How did Illinois treat service fees, document delivery, electronic data, and computer software for sales and service taxes?

Plain-English summary

Pure services generally were not subject to the four Illinois sales-and-service taxes discussed when the customer received no tangible personal property. If a serviceman transferred copies or other tangible property with the service, Service Occupation or Use Tax could apply under one of the regulatory calculation methods.

The GIL treated processing, photocopy, and document-retrieval charges as service charges. Physical copies transferred with document retrieval could fall within the service-tax rules, including the historical de minimis methods described in the letter.

Electronically downloaded information or data was not considered tangible personal property. Prewritten, or "canned," software was different: Illinois treated it as tangible personal property even when downloaded electronically. Custom software might not be a taxable retail sale, and a software license was not subject to Retailers' Occupation Tax only if it met every criterion in Section 130.1935(a)(1).

The Department did not give a transaction-specific answer for Application Service Provider arrangements. It said ASP guidance belonged in formal rulemaking.

What this means for you

Identify exactly what the customer receives. A fee labeled "service" can have a different tax result if physical documents or other property are transferred, and electronic delivery does not by itself make prewritten software nontaxable.

Common questions

Q: Was electronically downloaded information tangible personal property?
A: No, under the rule cited in the GIL.

Q: Was downloaded prewritten software treated the same way?
A: No. Prewritten software was treated as tangible personal property regardless of delivery method.

Q: Did the GIL decide the taxability of web-hosted or ASP access?
A: No. It deferred that subject to formal rulemaking.

Citations and references

• 86 Ill. Adm. Code 140.101, 140.106, 140.108, and 140.109
• 86 Ill. Adm. Code 160.101
• 86 Ill. Adm. Code 130.2105(a)(3)
• 86 Ill. Adm. Code 130.1935(a)(1) and (c)

Subject

Service Occupation Tax

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2010.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2010/st-10-0042.pdf

Original ruling text

ST 10-0042-GIL 05/14/2010 SERVICE OCCUPATION TAX
If no tangible personal property is transferred to the customer, then no Illinois Retailers’
Occupation Tax or Service Occupation Tax would apply. See 86 Ill. Adm. Code Parts 130 and

140. (This is a GIL.)

May 14, 2010

Dear Xxxxx:
This letter is in response to your letter dated December 21, 2009, in which you request
information. The Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are
issued by the Department in response to specific taxpayer inquiries concerning the application of a
tax statute or rule to a particular fact situation. A PLR is binding on the Department, but only as to the
taxpayer who is the subject of the request for ruling and only to the extent the facts recited in the PLR
are correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in
the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information
Letter (“GIL”) is to direct taxpayers to Department regulations or other sources of information
regarding the topic about which they have inquired. A GIL is not a statement of Department policy
and is not binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website
at www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to
your inquiry.
The nature of your inquiry and the information you have provided require that we respond with
a GIL. In your letter you have stated and made inquiry as follows:
We represent a client with sales of various revenue streams. We are attempting to
determine if any of its revenue streams are subject to your State’s sales taxes. We
would appreciate your opinion as to whether the following types of products and
services are exempt or taxable in your State.
Article Service:
Our client sells articles from scientific, technical and medical journals to researchers. In
most cases, our client earns a transaction fee and a copyright fee. Other fees may be
added as well, such as referencing charges (to clean up a citation) or extra charges to
customize the format of a particular document used for Food & Drug Administration
submissions. In cases where the customer already owns the document, but would like
to copy it, a copyright only fee may be assessed. In all cases where our client clears
the copyright for a customer, our client must pay that copyright to the publishers, 3rd
party vendors or a copyright clearance organization such as the CCC (Copyrights
Clearance Center).
The following is a list of the most common delivery methods used by our client:
Regular mail – US Postal Service
Courier (FedEx, DHL, etc)

Facsimile (Fax)
Electronic delivery to E-mail address
Are the transaction fees from selling the articles are [sic] taxable? Are the copyright
fees charged to the customers taxable? Would any of the above delivery methods
exempt the sale?
Reprint Sales
Reprints are bulk orders of high quality documents. They are not just photocopies; they
are actual copies from the publisher. The reprints are delivered by the following means:
Delivered to the client’s customers by the US Postal Service directly from
the publisher.
Downloaded by the customer from our client’s server.
Are reprint sales taxable in your state? Would any of the above delivery methods
exempt the sale?
Software
Our client sells software which turns a customer’s computer, printer, and scanner into a
state-of-the-art document transmission station on the internet. An actual CD may be
mailed to a customer or the software may be downloaded by the customer from our
client’s website.
If the software is electronically downloaded by the customer, would the sale be taxable?
If the CD containing the software is mailed the customer, would the sale be taxable?
If the software is electronically downloaded by the customer, and a CD copy is also
mailed to the customer, would the sale be taxable?
License Fees
These are software licensing fees paid by the customers so they can use the software
that resides on the client’s servers. It is a web-based solution to access the client’s
library. The software is a document sourcing/delivery platform which automates and
manages the document delivery process. The platform allows the customers to search,
discover, and order citations from the client’s catalog of published scientific, technical,
and medical contents. The software itself is not delivered to the customers.
Are the above license fees taxable?
Staffing Service
A staffing service where our client provides highly skilled professionals to provide
expertise in all aspect [sic] of information center management, from complete library
management to specialized services such as search and discovery, document delivery,
indexing, cataloging, acquisitions, management, order fulfillment, research, weeding,
and taxonomy. Our client’s employees can work on-site at the customer’s location, or

remotely. Our client will provide staffing services for both short-term and long-term
engagements. The staffing personnel provided by our client are all employees of the
client.
Is the above staffing service taxable?
Outsourcing Service
This service allows customers to outsource the management of their information center
to our client. All aspects of providing an information center is covered. This includes
search and discovery of publications, collection management and licensing, and
document sourcing and delivery. Customers pay a management fee for this service.
Is the above management fee taxable?
Document Storage and Retrieval Service
A storage, maintenance, and retrieval service whereby a customer’s physical print
collection is stored off-site at our client’s facility and maintained by our client’s
personnel. Documents requested from our client’s facility can be delivered in two hours
or less depending on the customer’s specific copyright clearance agreement. High
qualify reproduction of the document is delivered to the customer. Our client earns a
maintenance fee for this service.
Is the above maintenance fee taxable?
We appreciate your attention to our questions. Please do not hesitate to contact me if
you have any questions. You may send your response to the address shown on this
letterhead.

DEPARTMENT’S RESPONSE
General information letters are used to direct taxpayers to the Department’s regulations and
other sources of information for general guidance. You may find the Department’s general information
letters helpful in regards to many of the issues raised in your request. The Department’s “Sunshine
Letter” rulings are located on the Department’s Internet website under the heading of
“Laws/Regs/Rulings.” Issues regarding the taxation of software and software licenses may be found
at 86 Ill. Adm. Code 130.1935.
FEES
Retailers' Occupation and Use Taxes do not apply to sales of service. The Service Occupation
Tax Act and Service Use Tax are imposed on the transfer of tangible personal property incident to
sales of service. 86 Ill. Adm. Code 140.101 and 160.101. However, if no tangible personal property is
transferred incident to a sale of service, the Service Occupation Tax and Service Use Tax do not
apply.
If the transactions you are inquiring about do not involve the transfer of any tangible personal
property to the customer, then they generally would not be subject to Retailers’ Occupation Tax, Use
Tax, Service Occupation Tax, or Service Use Tax.

SERVICE OCCUPATION TAX
Retailers' Occupation Tax and Use Tax do not apply to receipts from sales of personal
services. Under the Service Occupation Tax Act, businesses providing services (i.e. servicemen) are
taxed on tangible personal property transferred as an incident to sales of service. See 86 Ill. Adm.
Code 140.101. The purchase of tangible personal property that is transferred to the service customer
may result in either Service Occupation Tax liability or Use Tax liability for the servicemen depending
upon his activities. The serviceman’s liability may be calculated in one of four ways:
(1)
(2)
(3)
(4)

separately stated selling price of tangible personal property transferred incident
to service;
50% of the servicemen's entire bill;
Service Occupation Tax on the servicemen's cost price if the servicemen are
registered de minimis servicemen; or
Use Tax on the servicemen's cost price if the servicemen are de minimis and are
not otherwise required to be registered under Section 2a of the Retailers'
Occupation Tax Act.

Using the first method, servicemen may separately state the selling price of each item
transferred as a result of the sale of service. The tax is then calculated on the separately stated
selling price of the tangible personal property transferred. If the servicemen do not separately state
the selling price of the tangible personal property transferred, they must use 50% of the entire bill to
the service customer as the tax base. Both of the above methods provide that in no event may the tax
base be less than the servicemen's cost price of the tangible personal property transferred. See 86 Ill.
Adm. Code 140.106.
The third way servicemen may account for their tax liability only applies to de minimis
servicemen who have either chosen to be registered or are required to be registered because they
incur Retailers' Occupation Tax liability with respect to a portion of their business. See 86 Ill. Adm.
Code 140.109. Servicemen may qualify as de minimis if they determine that the annual aggregate
cost price of tangible personal property transferred as an incident of the sale of service is less than
35% of the total annual gross receipts from service transactions (75% in the case of pharmacists and
persons engaged in graphics arts production). Servicemen no longer have the option of determining
whether they are de minimis using a transaction by transaction basis. Registered de minimis
servicemen are authorized to pay Service Occupation Tax (which includes local taxes) based upon
their cost price of tangible personal property transferred incident to the sale of service. Such
servicemen should give suppliers resale certificates and remit Service Occupation Tax using the
Service Occupation Tax rates for their locations. Such servicemen also collect a corresponding
amount of Service Use Tax from their customers, absent an exemption.
The final method of determining tax liability may be used by de minimis servicemen that are
not otherwise required to be registered under Section 2a of the Retailers' Occupation Tax Act. Such
de minimis servicemen handle their tax liability by paying Use Tax to their suppliers. If their suppliers
are not registered to collect and remit tax, the servicemen must register, self-assess and remit Use
Tax to the Department. The servicemen are considered to be the end-users of the tangible personal
property transferred incident to service. Consequently, they are not authorized to collect a "tax" from
the service customers. See 86 Ill. Adm. Code 140.108.
Tangible personal property that is transferred incident to document retrieval services, such as
the providing of copies of documents, could fall below the de minimis threshold. If this is the case, it
would allow such servicemen to determine their tax base in any of the above methods. Historically,
most service providers that qualify as de minimis and are not otherwise required to register with the

Department prefer to determine their tax base under the last method. Generally, processing charges,
photocopy charges, document retrieval charges, and other such charges are considered sales of
service, which are encompassed in the above discussion.
ELECTRONIC DOWNLOADS
Information or data that is electronically downloaded is not considered the transfer of tangible
personal property in this State. See 86 Ill. Adm. Code 130. 2105(a)(3). Please note that canned
(prewritten) computer software is considered tangible personal property regardless of the form in
which it is transferred or transmitted, including tape, disc, card, electronic means or other media. See
86 Ill. Adm. Code 130. 1935. Accordingly, if one is not transferring any canned (prewritten) computer
software and no tangible personal property of any kind is being transferred, then no Retailers’
Occupation Tax or Use Tax would be incurred on the transaction.
COMPUTER SOFTWARE
Generally, retail sales or transfers of “canned” computer software are taxable in Illinois
regardless of the means of delivery. For instance, the sale or transfer of canned computer software
downloaded electronically would be taxable. However, if the computer software consists of custom
computer programs, then the sales of such software may not be taxable retail sales. See 86 Ill. Adm.
Code 130.1935(c). If the license of computer software meets all of the criteria provided in subsection
(a)(1) of Section 130.1935, neither the transfer of the software nor the subsequent software updates
will be subject to Retailers' Occupation Tax. However, a license of canned software is subject to
Retailers' Occupation Tax liability if all of the criteria set out in 86 Ill. Adm. Code 130.1935(a)(1) are
not met.
Please note that the Department believes that the proper forum for providing guidance
regarding transactions involving computer software Application Service Providers (ASPs) is through a
formal administrative rulemaking process rather than through individual inquires such as letter ruling
requests. Unfortunately, I cannot provide you with a time frame as to when such a rulemaking
process will be initiated. I recommend that you monitor the Department’s website for information
regarding when this rulemaking will be proposed.
I hope this information is helpful. If you require additional information, please visit our website
at www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.
Very truly yours,

Debra M. Boggess
Associate Counsel
DMB:msk