In response to the US Supreme Court's ruling in South Dakota v. Wayfair,¹ in which the Court overturned the Quill² physical presence requirement for sales and use tax nexus purposes, the Illinois legislature passed Public Act 100-587³ to establish Wayfair nexus for remote sellers without a physical presence in Illinois. The Illinois Department of Revenue (Department) issued Bulletin FY 2019-05 (Aug. 2018) and emergency regulation 86 Ill. Admin. Code 150.803, "Wayfair Nexus — Nexus Without Physical Presence,"⁴ to assist taxpayers in complying with the new nexus standard. The Department will begin enforcing its Wayfair nexus standard October 1, 2018; thus, prior to that date, a remote seller must have a physical presence⁵ in Illinois in order for it to be required to collect and remit the state's use tax.

Beginning October 1, 2018, remote sellers selling tangible personal property to Illinois purchasers will be required to register with the Department and collect and remit use tax if in the preceding 12-month period the remote retailer either: (1) had $100,000 or more in gross receipts from such sales; or (2) entered into 200 or more separate sales transactions.⁶ For purposes of determining whether the threshold has been met, the following transactions are excluded from the determination: (1) sales for resale, (2) occasional sales, and (3) sales of tangible personal property required to be registered with an agency of the state (i.e., motor vehicles, aircraft), and (4) sales made by remote sellers that are subject to the Illinois Retailers' Occupation Tax (note: this is listed as an excluded sale in the emergency regulation but not in Bulletin FY 2019-05). All other sales, including those exempt from tax, are included in calculating the threshold. For the October 1, 2018 registration and collection start date, remote sellers should examine their selling activities for the period of September 1, 2017 through August 31, 2018. For monthly filers, the return for this period is due November 20, 2018.

Thereafter, for purposes of determining whether the threshold has been met, the "12-month period" is decided on a quarterly basis, ending on the last day of March, June, September, and December. If the threshold has been met, tax must be collected for a one-year period. At the end of the one-year period, the remote seller again must determine whether the threshold is being met. If the threshold was not met, the remote seller may discontinue collecting use tax or, as recommended by the Department "as a courtesy to their Illinois purchasers," continue to collect and remit use tax. Remote sellers that choose to discontinue collecting use tax, must notify the Department and will have to determine on a rolling quarterly basis whether the threshold has been met.

Additional remote seller information, including filing, payment and registration resources is available on the Department's website.

Implications

The new Wayfair nexus provision applies only to remote sellers that do not have a physical presence in the state. Remote sellers with a physical presence in the state are already subject to the state's sales and use tax provisions. The Department cautioned remote sellers to evaluate their in-state activities to determine whether they have a physical presence in the state. The Department explained that remote sellers are physically present in the state if they maintain an inventory in the state from which sales are fulfilled. The new Wayfair nexus provisions will not apply to remote sellers that exclusively make nontaxable sales.

Further, remote sellers, such as telephone, television and catalog sellers, may be required to register, collect and remit use tax on sales to Illinois customers. Other remote retailers that may fall within the scope of the new Wayfair nexus provisions include:

— Remote sellers using a traditional drop-ship arrangement or Internet marketplace platform to make sales to Illinois customers

— Remote sellers that meet the "safe harbor" rules for trade shows but meet the Wayfair nexus threshold

— Internet auctioneers

Accordingly, remote sellers will need to evaluate all their activities in Illinois to determine whether they are subject to the new Wayfair nexus provisions or have a physical presence in the state. Such determination will aid in complying with the state's sales and use tax provisions for the appropriate tax periods.

———————————————

———————————————
ENDNOTES

¹ South Dakota v. Wayfair, Inc., No. 17-494 (U.S. S.Ct. June 21, 2018).

² Quill Corp. v. North Dakota, 504 U.S. 298 (1992).

³ Public Act 100-587 was signed into law on June 4, 2018.

⁴ The emergency regulation took effect September 11, 2018 and is effective for 150 days. The emergency regulation also will be issued as a proposed regulation and go through the formal rule making process.

⁵ See Ill. Admin. Code 150.201 (physical presence includes having an office or other facility in Illinois, having employees in Illinois, having other representatives operating in Illinois, among other activities).

⁶ "Separate transactions" is defined as "sales transactions which are documented on separate invoices, regardless of the manner in which the tangible personal property is delivered to the purchaser."