Does Illinois have a 'trailing nexus' rule that requires a remote seller to keep collecting sales/use tax for a period after its Illinois nexus ends?

Plain-English summary

A foreign (out-of-state) corporation that distributed and represented testing equipment nationally told the Illinois Department of Revenue that it no longer had nexus in Illinois and planned to close its Illinois sales tax account. But because occasional remote sales into Illinois might still happen after nexus ended, the company asked whether Illinois had a "trailing nexus" rule — a requirement to keep collecting and remitting sales/use tax for some fixed period after a seller's nexus with the state has ended.

The Department's answer was short and direct: Illinois has no rule addressing trailing nexus. It also said it could not tell the taxpayer how long any nexus would apply, because any nexus determination depends on the specific facts of the case. The Department did add one forward-looking note: it was "considering promulgating a rule that addresses trailing nexus," meaning this could change in the future.

Because this is a General Information Letter (GIL) rather than a Private Letter Ruling (PLR), the Department did not analyze the taxpayer's specific facts in depth or issue a binding determination. A GIL only points a taxpayer toward relevant regulations or existing guidance, and here the Department candidly reported that no such guidance existed on trailing nexus at the time.

The letter's subject-line header also flags Quill Corp. v. North Dakota, 112 S. Ct. 1904 (1992), the U.S. Supreme Court nexus case, as background context for the general topic of nexus, though the Department's actual response does not otherwise discuss or apply that case.

What this means for you

Remote sellers and multistate businesses

If your company's Illinois activity has wound down and you are considering closing your Illinois sales tax account, this letter shows that (at least as of 2018) Illinois did not have a fixed "trailing nexus" period on the books, unlike some other states. That means there was no bright-line rule telling you exactly when your collection obligation ends — the Department said the answer depends on the specific facts. Before closing an account, review your actual activities and consider getting your own ruling if your situation is contested or high-value.

Accountants and tax professionals

This GIL is useful mainly to confirm the absence of a codified trailing-nexus rule in Illinois as of mid-2018, and to flag that the Department was actively considering rulemaking on the subject. Because a GIL is not binding and not a statement of Department policy, do not cite it as authority for a client's specific nexus-termination date — instead use it as a signpost that no regulation existed on point at that time, and check current Illinois Administrative Code and Department guidance for any rule adopted since.

Businesses closing an Illinois sales tax account

The Department did not say a business must keep collecting tax after nexus ends, nor did it set a "grace period." It simply declined to give a general answer and said nexus determinations are fact-specific. If you are unsure whether your ongoing occasional Illinois sales still create a collection obligation, that determination will turn on your specific facts, not on a fixed trailing-nexus rule from this letter.

Common questions

Q: Does Illinois require sellers to keep collecting tax for a set period after nexus ends?
A: Not according to this letter. The Department stated it "does not have a rule that addresses 'trailing nexus'" and could not say how long nexus would apply, because that depends on the facts of each case.

Q: Did the Department analyze whether this specific taxpayer still had nexus?
A: No. This is a GIL, not a PLR, so the Department did not apply the law to the taxpayer's specific facts. It gave only a general answer about the absence of a trailing-nexus rule.

Q: Could Illinois adopt a trailing nexus rule in the future?
A: The letter says the Department "is considering promulgating a rule that addresses trailing nexus," so this area could change. Confirm current rules before relying on the 2018 answer.

Q: What's the difference between this GIL and a binding ruling?
A: A Private Letter Ruling (PLR), requested under 2 Ill. Adm. Code 1200.110, is binding on the Department as to the specific taxpayer and facts presented. A General Information Letter (GIL), issued under 2 Ill. Adm. Code 1200.120, only directs the taxpayer to relevant regulations or other sources and is not binding on the Department or a statement of its policy.

Citations and references

• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure)
• 2 Ill. Adm. Code 1200.120 (General Information Letters; not binding, not a statement of policy)
• Quill Corp. v. North Dakota, 112 S. Ct. 1904 (1992) (referenced in the letter's introductory subject summary)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2018.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2018/st-18-0016-gil.pdf

Original ruling text

ST 18-0016-GIL 05/15/2018

NEXUS

This letter responds to a question regarding nexus. See Quill Corp. v. North Dakota, 112 S. Ct.
1904 (1992). (This is a GIL.)

May 15, 2018

REQUEST FOR GUIDANCE ON TRAILING NEXUS REPORTING REQUIREMENTS
Dear Xxxxx:
This letter is in response to your letter dated February 7, 2018, 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:
Client is foreign corporation that no longer has nexus in Illinois; consequently, Client
plans to close their Illinois sales tax account. Client is a national distributor and
manufacturer’s representative of testing equipment. Although Client will no longer have
nexus in Illinois, it is possible that some remote sales to Illinois could occur at some
point in the future.
We are seeking confirmation on whether Illinois has “trailing nexus” provisions that we
were unable to identify during research. In researching this issue for another state, we
encountered a “trailing nexus” provision covered in a policy document which was not
outlined in statutes or regulations, so we wanted to confirm that Illinois does not have a
similar policy that we are not aware of.
To facilitate clear communication, the term “trailing nexus”, as used herein, is defined as
the obligation to collect and remit sales/use tax on remote interstate sales transactions
for a prescribed period after nexus has ended for the seller. For further clarification of
“trailing nexus” as used herein, trailing nexus in only applicable where the seller
previously had nexus with a state. (i.e. If a remote seller never had nexus with a given
state, then trailing nexus will NOT apply for that state.)

ST 18-0016-GIL
Page 2
May 15, 2018

Please confirm whether Illinois has a “trailing nexus” provision. If so, please provide the
appropriate guidance in this area, including how long trailing nexus will apply. Please
also provide any existing written references or other agency documents where
available.
DEPARTMENT’S RESPONSE:
The Department of Revenue does not have a rule that addresses “trailing nexus.” The
Department cannot provide any guidance on how long nexus would apply. Any nexus determination
would depend on the facts of the case.
We would note, however, that the Department is considering promulgating a rule that
addresses trailing nexus.
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,

Richard S. Wolters
Associate Counsel

RSW:bkl