150.801 (Use Tax collector registration)
• 86 Ill. Adm. Code 270.115 (special rule for out-of-state sellers with inventory in Illinois)
• 35 ILCS 105/2(1.1) (click-through nexus / referral presumption, effective 2015)
• 35 ILCS 105/2(1.2) (affiliate nexus for shared branding/commission arrangements)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedures)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedures)
• Quill Corp. v. North Dakota, 112 S. Ct. 1904 (1992) (physical-presence nexus test)
• Hartney Fuel Oil Co. v. Hamer, 2013 IL 115130 (Illinois Retailers' Occupation Tax situs rules)
• Brown's Furniture, Inc. v. Zehnder, 171 Ill.2d 410 (1996) (physical presence via agent/representative)
• Performance Mktg. Ass'n, Inc. v. Hamer, 998 N.E.2d 54 (2013) (striking down prior click-through nexus provision)

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-17-0023-gil.pdf

Original ruling text

ST 17-0023-GIL 06/23/2017 NEXUS
This letter discusses the rules regarding nexus and the taxability of food. See Quill Corp. v.
North Dakota, 112 S. Ct. 1904 (1992). See 86 Ill. Adm. Code 130.310. (This is a GIL.)

June 23, 2017

Dear Xxxxx:
This letter is in response to your letter dated April 12, 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:
My name is NAME, and I am writing on behalf of PERSON, the manager-member of
ABC d/b/a DEF, headquartered in CITY, STATE.
DEF sells energy snack bars online via COMPANY, and some inventory may be
stocked at their warehouse in your state. Per research, our products are taxed at a
reduced rate of 1% in your State due to its classification as a food item. Could you
please provide a legal binding/ruling of our liability of collecting and remitting reduced
sales tax in your State?
DEF is a pre-packaged non-perishable energy snack bar (food product). Following is a
link to our website’s product page where nutritional value and product ingredients are
listed: http://www.WEBSITE
Please have the document e-mailed to: EMAIL ADDRESS or sent via postal mail to:
ABC
ADDRESS

ST 17-0023-GIL
Page 2

DEPARTMENT’S RESPONSE:
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
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.
In the case of food that is sold for human consumption that is to be consumed off the premises
where it is sold (other than alcoholic beverages, soft drinks, candy and food that has been prepared
for immediate consumption), the tax is imposed at the low State rate of 1%, plus any applicable local
taxes. Food that is prepared for immediate consumption, as well as candy, alcoholic beverages and
soft drinks, is taxed at the general State rate of 6.25%, plus any applicable local taxes. For further
information on the taxability of food, please see 86 Ill. Adm. Code 130.310. Food that is to be
consumed off the premises where it is sold includes food sold from a vending machine, except soft
drinks, candy, and food products that are dispensed hot from a vending machine.
As pointed out above, candy is taxable at the 6.25% general merchandise rate. Candy is
defined as a preparation of sugar, honey, or other natural or artificial sweeteners in combination with
chocolate, fruits, nuts or other ingredients or flavorings in the form of bars, drops, or pieces. Candy
does not include any preparation that contains flour or requires refrigeration. Thus, if a product
contains flour or requires refrigeration, it would not be considered “candy” even if it meets all the other
elements of the definition. The snack bars that you have inquired about appear to contain flour.
Therefore, they are not considered candy, and would qualify for the 1% rate which applies to grocery
food.
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.
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

ST 17-0023-GIL
Page 3

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.
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

ST 17-0023-GIL
Page 4

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
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 DEF sells its products via the COMPANY platform. In this case, DEF
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 for companies selling outside
of Illinois who have inventory located in Illinois at the time of sale. Please see 86 Ill. Adm. Code
270.115. If DEF is renting inventory space from another company in a warehouse located in Illinois,
this could create nexus, and thus require DEF to collect and remit tax.
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
Senior Counsel

CB:bkl