Nexus of Medical Transcription Service Prompts Discussion of Illinois Sales and Use Tax

On June 2, 2017, the Illinois Department of Revenue issued a general information letter in response to an inquiry about whether a taxpayer’s medical transcription service activities created nexus with Illinois, necessitating the payment of sales tax. For the medical transcription service, the taxpayer hired independent contractors who worked from home using their own equipment. The independent contractors performed work for customers in various states, including Illinois.

Sales tax is imposed in Illinois upon people “engaged in the business of selling tangible personal property to purchasers for use or consumption” (fully described in 86 Ill. Adm. Code 150.201(i)). In the letter, the Department of Revenue explained that, generally, if no tangible personal property is transferred, then a transaction is not subject to Retailers’ Occupation Tax, Use Tax, Service Occupation Tax, or Service Use Tax. Since no tangible property is transferred in connection with the medical transcription services, no tax is due.

Regarding the creation of nexus with Illinois, the department clarified the characteristics of an “Illinois retailer” and a retailer “maintaining a place of business” in Illinois. Such a retailer must collect and remit use tax to the state to conform with the retailer’s occupation tax act and use tax act. Since there was no tax due, the Department did not give a definitive answer regarding nexus under the facts of using independent contractors to perform these services. (General Information Letter ST 17-0018-GIL, Illinois Department of Revenue, June 2, 2017).

Posted on October 23, 2017