Does an Illinois online classified-ads website have to collect Retailers' Occupation (sales) Tax on sales of digital 'credit packs' that customers use to publish, highlight, or promote listings?

Plain-English summary

The Illinois Department of Revenue ruled that an online classified-ads website does not have to collect Retailers' Occupation Tax (Illinois' version of sales tax), Use Tax, Service Occupation Tax, or Service Use Tax on its sales of digital "credit packs."

The company operated a classifieds site out of Springfield, Illinois, where users could post free listings or pay for "credit packs" through an online shopping cart. Those credits could then be spent to publish a listing, highlight it, bump it to the top, mark it premium, or set up auto-renewal. The company had no inventory and shipped nothing -- purchasers never received any physical product.

The Department explained that Illinois' Retailers' Occupation Tax and Use Tax only reach transactions involving a transfer of tangible personal property. Because the credit packs are intangible -- more like a prepaid balance for site features than a physical good -- the transactions fell under the regulatory exemption for sales of intangible personal property (things like stocks, bonds, and other evidences of interest or debt) and were not taxable under any of the four related tax acts.

What this means for you

Owners of online marketplaces, classifieds sites, and similar digital platforms

If your Illinois-based business sells purely digital credits, tokens, or account balances that customers redeem for site features (rather than for a physical product), this ruling supports treating those sales as outside the scope of Retailers' Occupation Tax, Use Tax, Service Occupation Tax, and Service Use Tax -- because no tangible personal property is ever transferred to the buyer.

Business owners and startups evaluating Illinois nexus/tax questions

The ruling is a useful illustration of how the Department analyzes digital-only transactions: it looks at whether the customer ends up with a tangible product. No shipping, no inventory, and no physical deliverable were decisive facts here. If your business model changes so that credits could be redeemed for actual goods, this analysis would not automatically carry over.

Accountants and tax professionals

The ruling walks through the interplay of the Retailers' Occupation Tax Act (35 ILCS 120/2), the Use Tax Act (35 ILCS 105/3), and the Service Occupation Tax Act, and applies the intangible-personal-property carve-out in 86 Ill. Adm. Code 130.120(a) and 140.125(a). It's a helpful template for advising clients with digital-credit or virtual-currency business models, though as a PLR it binds the Department only for this specific taxpayer.

Common questions

Q: What did the company sell, and why did it ask for a ruling?
A: It ran an online classifieds website (registered as an Illinois LLC) where users posted ad listings. Paid "credit packs," bought online with a credit card, gave users credits to publish, highlight, or promote listings. Because these credits seemed like intangible personal property, the company asked the Department to confirm no sales tax needed to be collected.

Q: What was the Department's answer?
A: The sales of digital credit packs are not subject to Retailers' Occupation Tax, Use Tax, Service Occupation Tax, or Service Use Tax, because the transactions do not involve transferring any tangible personal property to the customer.

Q: What's the legal basis for that conclusion?
A: Retailers' Occupation Tax and Use Tax apply only to tangible personal property (35 ILCS 120/2; 35 ILCS 105/3; 86 Ill. Adm. Code 130.101; 150.101). A regulatory exemption covers sales of intangible personal property such as stocks, bonds, and evidence of debt (86 Ill. Adm. Code 130.120(a); 140.125(a)). Since the credit packs are intangible and no physical product was ever shipped, none of the four related taxes applied.

Q: Does this ruling mean all digital products are tax-exempt in Illinois?
A: No. This PLR binds the Department only as to this taxpayer and these specific facts (no inventory, no shipping, purely digital credits redeemable only for site features). Other digital products -- for example, downloadable software treated as tangible personal property under other rulings -- can be taxed differently depending on their facts.

Q: Can another business rely on this PLR directly?
A: No. A Private Letter Ruling binds the Department only with respect to the specific taxpayer who requested it, and only to the extent the facts they provided were correct and complete. Other taxpayers with similar facts should request their own ruling or consult a tax professional.

Citations and references

Statutes and regulations:

• 35 ILCS 120/2 (Retailers' Occupation Tax Act -- imposition of tax on sales of tangible personal property)
• 35 ILCS 105/3 (Use Tax Act -- imposition of tax on use of tangible personal property purchased at retail)
• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax regulation)
• 86 Ill. Adm. Code 130.120(a) (exemption for sales of intangible personal property)
• 86 Ill. Adm. Code 140.101 (Service Occupation Tax regulation)
• 86 Ill. Adm. Code 140.125(a) (Service Occupation Tax intangible property exemption)
• 86 Ill. Adm. Code 150.101 (Use Tax regulation)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure and binding effect)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedure)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2022.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2022/st22-0004-plr.pdf

Original ruling text

ST-22-0004 04/12/2022 RETAILERS OCCUPATION TAX
If a transaction does not involve the transfer of any tangible personal
property to the customer, then it generally would not be subject to
Retailers’ Occupation Tax, Use Tax, Service Occupation Tax, or Service
Use Tax. 86 Ill. Adm. Code 130.101; 86 Ill. Adm. Code 140.101. (This is
a PLR.)
April 12, 2022
Dear NAME,
This letter is in response to your letter dated February 2, 2022, in which you
requested 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.
Review of your request disclosed that all the information described in paragraphs
1 through 8 of Section 1200.110 appears to be contained in your request. This Private
Letter Ruling will bind the Department only with respect to COMPANY, for the issue or
issues presented in this ruling, and is subject to the provisions of subsection (e) of
Section 1200.110 governing expiration of Private Letter Rulings. Issuance of this ruling
is conditioned upon the understanding that neither COMPANY, nor a related taxpayer is
currently under audit or involved in litigation concerning the issues that are the subject
of this ruling request.
In your letter you have stated and made inquiry as follows:
RE: Request for a Private Letter Ruling
I have been reviewing tax information regarding sales taxes in Illinois
and I am writing for clarification and a Private Letter Ruling on whether
or not my business entity is required to pay/remit sales taxes in the
State of Illinois.
I have an online website called COMPANY with a Nexus (office
located here in Springfield, Illinois). It is registered as an LLC in the
State of Illinois (File Number ########). It falls under the category of

COMPANY
Page 2
April 12, 2022
miscellaneous publishing. Users publish classifieds [sic] ad listings in
various categories on the website.
The site has both “free” and “paid” categories. The paid categories
require electronic “credit pack” purchases which are made online and
give “credits” to the user’s account. Payments go through a shopping
cart as ecommerce and users pay with credit card. The users can then
apply those credits to publish listings, highlight their listing, move them to
the top, make an item a premium listing and auto­ renew which deducts
credits from their online “wallet” associated with their account. These are
digital credit packs and the user does not end up with any physical
product from these credit pack purchases. We have no inventory and
we do not ship anything.
As a result of the digital electronic credit packs appearing to fall within
the “intangible personal property” category, I wish to receive a ruling to
confirm that no sales taxes are required to be collected from this
website under the related tax acts.
According to Title 2 Part 1200 Section 1200.110: PUBLIC INFORMATION,
RULEMAKING AND ORGANIZATION part b) certain information for each
request is needed; I have addressed these below:
1) statement of facts and identified parties (included herein)
2) there are no contracts or agreements (only exception is terms
of service for using the website)
3) there is no audit or litigation pending and no related tax period
as this is a start up
4) to our knowledge there is no previous ruling on this issue and
no related submit or withdrawal
5) there are no statements of authorities supporting taxpayer’s
views
6) there are no statements of authorities contrary to taxpayer’s
views
7) there are no specific trade secrets
8) representative signature is included
Please review and provide a Private Letter Ruling to the above
address on this sales tax question
DEPARTMENT’S RESPONSE:
Retailer’s Occupation Tax

COMPANY
Page 3
April 12, 2022
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 35 ILCS 120/2; 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 35 ILCS 105/3; 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.
Service Occupation Tax
Retailers’ Occupation Tax and Use Tax do not apply to sales of service. 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. 86 Ill.
Adm. Code 140.101. The transfer of tangible personal property to service customers
may result in either Service Occupation Tax liability or Use Tax liability for servicemen,
depending upon which tax base they choose to calculate their liability.
If a transaction does not involve the transfer of any tangible personal property to
the customer, then it generally would not be subject to Retailers’ Occupation Tax, Use
Tax, Service Occupation Tax, or Service Use Tax. The tax does not apply to receipts
from sales of intangible personal property, such as shares of stocks, bonds, evidence of
interest in property, corporate or other franchises and evidence of debt. 86 Ill. Adm.
Code 130.120(a). See also 86 Ill. Adm. Code 140.125(a).
In your letter you state that “free” and “paid” users of the website publish
classified ad listings on the website. The Company does not have inventory and does
not ship anything to users. Purchasers of digital credit packs do not end up with any
physical product.
It is the Department’s opinion that receipts from sales of digital credit packs are
not subject Retailers’ Occupation Tax, Use Tax, Service Occupation Tax, or Service
Use Tax.
The factual representations upon which this ruling is based are subject to review
by the Department during the course of any audit, investigation, or hearing and this
ruling shall bind the Department only if the factual representations recited in this ruling
are correct and complete. This Private Letter Ruling is revoked and will cease to bind
the Department 10 years after the date of this letter under the provisions of 2 Ill. Adm.
Code 1200.110(e) or earlier if there is a pertinent change in statutory law, case law,
rules or in the factual representations recited in this ruling.

COMPANY
Page 4
April 12, 2022
I hope this information is helpful. If you have further questions related to the
Illinois sales tax laws, please visit our website at www.tax.illinois.gov or contact the
Department’s Taxpayer Information Division at (217) 782-3336.
Very truly yours,
Samuel J. Moore
Chairman, Private Letter Ruling Committee
SJM:RSW:rkn