Illinois – Annual Survey Discusses Nexus, Discounts, Seminars and Webinars

SALT Report 2939 – The Illinois Department of Revenue issued a general information letter in response to an annual survey request for tax information.  The survey is a collaborative effort between an Illinois University, a publishing company, and state tax departments.  The University assembles the information provided by each state and publishes a guide that is used as a reference source for departments of revenue, attorneys, corporate tax departments, and public accounting firms. This GIL discusses the Department’s position on nexus, and the application of sales and use tax to discounts, seminars and webinars.

Nexus

The Department uses the following standards to determine nexus, as the State does not have a “de minimis” standard.

An “Illinois retailer” is one who either accepts purchase orders in Illinois or maintains an inventory in Illinois and fills orders from that inventory. The Illinois Retailer is then liable for Retailers’ Occupation Tax on the gross receipts from those sales and must collect use tax on its purchasers.

Another type of retailer is the retailer maintaining a place of business in Illinois. This retailer must collect and remit use tax on behalf of its Illinois customers even though the retailer does not incur any Retailers’ Occupation Tax liability.

The final type of retailer is the out-of-State retailer that does not have nexus with the state and is not required to submit to Illinois tax laws. A retailer in this situation does not incur Retailers’ Occupation Tax on its sales into Illinois and is not required to collect use tax on behalf of its Illinois customers. However, the retailer’s Illinois customers are liable for use tax on their purchases and they must self-assess and remit the tax directly to the State.

Discounts

If a seller provides a discount to a purchaser and does not receive any reimbursement or rebate for that discount, only the discounted amount is taxable. However, if a retailer receives a full or partial coupon reimbursement from a manufacturer, distributor, or any other source, the retailer is liable for Retailers’ Occupation Tax on the amount received from the purchaser as well as on the amount received for the coupon reimbursement.

If a retailer offers a free item conditioned on the purchase of a separate item, such as a two-for-one or buy one get one free, with or without a coupon, the retailer’s gross receipts only include the amount actually received from the purchaser for both items. The retailer is not liable for tax based on the value of the free item because technically the item was not free, and it was not a gift. The retailer was simply offering a special price for both items sold.

Seminars and Webinars

Retailers’ Occupation and use taxes do not apply to sales of service if they do not involve the transfer of tangible personal property. However, if tangible personal property is transferred incident to the sales of service, this results in either a Service Occupation Tax liability or a use tax liability for the servicemen, depending on the activity.  The Department referred to 86 Ill. Adm. Code 140.129 as it provides the rules related to the application of tax to seminar materials.

For Further Information

Illinois Department of Revenue – General Information Letter ST 13-0036-GIL