Are fees for internet access to healthcare recall information, location databases, and unique database prefixes subject to Illinois sales or use tax?

Plain-English summary

Illinois said electronically transferred information or data was not tangible personal property, but separately warned that canned software remained taxable even when delivered electronically.

The requester, a nonprofit healthcare-standards organization, charged for unique database prefixes and two internet services: a recall-notification service and a location database. It stated that no tangible personal property was transferred.

Electronic information versus software

Under 86 Ill. Adm. Code 130.2105(a)(3), information or data electronically transferred or downloaded was not treated as tangible personal property.

Canned software, however, was taxable tangible personal property regardless of whether it was transferred by tape, disk, card, electronic means, or other media. Updates to canned software were fully taxable.

Custom software prepared to a customer's special order might not be a taxable retail sale. Updates qualifying as custom software might also be nontaxable.

The Department declined the requested PLR because it viewed its regulations as dispositive. It did not expressly classify each requested charge as information, canned software, or custom software.

What this means for you

Online information providers

Electronic delivery alone does not settle the issue. Determine whether the customer receives information/data or taxable canned software.

Database and subscription businesses

This GIL provides a classification framework, not a binding decision on the requester's prefix, recall, and location-database fees.

Common questions

Q: Is electronically downloaded information tangible personal property?
A: No under the rule stated.

Q: Is downloaded canned software taxable?
A: Yes. The delivery method did not change its treatment.

Q: Is custom software taxable?
A: Software prepared to the customer's special order might not be a taxable retail sale.

Q: Did Illinois definitively exempt the requester's services?
A: No. It declined the PLR and gave general classification rules.

Citations and references

• 2 Ill. Adm. Code 1200.110(a)(3)(D) and (a)(4) — grounds for declining a PLR.
• 86 Ill. Adm. Code 130.2105(a)(3) — electronically transferred information or data.
• 86 Ill. Adm. Code 130.1935 — canned and custom software.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2011.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2011/st-11-0094.pdf

Original ruling text

ST 11-0094-GIL 11/30/2011 MISCELLANEOUS
Information or data that is electronically downloaded is not considered the transfer of tangible
personal property in this State. See 86 Ill. Adm. Code 120.2105. (This is a GIL.)

November 30, 2011

Dear Xxxxx:
This letter is in response to your letter dated October 31, 2011, 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:
This is a formal request for a private letter ruling, on behalf of our client. Our client
would like to receive a formal recognition as to the taxability of their products/services
as described in the factual statement attached here. Also enclosed is a Power of
Attorney.
If you have any questions, please direct your concerns to the following:.....
Your factual statement reads as follows:
Facts
CLIENT is a not-for-profit organization focused on the adoption and implementation of
CLIENT Standards in the healthcare industry to improve patient safety and supply chain
efficiency.
CLIENT charges its customers (referred to as ‘trading partners’) for the use of a prefix,
referred to as a ###, which identifies a specific trading partner (supplier or provider),
within the ### Registry (discussed below). This ### is a unique prefix composed of
numbers assigned to a trading partner which identifies that trading partners’ location(s)
in the database. These prefixes are used solely for use in the SERVICE-2 and are not

interchangeable between users. The prefix is assumed to be intangible; no personal
property is transferred to the customer.
In addition, CLIENT offers two services available through the use of the internet; the
SERVICE-1 and the SERVICE-2. These services are in addition to the fees from the
activities stated above.
The SERVICE-1 is a subscription-based electronic information service to communicate
and manage pertinent information concerning product recalls in an efficient and timely
manner between manufacturers, distributors, and regulatory agencies. The goal is to
expedite a way for manufacturers to communicate this information. Subscribers can
either provide or receive notifications of product recalls and market withdrawals. The
cost of the service is based on the purchasers’ sales volume and the number of
authorized users. No tangible personal property is transferred with this service.
The SERVICE-2 is designed to allow healthcare providers and suppliers to use an
integrated set of standards to locate products. The SERVICE-2 is an online database
containing locations of trading partners (suppliers and providers). The location data
includes items such as postal addresses, a phone number, type of business, and
purpose for that location. All subscribers have access to the entire database.
Subscribers can download or see every location in the SERVICE-2 without any
additional subscriptions. A subscriber can choose to ‘subscribe’ to a ### or set of ###s
so that if any information is changed or updated then that subscriber will be notified.
The company’s servers are located in Illinois and STATE. No tangible personal
property is transferred with this service.
Issue
We request your opinion regarding the proper application of Illinois’ sales & use tax laws
with respect to the internet based access of information and services provided in
conjunction with the Rapid Recall Exchange and the SERVICE-2.
Discussion
Based on the statutory provisions and guidance issued, it is our opinion that the
services provided by CLIENT should be characterized as a nontaxable information
service. Generally, the delivery of data or information services via the internet, and the
general sales of professional or personal services are not subject to sales or use tax.
The overall purpose of the services provided by CLIENT is to facilitate the sharing of
pertinent product information between vendors and distributors via on [sic] online
application; no exchange of tangible personal property occurs.
We respectfully request the Illinois Department of Revenue’s written determination
concerning the above-referenced issues.

DEPARTMENT’S RESPONSE:
The Department’s regulation “Public Information, Rulemaking and Organization” provides that
“[w]hether to issue a private letter ruling in response to a letter ruling request is within the discretion of
the Department. The Department will respond to all requests for private letter rulings either by
issuance of a ruling or by a letter explaining that the request for ruling will not be honored.” 2 Ill. Adm.

Code 1200.110(a)(4). Further, the Department’s regulations regarding Private Letter Rulings provide
that “[i]f there is case law or there are regulations dispositive of the subject to the request, the
Department will decline to issue a letter ruling on the subject." 86 Ill. Adm. Code 1200.110(a)(3)(D).
The Department declines to issue a Private Letter Ruling since its regulations are dispositive of the
subject of your request.
The Illinois Retailers' Occupation Tax Act imposes a tax upon persons engaged in this State in
the business of selling tangible personal property to purchasers for use or consumption. See 86 Ill.
Adm. Code 130.101. In Illinois, Use Tax is imposed on the privilege of using, in this State, any kind of
tangible personal property that is purchased anywhere at retail from a retailer. See 86 Ill. Adm. Code
150.101. These taxes comprise what is commonly known as "sales" tax in Illinois. If the purchases
occur in Illinois, the purchasers must pay the Use Tax to the retailer at the time of purchase. The
retailers are then allowed to retain the amount of Use Tax paid to reimburse themselves for their
Retailers' Occupation Tax liability incurred on those sales. If the purchases occur outside Illinois,
purchasers must self assess their Use Tax liability and remit it directly to the Department.
Information or data that is electronically transferred or downloaded is not considered the
transfer of tangible personal property in this State. See 86 Ill. Adm. Code 130.2105(a)(3). However,
canned computer software is considered taxable 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. If the computer software consists of custom computer programs, then
the sales of such software may not be taxable retail sales. See Section 130.1935(c). Custom
computer programs or software must be prepared to the special order of the customer. Charges for
updates of canned software are fully taxable pursuant to Section 130.1935. If the updates qualify as
custom software under Section 130.1935(c), they may not be taxable.
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