Chicago provides narrow guidance on Wayfair economic nexus


Authored by RSM US LLP

On Jan. 21, 2021, Chicago released Information Bulletin – Nexus and Safe Harbor intended to address a number of questions received by the city since the U.S. Supreme Court’s 2018 decision in South Dakota v. Wayfair. Recall that Wayfair overturned the long-standing ‘physical presence’ nexus standard established under Quill v. North Dakota in 1992. As a result, states may impose sales and use tax collection and remittance responsibilities on remote sellers based solely upon their economic activity in a state. As of the date of this article, 44 of 46 states with a general state sales and use tax have adopted an economic sales tax nexus provision. 

The bulletin establishes a safe harbor for remote sellers with revenues under $100,000 from Chicago customers during the most recent consecutive four quarters effective July 1, 2021. The safe harbor applies to an entity with no other significant contacts with Chicago. If a seller initially qualifies for the safe harbor and subsequently exceeds the threshold, the seller should register with the Chicago Department of Finance within 60 days, begin collecting tax within 90 days and continue collecting for at least 12 months. The safe harbor pertains specifically to the city’s Personal Property Lease Transaction Tax as applied to nonpossessory computer leases, and the Amusement Tax, as applied to amusements delivered electronically such as video streaming, audio streaming and online games. The safe harbor applies prospectively from July 1, 2021 and no refunds or credits will be issued for sellers subject to the safe harbor that have already registered and collected tax.

If the safe harbor does not apply, the city expects businesses with Chicago activity to comply with all relevant tax ordinances. Accordingly, the city will review several factors to determine if a seller has established nexus and the resulting tax collection responsibility. One factor is whether the seller meets the state of Illinois’ economic nexus threshold (i.e., $100,000 or more in sales or 200 or more transactions), though the bulletin explains that the state threshold alone is not determinative of city nexus. Other factors that will be considered include agreements that the entity has with other businesses in Chicago, activities that the entity’s employees or agents perform on the entity’s behalf in Chicago, any physical presence the entity has in Chicago, advertising directed at Chicago customers, and other factors that support the conclusion that the entity has purposefully availed itself of the privilege of carrying on business in Chicago. The bulletin ultimately concludes that Chicago nexus will be evaluated on a case-by-case basis. 

Other local taxes after Wayfair 

In many states, local sales taxes are levied on the same tax base as the state sales tax and the collection and administration of the taxes occur at the state level. However, in some states, local governments administer their own sales taxes under their own ordinances, tax forms and administration – like Chicago. In these states, the local sales tax base can and often does differ from the state tax.

Remote sellers should also be cognizant of local jurisdictions enforcing remote seller provisions without the authority provided by an economic sales tax nexus provision. In Colorado, for example, a number of localities administer their own sales and use tax laws. Some of those localities have adopted their own Wayfair threshold. Other localities in states with local sales taxes have begun to enforce collection based on the Wayfair decision without a threshold or specific economic sales tax nexus law under broad interpretations of pre-Wayfair local tax law.

There are also other local sales tax considerations. For example, Alaska does not impose a state-wide sales and use tax, but over 100 local jurisdictions have the authority to impose a local sales and use tax at widely varying rates. A number of Alaskan localities have adopted economic sales tax nexus since the Wayfair decision. Additionally, the Alaska Remote Sellers Sales Tax Commission was established to simplify remote seller administration of local sales and use taxes.

Alabama, Louisiana and Texas have begun to ease administrative burdens of local tax collection on remote sellers without physical presence in the state. Alabama has created a simplified sellers use tax program with a flat rate and single point of collection. In Louisiana, the state’s Sales and Use Tax Commission for Remote Sellers is a single collection point for sales tax due on sales to Louisiana customers. Finally, Texas remote sellers without a physical presence in the state can collect local sales taxes at a flat rate. 


Remote sellers making sales into Chicago should evaluate their sales into the city to determine if they will exceed the safe harbor by July 1, 2021. As explained by the bulletin, those businesses may be required to register, collect and remit the Personal Property Lease Transaction Tax and Amusement Tax if nexus is established in the city. Exceeding the threshold may be one factor the city uses to determine whether a remote seller has established the requisite nexus. 

The state and local tax nexus landscape continues to change rapidly. Remote sellers with questions about compliance under the new nexus landscape should speak to their tax advisors on how to diligently track and comply with these new provisions.