Just SAY No – to Illinois Affiliate Nexus
Published on by Barnes Dennig in Tax Services
Under Illinois law, an out-of-state retailer is subject to “click-through” nexus if an Illinois resident is compensated by the retailer for sales made via links or promo codes on their website or blog. Even if the out-of-state retailer has no physical presence in Illinois, they will still be considered to have nexus due to the affiliate arrangement. If the retailer’s total sales from affiliates are greater than $10,000 for the previous year, they will be required to collect and remit tax on sales to Illinois residents. Fortunately, Illinois recently amended the law to allow retailers to rebut the presumption that “click-through” nexus is created for these activities if certain conditions are met.
Under the amended law[1], out-of-state retailers will have nexus in Illinois only if the persons with a referral agreement engage in “solicitation” activities. Put simply, “solicitation” is communication to a specific person or persons with the intent to provoke the person to purchase property from the retailer. Communication includes emails and text messages, as well as other obvious forms of direct communication, such as phone calls and face-to-face interaction. However, “advertising” is not considered solicitation and will not create Illinois nexus for an out-of-state retailer.
Under the amended law, “advertising” is a written, verbal, pictorial, or graphic announcement of goods or services for sale, which is intended to communicate information to the general public. Examples of allowable online advertisement include search engine ads, banner ads on a website, and links to retailers’ websites. The key difference between solicitation and advertising is that solicitation is sales activity targeted to specific people, while advertising is targeted to the general public.
An out-of-state retailer who wishes to rebut the “click-through” nexus presumption must keep the following documentation:
- Retailer Agreement – an agreement that prohibits persons with a commission arrangement from engaging in solicitation activities. If the person is an organization or corporation, they must post information on their website informing the public that they are prohibited from soliciting.
- Annual Certification – each person or organization listed in the Retailer Agreement must certify by January 1 of each year that they have not engaged in any prohibited solicitation activities in Illinois during the previous year.
This documentation must be retained by the retailer and provided to Illinois upon request.
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[1] Amended 86 Ill. Adm. Code 150.201
