If our out-of-state company has no offices in Illinois but has one remote employee working from home in Chicago in customer service, do we have to register and collect Illinois sales tax?

Plain-English summary

An out-of-state company wrote to the Illinois Department of Revenue asking for written confirmation that it did not have to register for Illinois sales tax. The company said it had no offices or physical presence in Illinois, was not registered to pay Illinois sales tax, and believed that if it shipped goods to an Illinois customer, only the customer would owe Illinois Use Tax -- not the company. The one fact it disclosed was that it had a remote employee working in Chicago, in customer service, who performed no sales functions.

The Department did not give the company the answer it wanted. Because this was a general information request rather than a formal ruling request that met the Private Letter Ruling procedures, the Department responded with a General Information Letter (GIL) -- and a GIL is explicitly not a statement of Department policy and is not binding on the Department (2 Ill. Adm. Code 1200.120). Substantively, though, the Department explained the two-pronged nexus test from Quill Corp. v. North Dakota, 112 S. Ct. 1904 (1992): (1) Due Process is satisfied if the seller purposely avails itself of an Illinois market, and (2) the Commerce Clause additionally requires physical presence in the state. Physical presence isn't limited to an office or building -- under Illinois law it also includes the presence of any agent or representative of the seller, and that representative "need not be a sales representative."

Applying that standard to the facts given, the Department told the company: because it has an employee working in Chicago, "it appears COMPANY meets the physical presence prong of the nexus test ... and should be registered with the Illinois Department of Revenue." In other words, the one fact the company disclosed -- its remote customer-service employee in Chicago -- was enough, on its own, to create nexus, contrary to what the company hoped to hear.

What this means for you

Remote and out-of-state sellers with any Illinois-based staff

If your company has no offices, warehouses, or inventory in Illinois but has even a single remote employee physically working from Illinois -- even in a non-sales role like customer service -- this letter shows the Department treats that as physical presence sufficient to satisfy the Commerce Clause prong of nexus. The letter is explicit that "a physical presence is not limited to an office or other physical building" and that any "agent or representative of the seller" counts, sales-related or not. If you have remote workers anywhere in Illinois, this letter is a warning sign that you may need to register.

Accountants and tax professionals advising on multistate nexus

This December 2018 GIL is squarely a pre-Wayfair, physical-presence analysis. It cites only Quill Corp. v. North Dakota (1992) and Brown's Furniture, Inc. v. Zehnder, 171 Ill. 2d 410 (1996), and it does not mention South Dakota v. Wayfair, Inc. (decided six months earlier, in June 2018) or Illinois's economic-nexus regime under the Leveling the Playing Field for Illinois Retail Act. If you are advising a client today, remember that Illinois has since layered economic-nexus (sales/transaction-count) thresholds on top of this physical-presence test -- a company could have nexus today even with zero Illinois employees. This letter is useful only for the physical-presence half of the analysis.

Companies seeking a "no nexus" determination

The company here specifically asked for documentation proving it did not have to register -- and got the opposite conclusion instead, delivered as a non-binding GIL rather than a binding Private Letter Ruling. If you want a determination the Department is actually bound by, you need to follow the PLR request procedures at 2 Ill. Adm. Code 1200.110, which include a complete and accurate statement of facts; a GIL like this one is only informational and can't be relied on as precedent.

Common questions

Q: Does one remote employee in Illinois, with no sales duties, create sales tax nexus?
A: Based on this letter, yes. The Department found that a single remote employee working in Chicago in customer service -- performing no sales functions -- was enough by itself to satisfy the physical-presence prong of the nexus test, because Illinois law counts "any agent or representative of the seller," not just salespeople.

Q: Is this letter binding on the Illinois Department of Revenue?
A: No. It is a General Information Letter (GIL), issued under 2 Ill. Adm. Code 1200.120. The Department states plainly that a GIL "is not a statement of Department policy and is not binding on the Department." It merely directs the taxpayer to relevant regulations and case law -- unlike a Private Letter Ruling (PLR), which is binding on the Department as to the specific taxpayer.

Q: Does this letter discuss the Wayfair decision or Illinois's economic nexus law?
A: No. Despite being issued in December 2018 -- six months after the U.S. Supreme Court's Wayfair decision -- this GIL relies entirely on the older physical-presence framework from Quill Corp. v. North Dakota (1992) and does not mention Wayfair or Illinois's Leveling the Playing Field for Illinois Retail Act economic-nexus thresholds. The company's facts (a physical employee in the state) meant the Department could resolve the question on physical-presence grounds alone.

Q: If the company has nexus, does that mean it owes Retailers' Occupation Tax on its sales?
A: Not necessarily the same tax. The letter explains that a retailer with physical presence, but not "making sales in Illinois" itself, is a "retailer maintaining a place of business in this State" (86 Ill. Adm. Code 150.201), which must register and collect Use Tax from its Illinois customers under 86 Ill. Adm. Code 150.801 -- without necessarily incurring Retailers' Occupation Tax liability on its own gross receipts. The letter does not resolve which category applies here beyond concluding the company "should be registered."

Q: What happens if a company has no physical presence at all in Illinois?
A: The letter describes a third category: an out-of-state retailer with insufficient nexus does not owe Retailers' Occupation Tax and has no duty to collect Use Tax -- but its Illinois customers still owe Use Tax on their purchases and must self-assess and remit it directly to the State.

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-18-0042-gil.pdf

Original ruling text

ST 18-0042-GIL 12/06/2018

NEXUS

This letter responds to a question regarding nexus. See Quill Corp. v. North Dakota, 112 S. Ct. 1904
(1992). (This is a GIL.)
December 6, 2018
Dear Xxxx
This letter is in response to your letter received October 30, 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:
I am writing to obtain documentation from the State of Illinois verifying that COMPANY does not have to
register for sales tax in the state of Illinois.
I have called the Illinois Department of Revenue and have been informed that COMPANY does not
have to register with the State of Illinois of sales tax and that the Legal Services Office can provide
documentation in writing verifying COMPANY does not have to register for sales tax. Can you review the facts
I have listed below and provide documentation on whether COMPANY is required to register with the State of
Illinois for Sales Tax? You can email the documentation or mail a letter to the address noted at the top of this
letter.
List of Facts
• COMPANY is located in CITY, STATE.
• COMPANY has a remote employee working in Chicago, IL. This employee works in customer
service and performs no sales functions.
• COMPANY does not have a physical presence in the State of Illinois.
• COMPANY is not registered to pay sales tax in the State of Illinois.
• If COMPANY ships to a customer in Illinois, the purchaser (customer) would have to pay use tax
to the State of Illinois. COMPANY would not have to pay sales tax to the State of Illinois on this
transaction.
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.
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

ST 18-0042-GIL
Page 2
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 a retailer maintaining a place of business in Illinois. The definition of a “retailer
maintaining a place of business in this State” is described in 86 Ill. Adm. Code 150.201. 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 requirements must be met before a person is properly subject to a
state's tax laws on the basis a of physical presence. 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 selfassess and remit their Use Tax liability directly to the State.
In your letter, you indicate that COMPANY has an employee working in Chicago, Illinois. Based on that
information, it appears COMPANY meets the physical presence prong of the nexus test set out above and
should be registered with the Illinois Department of Revenue.
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,

Debra M. Boggess
Associate Counsel
DMB:bkl