Section 100.9720 Nexus

Section 100

TITLE 86: REVENUE

CHAPTER I: DEPARTMENT OF REVENUE

PART 100 INCOME TAX

SECTION 100.9720 NEXUS

Section 100.9720  Nexus

a)         IITA Section 201(a) imposes the Illinois Income Tax, a tax

measured by net income, on

individuals, corporations, trusts and estates for

the privilege of earning or receiving income in or as a resident of this State.

IITA Section 201(c) imposes a second tax measured by net income, the Personal

Property Tax Replacement Income Tax, on

corporations, partnerships and

trusts for the privilege of earning or receiving income in or as a resident of

this State.

In general, a resident of this State will always be subject to

these taxes. Activity conducted in interstate commerce may establish sufficient

nexus with Illinois to permit imposition of these taxes on a non-resident

taxpayer, as well, when the non-resident earns or receives income in this State

within the meaning of the IITA. Complete Auto Transit, Inc. v. Brady, 430 U.S.

274, 97 S. Ct. 1076 (1977); Quill v. North Dakota, 504 U.S. 298, 112 S. Ct.

1904 (1992).  However, the fact that Article 3 of the IITA requires a non-resident

taxpayer to allocate or apportion income to this State does not create a

presumption that the taxpayer has nexus.

b)         Standards for determining sufficient tax nexus are found in

federal statutes regulating interstate commerce, in United States Constitutional

jurisprudence, and in Illinois tax statutes.

c)         The scope of federal statutes limiting nexus for imposition of

Illinois income and replacement taxes are described in this subsection (c):

1)         Public Law 86-272.  In 1959, Congress enacted PL 86-272 (15 U.S.C.

381-384), which prohibits states and their political subdivisions from imposing

a net income tax on nonresident taxpayers who operate primarily in interstate

commerce and whose activity within a state is limited.  PL 86-272 provides in

pertinent part:

A)        No state or political subdivision thereof shall have the power

to impose . .

86-272.  In 1959, Congress enacted PL 86-272 (15 U.S.C.

381-384), which prohibits states and their political subdivisions from imposing

a net income tax on nonresident taxpayers who operate primarily in interstate

commerce and whose activity within a state is limited.  PL 86-272 provides in

pertinent part:

A)        No state or political subdivision thereof shall have the power

to impose . . . a net income tax on the income derived within such state by any

person from interstate commerce if the only business activities within such

state by or on behalf of such person during such taxable year are either, or

both of the following:

i)          the solicitation of orders by such person, or his

representative, in such state for sales of tangible personal property, which

orders are sent outside the state for approval or rejection, and, if approved,

are filled by shipment or delivery from a point outside the state; and

ii)         the solicitation of orders by such person, or his

representative, in such state in the name of or for the benefit of a

prospective customer of such person, if orders by such customer to such person

to enable such customer to fill orders resulting from such solicitation are

orders described in subsection (c)(1)(A)(i).

B)        The provisions of subsection (c)(1)(A) of this Section shall

not apply to the imposition of a net income tax by any State or political

subdivision thereof, with respect to –

i)          Any corporation which is incorporated under the laws of such

state; or

ii)         any individual who, under the laws of such state, is

domiciled in, or a resident of, such state

section (c)(1)(A)(i).

B)        The provisions of subsection (c)(1)(A) of this Section shall

not apply to the imposition of a net income tax by any State or political

subdivision thereof, with respect to –

i)          Any corporation which is incorporated under the laws of such

state; or

ii)         any individual who, under the laws of such state, is

domiciled in, or a resident of, such state.

C)        For the purposes of subsection (c)(1)(A) of this Section, a

person shall not be considered to have engaged in business activities within a

state during any taxable year merely by reason of sales in such state, or the

solicitation of orders for sales in such state, of tangible personal property

on behalf of such person by one or more independent contractors whose

activities on behalf of such person in such state consist solely of making

sales, or soliciting orders for sales, of tangible personal property.

D)        For purposes of this subsection (c)(1) –

i)          The term "independent contractor" means a

commission agent, broker, or other independent contractor who is engaged in

selling, or soliciting orders for the sale of tangible personal property for

more than one principal and who holds

themself

out as such in the regular course of business activities; and

ii)         the term "representative" does not include an independent

contractor.

2)         The terms of PL 86-272 affect nexus for taxation under the

IITA according to the following principles:

A)        If a nonresident taxpayer's activities exceed "mere

solicitation", as set forth in subsection (a) of PL 86-272 (subsection (c)(1)(A)

of this Section), it obtains no immunity under that federal statute.  The

taxpayer is subject to Illinois income tax and personal property tax

replacement income tax for the entire taxable year and its business income is

apportioned under IITA Section 304.  Whether a nonresident taxpayer's conduct

exceeds "mere solicitation" depends upon the facts in each particular

case

subsection (c)(1)(A)

of this Section), it obtains no immunity under that federal statute.  The

taxpayer is subject to Illinois income tax and personal property tax

replacement income tax for the entire taxable year and its business income is

apportioned under IITA Section 304.  Whether a nonresident taxpayer's conduct

exceeds "mere solicitation" depends upon the facts in each particular

case.

B)        Nature of Property Being Sold

i)          PL 86-272 immunizes solicitation only for sale of tangible

personal property.  Efforts to sell intangibles, such as services, franchises,

patents, copyrights, trademarks and service marks, are not protected, nor is

solicitation for the leasing, renting or licensing of tangible personal

property.

ii)         The sale, delivery and the solicitation for the sale or

delivery of any type of service that is not either ancillary to solicitation,

or otherwise set forth as a protected activity under subsection (c)(5), is also

not protected under PL 86-272 or this Section.

C)        Solicitation of Orders.  Solicitation of orders means speech or

conduct that explicitly or implicitly invites an order and activity ancillary

to invitations for an order.

i)          To be ancillary to invitations for orders, an activity must

serve no independent business function for the seller apart from its connection

to the solicitation of orders.

ii)         Activity that a seller would engage in apart from soliciting

orders shall not be considered ancillary to the solicitation of orders.

iii)        Assignment of an activity to a salesperson does not, merely

by such assignment, make that activity ancillary to solicitation of orders.

iv)        Activity that attempts to promote sales is not ancillary, nor

is activity that facilitates sales.  PL 86-272 only protects ancillary activity

that facilitates the invitation of an order.

D)        De minimus activities are those that, when taken together,

establish only a trivial additional connection with this State

assignment, make that activity ancillary to solicitation of orders.

iv)        Activity that attempts to promote sales is not ancillary, nor

is activity that facilitates sales.  PL 86-272 only protects ancillary activity

that facilitates the invitation of an order.

D)        De minimus activities are those that, when taken together,

establish only a trivial additional connection with this State.  An activity

regularly conducted within this State on a regular or systematic basis or

pursuant to a company policy (whether such policy is in writing or not) shall

normally not be considered trivial.  Whether an activity consists of a trivial

or non-trivial additional connection with this State is to be measured on both

a qualitative and quantitative basis.  If the activity either qualitatively or

quantitatively creates a non-trivial connection with this State, then the

activity exceeds the protection of PL 86-272. The amount of unprotected

activities conducted within this State relative to the amount of protected

activities conducted within this State is not determinative of the issue of

whether the unprotected activities are de minimus.  The determination of

whether an unprotected activity creates a non-trivial connection  with this

State is made on the basis of the taxpayer's entire business activity, not

merely its activities conducted within this State.  An unprotected activity

that would not be de minimus if it were the only business activity of the

taxpayer conducted in this State will not be de minimus merely because the

taxpayer also conducts a substantial amount of protected activities within this

State, nor will an unprotected activity that would be de minimus if conducted

in conjunction with a substantial amount of protected activities fail to be de

minimus merely because no protected activities are conducted in this State.

3)         Listing of Specific Unprotected and Protected Activities

ely because the

taxpayer also conducts a substantial amount of protected activities within this

State, nor will an unprotected activity that would be de minimus if conducted

in conjunction with a substantial amount of protected activities fail to be de

minimus merely because no protected activities are conducted in this State.

3)         Listing of Specific Unprotected and Protected Activities.

A)        Subsection (c)(4) lists specific activities that are considered

to be beyond "mere solicitation" and, therefore, unprotected by PL

86-272.

B)        Subsection (c)(5) lists specific activities that are considered

by this State to be "protected activities".  Included on the list of

"protected activities" are those specific activities that are

protected by PL 86-272 and those specific activities that this State, in its

discretion, deems worthy of protection.  Inclusion of an activity on the

listing of "protected activities" is neither a declaration nor an

admission by this State that the activity must be afforded  protection under PL

86-272.

4)         Unprotected Activities.  The following activities (assuming

they are not de minimus) do not constitute "mere solicitation" of

orders, nor are they ancillary, nor otherwise protected under PL 86-272.  If

one or more of the following activities are  conducted within this State, an

otherwise protected nonresident taxpayer shall become subject to taxation by

Illinois.

A)        Making repairs or providing maintenance or service to the

property sold or to be sold.

B)        Collecting current or delinquent accounts, whether directly or

by third parties, through assignment or otherwise.

C)        Investigating credit worthiness.

D)        Installation or supervision of installation at or after

shipment or delivery.

E)        Conducting training courses, seminars or lectures for personnel

other than personnel involved only in solicitation of sales of tangible

personal property

urrent or delinquent accounts, whether directly or

by third parties, through assignment or otherwise.

C)        Investigating credit worthiness.

D)        Installation or supervision of installation at or after

shipment or delivery.

E)        Conducting training courses, seminars or lectures for personnel

other than personnel involved only in solicitation of sales of tangible

personal property.

F)         Providing any kind of technical assistance or services,

including, but not limited to, engineering assistance or design service, when

one of the purposes of the assistance or service is other than the facilitation

of the solicitation of orders.

G)        Investigating, handling, or otherwise assisting in resolving

customer complaints, other than mediating direct customer complaints when the

sole purpose of such mediation is to ingratiate the sales personnel with the

customer.

H)        Approving or accepting orders.

I)         Repossessing property.

J)         Securing deposits on sales.

K)       Picking up or replacing damaged or returned property.

L)        Hiring, training, or supervising personnel, other than

personnel involved only in solicitation.

M)       Maintaining a sample or display room in excess of two weeks (14

days) at any one location within the State during the tax year.

N)       Carrying samples for sale, exchange or distribution in any

manner for consideration.

O)       Owning, leasing, or maintaining any of the following facilities

or property in-state:

i)          Repair

shop.

ii)         Parts

department.

iii)        Any kind of office other than an in-home office as described

as permitted under subsections (c)(4)(Q) and (c)(5)(B).

iv)        Warehouse.

v)         Meeting

place for directors, officers, or employees.

vi)        Stock of goods other than samples for sales personnel or that

are used entirely ancillary to solicitation

n-state:

i)          Repair

shop.

ii)         Parts

department.

iii)        Any kind of office other than an in-home office as described

as permitted under subsections (c)(4)(Q) and (c)(5)(B).

iv)        Warehouse.

v)         Meeting

place for directors, officers, or employees.

vi)        Stock of goods other than samples for sales personnel or that

are used entirely ancillary to solicitation.

vii)       Telephone answering service that is publicly attributed to the

nonresident or to an employee or agent of the nonresident in his or her representative

status.

viii)      Mobile stores, i.e., vehicles with drivers who are sales

personnel making sales from the vehicles.

ix)        Real

property or fixtures to real property of any kind.

P)        Consigning stock of goods or other tangible personal property

to any person, including an independent contractor, for sale.

Q)       The maintenance of any office or other place of business in this

State that does not strictly qualify as an "in-home" office as

described in subsection (c)(5)(M) shall, by itself, cause the loss of

protection under PL 86-272.  A telephone listing or other public listing within

the State for the nonresident or for an employee or other representative of the

nonresident in such capacity or other indication through advertising or

business literature that the nonresident or its employee or representative can

be contacted at a specific address within the State shall normally be

determined as the nonresident maintaining within this State an office or place

of business attributable to the nonresident or to its employee or

representative in a representative capacity.  However, the normal distribution

and use of business cards and

stationery

identifying the employee's or representative's name, address, telephone and fax

numbers and affiliation with the nonresident shall not, by itself, be

considered as advertising or otherwise publicly attributing an office to the

nonresident or to its employee or other representative

sentative in a representative capacity.  However, the normal distribution

and use of business cards and

stationery

identifying the employee's or representative's name, address, telephone and fax

numbers and affiliation with the nonresident shall not, by itself, be

considered as advertising or otherwise publicly attributing an office to the

nonresident or to its employee or other representative.

R)        Entering into franchising or licensing agreements; selling or

otherwise disposing of franchises and licenses; or selling or otherwise

transferring tangible personal property pursuant to such franchise or license

by the franchiser or licensor to its franchisee or licensee within the State.

S)        Conducting any activity that is not on the list of

"protected activities" in subsection (c)(5), and that is not entirely

ancillary to requests for orders, even if the activity helps to increase

purchases.

5)         Protected Activities.  The following in-state activities will

not cause the loss of immunity for otherwise protected sales:

A)        Soliciting

orders for sales by any type of advertising.

B)        Soliciting orders for sales by an in-state resident employee or

representative of the nonresident, so long as that person does not maintain or

use any office or place of business in the State besides an "in-home"

office as described in subsection  (c)(5)(M).

C)        Carrying samples and promotional materials only for display or

for distribution without charge or other consideration.

D)        Furnishing and setting up display racks and advising customers

on the display of the nonresident's products without charge or other

consideration.

E)        Providing automobiles to sales personnel for their use in

conducting protected activities.

F)         Passing orders, inquiries and complaints on to the home

office.

G)        Missionary sales activities; i.e., the solicitation of indirect

customers for the nonresident's goods

and advising customers

on the display of the nonresident's products without charge or other

consideration.

E)        Providing automobiles to sales personnel for their use in

conducting protected activities.

F)         Passing orders, inquiries and complaints on to the home

office.

G)        Missionary sales activities; i.e., the solicitation of indirect

customers for the nonresident's goods.  For example, a manufacturer's

solicitation of retailers to buy the manufacturer's goods from the

manufacturer's wholesale customers would be protected if those solicitation

activities are otherwise immune.

H)        Coordinating shipment or delivery without payment or other

consideration and providing information relating to shipment or delivery either

prior or subsequent to the placement of an order.

I)         Checking of customers' inventories without charge (for

re-order, but not for other purposes such as quality control).

J)         Maintaining a sample or display room for two weeks (14 days)

or less at any one location within the State during the tax year.

K)        Recruiting, training or evaluating sales personnel, including

occasionally using homes, hotels or similar places for meetings with sales

personnel.

L)        Mediating direct customer complaints when the purpose is solely

for ingratiating the sales personnel with the customer and facilitating

requests for orders.

M)       Owning, leasing, using or maintaining personal property for use

in the employee's or representative's "in-home" office located within

the residence of the employee or other representative that is not publicly

attributed to the nonresident or to the employee or other representative of the

nonresident in a representative capacity or automobile, when that use is solely

limited to the conducting of protected activities

or maintaining personal property for use

in the employee's or representative's "in-home" office located within

the residence of the employee or other representative that is not publicly

attributed to the nonresident or to the employee or other representative of the

nonresident in a representative capacity or automobile, when that use is solely

limited to the conducting of protected activities.  Therefore, the use of

personal property such as a cellular telephone, facsimile machine, duplicating

equipment, personal computer and computer software, shall not, by itself,

remove the protection under this Section, so long as the use of the office is

limited to:

i)          soliciting

and receiving orders from customers;

ii)         transmitting orders outside the State for acceptance or

rejection by the nonresident; or

iii)        other activities that are protected under PL 86-272 or this

Section.

N)        Shipping or delivering goods into this State by means of

vehicles or other modes of transportation owned or leased by the nonresident

taxpayer or by means of private carrier, whether by motor vehicle, rail, water,

air or other carrier and irrespective of whether a shipment or delivery fee or

other charge is imposed, directly or indirectly, upon the purchaser.

6)         Independent Contractors.  PL 86-272 provides immunity to

certain in-state activities, if conducted by an independent contractor, that

would not be afforded if performed by the nonresident or its employees or other

representatives.

A)        Notwithstanding the provisions of subsection (c)(4),

independent contractors may engage in the following limited activities in the

State without the nonresident's loss of immunity:

i)          soliciting

sales;

ii)         making

sales;

iii)        maintaining

an office.

B)        Sales representatives who represent a single principal are not

considered to be independent contractors and are subject to the same

limitations as those provided under PL 86-272 and this Section

ngage in the following limited activities in the

State without the nonresident's loss of immunity:

i)          soliciting

sales;

ii)         making

sales;

iii)        maintaining

an office.

B)        Sales representatives who represent a single principal are not

considered to be independent contractors and are subject to the same

limitations as those provided under PL 86-272 and this Section.

C)        Maintenance of a stock of goods in the State, by the

independent contractor under consignment or any other type of arrangement with

the nonresident, except for purposes of display and solicitation, shall remove

the protection.

7)         Application of Destination State Law in Case of Conflict.

A)        When it appears that Illinois and one or more other states that

are signatories to the "Statement of Information concerning practices of

the Multistate Tax Commission and Signatory States under PL 86-272" have

included or will include the same receipts from a sale in their respective

sales factor numerators, at the written request of the nonresident, the states

will, in good faith, confer with one another to determine which state should be

assigned the receipts.  The conference shall identify what law, regulation or written

guideline, if any, has been adopted in the state of destination with respect to

the issue.  The state of destination shall be that location at which the

purchaser or its designee actually receives the property, regardless of F.O.B.

(Free on Board) point or other conditions of sale.

B)        In determining which state is to receive the assignment of the

receipts at issue, preference shall be given to any clearly applicable law,

regulation or written guideline that has been adopted in the state of

destination

hall be that location at which the

purchaser or its designee actually receives the property, regardless of F.O.B.

(Free on Board) point or other conditions of sale.

B)        In determining which state is to receive the assignment of the

receipts at issue, preference shall be given to any clearly applicable law,

regulation or written guideline that has been adopted in the state of

destination.  However, except in the case of the definition of what constitutes

"tangible personal property", Illinois is not required by this

Section to follow any other state's law, regulation or written guideline should

Illinois determine that to do so:

i)          would conflict with Illinois laws, regulations, or written

guidelines; and

ii)         would not clearly reflect the income-producing activity of

the nonresident within Illinois.

C)        Notwithstanding any provision set forth in this Section to the

contrary, as between Illinois and any other signatory state, Illinois agrees to

apply the definition of "tangible personal property" that exists in

the state of destination to determine the application of PL 86-272 and issues

of throwback, if any.  Should the state of destination not have any applicable

definition of tangible personal property so that it could be reasonably

determined whether the property at issue constitutes tangible personal

property, then each signatory state may treat the property in any manner that

would clearly reflect the income-producing activity of the nonresident within

that state.

8)         Application of this Section to Foreign Commerce

A)        PL 86-272 specifically applies, by its terms, to

"interstate commerce" and does not directly apply to foreign

commerce.  The states are free, however, to apply the same standards set forth

in PL 86-272 to business activities in foreign commerce to ensure that foreign

and interstate commerce are treated on the same basis

tate.

8)         Application of this Section to Foreign Commerce

A)        PL 86-272 specifically applies, by its terms, to

"interstate commerce" and does not directly apply to foreign

commerce.  The states are free, however, to apply the same standards set forth

in PL 86-272 to business activities in foreign commerce to ensure that foreign

and interstate commerce are treated on the same basis.  Such an application

also avoids the necessity of expensive and difficult efforts in the

identification and application of the  varied jurisdictional laws and rules

existing in foreign countries.

B)        Illinois will apply the provisions of PL 86-272 and of this

Section to business activities conducted in foreign commerce.  Therefore,

whether business activities are conducted by a nonresident selling tangible

personal property into a country outside of the United States from a point

within Illinois or by a nonresident selling such property into Illinois from a

point outside of the United States, the principles under this Section apply

equally to determine whether the sales transactions are protected and the

nonresident is immune from taxation in either Illinois or in the foreign

country, as the case might be, and whether, if applicable, Illinois will apply

its throwback provisions.

9)         Application to Corporation Incorporated in this State or to a

Person Resident or Domiciled in this State.  The protection afforded by PL

86-272 and this Section does not apply to any corporation incorporated within

Illinois or to any person who is a resident of or domiciled in Illinois.

10)       Registration or Qualification to do Business.  A business that

registers or otherwise formally qualifies to do business within Illinois does

not, by that fact alone, lose its protection under PL 86-272.

11)       Loss of Protection for Conducting Unprotected Activity During

Part of a Tax Year.  The protection afforded under PL 86-272 and this Section

shall be determined on a tax year by tax year basis

tion or Qualification to do Business.  A business that

registers or otherwise formally qualifies to do business within Illinois does

not, by that fact alone, lose its protection under PL 86-272.

11)       Loss of Protection for Conducting Unprotected Activity During

Part of a Tax Year.  The protection afforded under PL 86-272 and this Section

shall be determined on a tax year by tax year basis.  Therefore, if at any time

during a tax year the nonresident conducts activities that are not protected

under PL 86-272 or this Section, no income earned or received in this State by

the nonresident during any part of that tax year shall be protected from

taxation under PL 86-272 or this Section.

d)         Illinois Statutory Provisions.  PA 88-361 amended the Illinois

Income Tax Act to provide that

a person not otherwise subject to the tax

imposed under the IITA shall not become subject to the tax imposed by the IITA

by reason of:

1)

that person's ownership of tangible personal property

located at the premises of a printer in this State with which the person has

contracted for printing; or

2)

activities of the person's employees or agents located

solely at the premises of a printer and related to quality control,

distribution, or printing services performed by a printer in the State with

which the person has contracted for printing.

(IITA Section 205(f))

e)         U.S. Constitutional Jurisprudence.  If not protected by U.S.

or Illinois statute, an income-producing activity may, nonetheless, be

protected from State taxation by principles of U.S. Constitutional

jurisprudence.  Controlling decisions that assert protections afforded by the

Interstate Commerce Clause, the Foreign Commerce Clause and the Due Process Clause

are accepted by this State as limitations on the reach of its income tax and

personal property tax replacement income tax statutes.  However, nothing stated

in this subsection (e) shall prevent Illinois from challenging taxpayer

assertions of U.S. Constitutional protection

hat assert protections afforded by the

Interstate Commerce Clause, the Foreign Commerce Clause and the Due Process Clause

are accepted by this State as limitations on the reach of its income tax and

personal property tax replacement income tax statutes.  However, nothing stated

in this subsection (e) shall prevent Illinois from challenging taxpayer

assertions of U.S. Constitutional protection.

f)         Application of the Joyce and Finnigan Rules.

For taxable years ending before December 31, 2025, in

determining whether the activity of a nonresident taxpayer conducted in this

State is sufficient to create nexus for application of Illinois income tax or

replacement tax, the principles established in Appeal of Joyce Inc., Cal. St.

Bd. of Equal. (11/23/66), commonly known as the "Joyce rule", shall

apply.  Only activity conducted by or on behalf of the nonresident taxpayer

shall be considered for this purpose. Because the income of a partnership, a

Subchapter S corporation or any other pass-through entity is treated as income

of its owners, activity of a pass-through entity is conducted on behalf of its

owners.  Activity conducted by any other person, whether or not affiliated with

the nonresident taxpayer, shall not be considered attributable to the taxpayer,

unless the other person was acting in a representative capacity on behalf of

the taxpayer. For taxable years ending on or after December 31, 2025, see IITA

Section 304(e) and Section 100.3375 of this Part for purposes of applying the

Finnigan rule for combined apportionment and throwback/throwout.  In re Appeal

of Finnigan Corp., Cal St. Bd. Of Equal., 1/24/90