Economic Nexus Threshold: Illinois Appellate Court Says Exempt Sales Count, and Remote Sellers Owe Destination-Rate Tax Once They Cross It

CHICAGO — An out-of-state seller whose sales to Illinois customers are mostly exempt still counts every dollar of them toward the state's economic nexus threshold, the Illinois Appellate Court held on Wednesday, affirming a three-year assessment against an Ohio industrial distributor that had treated its small volume of taxable sales as the only number that mattered. The decision in Rivermark Supply Co. v. Department of Revenue resolves a question that has divided state tax practitioners since South Dakota v. Wayfair in 2018 and that matters most to business-to-business sellers.

"The threshold measures a seller's presence in the Illinois market, not its tax bill," the court wrote.

The dispute

Rivermark sells fasteners, abrasives and shop supplies online from a warehouse in Ohio. About $900,000 of its annual sales went to Illinois customers, but roughly 93 percent of those were to manufacturers and distributors that provided resale or manufacturing-exemption certificates; its taxable retail sales to Illinois ran to about $60,000 a year. Rivermark did not register in Illinois, reasoning that its taxable sales were well under the $100,000 threshold. The Department of Revenue audited it for 2021 through 2023, assessed Retailers' Occupation Tax on the taxable sales at the combined state and local rates at each delivery address, and added interest and penalties. The Illinois Independent Tax Tribunal upheld the assessment but abated the penalties for 2021; both sides appealed.

What the court held

1. Gross means gross. The statute treats a remote retailer as engaged in selling at retail in Illinois if its "cumulative gross receipts from sales of tangible personal property to purchasers in Illinois" are $100,000 or more. The court read "gross receipts" as the term is defined elsewhere in the Act — total consideration received, before exemptions — and rejected Rivermark's argument that only receipts from taxable retail sales could count, since the threshold is a measure of market presence and the exemption is applied afterward to each sale. Wayfair, the court noted, upheld a $100,000 threshold expressed in gross sales and justified it as protecting small sellers from compliance burdens, a rationale that does not extend to a seller with nearly a million dollars of Illinois business.
2. Destination sourcing applies. Since January 2021, under the Leveling the Playing Field for Illinois Retail Act, a remote retailer that meets the threshold collects state and local ROT at the rate in effect where the goods are delivered, rather than the 6.25 percent state use tax that applied before. Rivermark argued that the local component could not be imposed on a seller with no local presence; the court held that the Act's treatment of the remote retailer as a local retailer at the point of delivery was within the legislature's power after Wayfair.
3. Quarterly determination. The threshold is tested at the end of each quarter against the preceding twelve months, and the obligation begins the following quarter. Rivermark crossed it in the first quarter of 2021 and owed tax from the second.
4. Penalties. The Tribunal's finding of reasonable cause for 2021 — the first year of destination sourcing, when the Department's guidance on the point was incomplete — was supported by the record; its refusal to extend the abatement to later years, after the Department had published guidance and Rivermark had received a nexus questionnaire it did not answer, was not an abuse of discretion.

Why it matters

Business-to-business sellers have long assumed that exempt sales do not count, in part because some states do measure the threshold by taxable sales. Illinois, the court has now confirmed, does not. The practical consequence is that a wholesaler or industrial supplier with any meaningful Illinois volume must register, collect on its taxable sales at destination rates — which range from 6.25 percent to more than 11 percent across the state's local jurisdictions — and maintain exemption certificates for the rest. The decision also illustrates the cost of not registering: a seller that fails to collect cannot recover the tax from its customers after the fact and pays it out of its own pocket, with interest.

Question	Illinois answer after Rivermark
What counts toward the threshold?	Gross receipts from all sales of tangible personal property to Illinois purchasers, including exempt and resale sales
Transaction count?	No longer; the 200-transaction test was eliminated effective 2025
When is it tested?	Quarterly, on the preceding twelve months; obligation begins the next quarter
What rate applies?	Combined state and local ROT at the delivery address
Marketplace sales?	Collected by the marketplace facilitator; treatment for the seller's own threshold depends on the statute's current text and should be confirmed

The threshold measures a seller's presence in the Illinois market, not its tax bill.

From the opinion

What happens next

Rivermark may petition the Illinois Supreme Court for leave to appeal within thirty-five days. The Department has said it will apply the decision in pending audits. Sellers in Rivermark's position have two options the court's opinion makes clear: register and begin collecting from the next quarter, or approach the Department under its voluntary disclosure program before an audit begins, which limits the lookback and generally waives penalties.

The Counsel will report any petition to the Illinois Supreme Court. Remote sellers with exempt-heavy Illinois sales should recompute their threshold on gross receipts and discuss registration or voluntary disclosure with a state tax adviser.

This report is for general information only and is not legal or tax advice. Readers should consult a licensed attorney or tax professional about their own circumstances. Docket numbers and citations are to the official reporters unless otherwise stated.