Does Illinois sales, use, or service occupation tax apply to a company's domain name registration, web hosting, and creation of emails and SSL certificates?

Plain-English summary

A company that registers domain names, hosts websites, and creates emails and SSL certificates for customers asked the Illinois Department of Revenue whether any of that activity triggers Illinois Retailers' Occupation Tax (ROT), Use Tax, Service Occupation Tax (SOT), or Service Use Tax. The Department answered no across the board, but only because of how this particular company's products are built and delivered.

The key legal distinction is between "canned" (prewritten, off-the-shelf) computer software, which Illinois treats as taxable tangible personal property, and "custom" computer software, which is prepared to the special order of a customer and is not taxable. Custom software requires the vendor to analyze the customer's specific requirements and adapt the program to that customer's particular environment. Because the company's domain registrations, hosting setups, emails, and SSL certificates involve personalized coding and programming to build a single-use product for each customer, the Department treated them as custom, intangible property rather than taxable canned software.

The Department also walked through the Service Occupation Tax angle: even where a company is arguably providing a "service," SOT only reaches the tangible personal property that gets transferred incident to that service. Illinois does not tax "software as a service" itself — only tangible personal property transferred along the way. Since the property here (custom software) isn't taxable to begin with, there's no SOT or Service Use Tax liability either.

Separately, the Department noted a general rule about intangible property: sales of intangible personal property (like stocks, bonds, or evidence of debt) are outside the Retailers' Occupation Tax entirely, and downloaded information or data (e-books, music, digital newspapers) and membership fees are likewise treated as intangibles, not taxable transfers of tangible personal property. This letter is a General Information Letter (GIL), not a binding Private Letter Ruling (PLR) — it points to the relevant regulations and reasoning rather than resolving a specific taxpayer's facts with binding force, and the Department noted the company's original request lacked enough product detail to support a full PLR.

What this means for you

Web hosting, domain registration, and SaaS-adjacent businesses

If your business creates or delivers custom-configured digital products — domain registrations, hosting environments, custom email systems, or SSL certificates tailored to each customer — those products are more likely to be treated as custom (non-taxable) computer property rather than canned software. The Department looks at whether you had to analyze the customer's specific requirements and adapt the product to their particular setup, not just at whether "software" is involved somewhere in the transaction.

Businesses selling prewritten or "canned" software or cloud services

The opposite result applies to off-the-shelf, prewritten software: that remains taxable tangible personal property under 86 Ill. Adm. Code 130.1935. The letter also reiterates the Department's cloud-computing distinction from earlier guidance: software delivered where the customer never downloads anything and only accesses it remotely is not taxable, but software delivered via an API, applet, desktop agent, or remote access agent that effectively transfers the software to the subscriber is treated as a taxable transfer of tangible personal property.

Accountants and tax professionals advising on mixed service/software transactions

When a client's offering blends services and property, check first whether any tangible personal property is actually transferred, and second whether any software involved is custom or canned. Only canned software transferred incident to a service creates Service Occupation Tax or Service Use Tax exposure; custom software and pure services do not. Also note the Department's practical hint: a request lacking detailed, product-by-product facts may only get a GIL rather than a binding PLR — more specificity in a ruling request can get you a stronger, binding answer.

Common questions

Q: Does Illinois charge sales tax on domain name registration?
A: Not in this letter's facts. The Department found that registering and creating domains, along with associated web hosting, email, and SSL certificate creation, involves custom coding tailored to each customer, so it is treated as custom (non-taxable) computer property rather than a sale of taxable tangible personal property.

Q: What's the difference between "canned" and "custom" software for Illinois tax purposes?
A: Canned (prewritten) software is a general-use product intended for general or repeated sale and is taxable tangible personal property. Custom software is prepared to the special order of a customer, requiring the vendor to analyze the customer's requirements and adapt the program to a specific work environment; custom software is not subject to Retailers' Occupation Tax, Use Tax, Service Occupation Tax, or Service Use Tax.

Q: If a company is providing a service, is that automatically taxable?
A: No. Service Occupation Tax only applies to tangible personal property transferred incident to a service. If no taxable tangible personal property changes hands — for example, because any software involved is custom rather than canned — there is no SOT or Service Use Tax liability even though a service was performed.

Q: Does this letter bind the Department for other companies with similar products?
A: No. This is a General Information Letter, not a Private Letter Ruling. A GIL directs taxpayers to relevant regulations and reasoning but is not a statement of Department policy and is not binding on the Department, unlike a PLR issued to a specific taxpayer under 2 Ill. Adm. Code 1200.110.

Q: How does cloud-based software delivery affect taxability?
A: Per the guidance cited in this letter, software delivered through a cloud-based system where it's never downloaded and is only accessed remotely is not treated as a taxable transfer of tangible personal property. But if the provider gives subscribers an API, applet, desktop agent, or remote access agent that functions as a transfer of the software itself, the Department treats that as a taxable transfer of tangible personal property.

Citations and references

Statutes:

• 35 ILCS 120/2(a) — Retailers' Occupation Tax imposed on retail sales of tangible personal property
• 35 ILCS 120/1 — definition of "sale at retail"
• 35 ILCS 120/2-25 — definition of "computer software"
• 35 ILCS 105/3 — Use Tax on tangible personal property purchased at retail
• 35 ILCS 115/3 — Service Occupation Tax on tangible personal property transferred incident to a service

Regulations:

• 86 Ill. Adm. Code 130.101(a) — Retailers' Occupation Tax
• 86 Ill. Adm. Code 130.120(a) — intangible personal property excluded from Retailers' Occupation Tax
• 86 Ill. Adm. Code 130.1935 — canned vs. custom computer software
• 86 Ill. Adm. Code 130.2105(a)(3) — downloaded information/data as intangible
• 86 Ill. Adm. Code 130.401(d) — membership fees as intangible receipts
• 86 Ill. Adm. Code 140.101(a) — Service Occupation Tax
• 86 Ill. Adm. Code 150.101 — Use Tax
• 2 Ill. Adm. Code 1200.110 — Private Letter Ruling procedures
• 2 Ill. Adm. Code 1200.120 — General Information Letters

Related Department guidance cited in this letter:

• ILL. PRIV. LTR. RUL. ST 17-0007-PLR (Mar. 2, 2017)
• ILL. GEN. INFO. LETTER ST 16-0035-GIL
• ILL. GEN. INFO. LETTER ST 19-0007-GIL (Mar. 20, 2019)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2024.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2024/ST24-0022-GIL.pdf

Original ruling text

ST 24-0022-GIL

5/21/2024

SALE AT RETAIL

Sales of intangible personal property are not taxable under the Retailers’
Occupation Tax
Act. 86 Ill. Adm. Code 130.120. (This is a GIL.)
May 21, 2024
COMPANY
Attn: NAME
ADDRESS
Dear NAME:
This letter is in response to your letter dated April 29, 2024, 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.
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 company doing business in the State of Illinois
(“Company”) and, on behalf of Company, are requesting a written ruling
regarding the tax treatment in the scenario described below.
Company is neither under audit nor contesting any proposed
assessment by the Department.
Nothing within this request is
confidential.
FACTS
Company is incorporated in another state and does business in
many states, including Illinois. Company is engaged in the business of
domain name registration, web hosting, and the creation of emails and
SSL certificates.
REQUESTED ADVISEMENT
Company requests the Illinois Department of Revenue provide
guidance on whether web-hosting and the creation of domain names,

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email, and SSL certificates are subject to Illinois’ Retailers’ Occupation
Tax, Use Tax, Service Occupation Tax, or Service Use Tax.
LAW & ANALYSIS
The Retailers’ Occupation Tax (ROT) is imposed on all persons
engaged in the business of selling tangible personal property at retail in
the state. 35 ILL. COMP. STAT. 120/2(a); ILL. ADMIN. CODE tit. 86, §
130.101(a). The Use Tax (UT) is a complementary privilege tax imposed
on the privilege of using tangible personal property in Illinois which is
purchased at retail. 35 ILL. COMP. STAT 105/3. “Sale at retail” means
“any transfer of the ownership of or title to tangible personal property to
a purchaser, for the purpose of use or consumption.” 35 ILL. COMP.
STAT. 120/1.
General-use computer software is considered taxable tangible
personal property. 35 ILL. COMP. STAT. 120/2-25. Computer software
is defined as “a set of statements, data, or instructions to be used directly
or indirectly in a computer in order to bring about a certain result in any
form in which those statements, data, or instructions may be embodied,
transmitted, or fixed...” Id. However, it is the sale of pre-written, or
“canned” software intended for general or repeated use that is subject to
tax. ILL. ADMIN. CODE tit. 86, § 130.1935(a).
Alternatively, custom computer programs prepared to the special
order of a customer are not subject to the tax of tangible property under
the Retailers’ Occupation Tax Act, the Use Tax Act, or the Service Use
Tax Act.
ILL. ADMIN. CODE tit. 86, § 130.1935(c)(1).
Custom
computer programs are those involving: (A) reparation or selection of the
program for the customer’s use requiring an analysis of the customer’s
requirements by the vendor; and (B) adaptation by the vendor to be
used in a specific work environment, e.g., a particular make and model of a
computer using a specified input or output device. Id.
The Service Occupation Tax (SOT) is imposed on the transfer of
tangible personal property incident to the provision of a service.
35
ILL. COMP. STAT. 115/3; ILL. ADMIN. CODE tit. 86, §140.101(a).
Thus, a software service provider is only subject to tax on tangible
personal property deemed to be transferred as part of the service. See,
e.g., ILL. PRIV. LTR. RUL. ST 17-0007-PLR (Mar. 2, 2017) at p. 5.
Because custom software is not considered taxable tangible personal
property, SOT applies only to a software service provider who transfers
prewritten, canned software.

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May 21, 2024
The Department has established that it does not consider the
viewing, downloading, or electronically transmitting of video, text, and
other data over the internet to be the transfer of tangible personal
property. See ST 16-0035-GIL. Computer software is deemed to be
transferred where a software service provider provides to its subscribers
an API, applet, desktop agent, or a remote access agent to enable the
subscriber to access the provider’s network and services. Through such
transmission, the Illinois Department of Revenue has held that the
subscriber is deemed to be receiving computer software, which is tangible
personal property, thus making the transaction taxable. ILL. GEN. INFO.
LETTER No. ST 19-0007-GIL (Mar. 20, 2019) at p. 4. Software provided
through a cloud-based delivery system – one in which computer software
is never downloaded onto a client’s computer and only accessed remotely
– is not subject to tax because it is not treated as the transfer of taxable
tangible personal property. Id. The user of such has exercised no power
or control over the property in Illinois. Id. Thus, the taxability of canned
software transferred incident to a service depends on type of transmission
used – remote, cloud-based transfer, or a download.
Because Company is selling custom electronic property, Company
is not selling taxable tangible personal property. The creation and
registration of a domain, website, email, and SSL certificate involve
personalized coding and programming to create a single-use product for a
particular customer. Therefore, and if Company does sell software, the
products Company delivers qualifies [sic] as custom computer software,
which is not subject to Illinois tax. Thus, the act of registering a domain
and the selling of a domain are not taxable.
Though Company is arguably offering a service, it is not taxable.
Illinois does not tax software as a service – only tangible personal property
transferred incident to a service. Because the property being transferred
is not taxable as custom software, there is no tax due in such service
transaction. For these reasons, the registering of domains, creations of
websites, emails and SSL certificates are not subject to Illinois tax.
CONCLUSION
Company’s creation and selling of domains, websites, emails, and
SSL certificates are not subject to any of the sales taxes in Illinois.
Your advice on this matter is greatly appreciated. Should further
information be required, please feel free to contact the undersigned.

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May 21, 2024
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 regulations regarding Private Letter Rulings provide that a request for a
private letter ruling must be made by, or on behalf of, an identified taxpayer. A request
for ruling may be made by a taxpayer, or by a taxpayer’s representative under a power
of attorney from that taxpayer. The Department will not issue letter rulings to taxpayer
representatives for anonymous or unidentified taxpayers.
2 Ill. Adm. Code
1200.110(a)(1). Although we are not providing you with a Private Letter Ruling, we
hope the following general information will be of assistance.
Retailers’ Occupation Tax and Use Tax
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. See
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 the transaction with the customer generally would not be subject to
Retailers’ Occupation Tax, Use Tax, Service Occupation Tax, or Service Use Tax.
Computer Software

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“‘Computer software’ means a set of statements, data, or instructions to be used
directly or indirectly in a computer in order to bring about a certain result in any form in
which those statements, data, or instructions may be embodied, transmitted, or fixed, by
any method now known or hereafter developed, regardless of whether the statements,
data, or instructions are capable of being perceived by or communicated to humans,
and includes prewritten or canned software.” 35 ILCS 120/2-25. Generally, sales of
“canned” computer software are taxable retail sales in Illinois. Canned computer
software is considered to be tangible personal property regardless of the form in which it
is transferred or transmitted, including tape, disc, card, electronic means, or other
media. 86 Ill. Adm. Code 130.1935. However, if the computer software consists of
custom computer programs, then the sales of such software may not be taxable retail
sales. Custom computer programs or software are prepared to the special order of the
customer. The selection of pre-written or canned programs assembled by vendors into
software packages does not constitute custom software unless real and substantial
changes are made to the programs or creation of program interfacing logic. See 86 Ill.
Adm. Code 130.1935(c)(3). Computer software that is not custom software is
considered to be canned computer software. Computer software is defined broadly in
the Retailers’ Occupation Tax and Service Occupation Tax Acts. However, computer
software provided through a cloud-based delivery system – a system in which computer
software is never downloaded onto a client’s computer and is only accessed remotely –
is not subject to tax.
Sales of custom computer programs prepared to the special order of the
customer may not be a taxable sale. 86 Ill. Adm. Code 130.1935(c)(1). Custom
software means the software which results from real and substantial changes to the
operational coding of canned or pre-written software in order to meet the specific
individualized requirements of the purchaser for his limited or particular use. 86 Ill.
Adm. Code 130.1935(c)(2). Custom computer software is not subject to the Retailers’
Occupation Tax, Use Tax, Service Occupation Tax, or Service Use Tax if the following
elements are present:
A) preparation or selection of the program for the customer’s use requires
an analysis of the customer’s requirements by the vendor; and
B) the program requires adaptation by the vendor to be used in a specific
work environment, e.g., a particular make and model of a computer using
a specified input or output device. 86 Ill. Adm. Code 130.1935(c)(1).
If modified software is held for general or repeated sale or lease, it is canned
software. 86 Ill. Adm. Code 130.1935(c)(2). The selection of pre-written or canned
programs assembled by vendors into software packages does not constitute custom
software unless real and substantial changes are made to the programs or creation of
program interfacing logic. 86 Ill. Adm. Code 130.1935(c)(3). Computer software that is

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not custom software is considered to be canned computer software. See 86 Ill. Adm.
Code 130.1935.
Intangible Property
The Retailers’ Occupation Tax only applies to the sale of tangible personal
property; it 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 evidences of debt. 86 Ill. 130.120(a). Information or data that is
downloaded electronically, such as downloaded books, musical recordings, newspapers
or magazines, does not constitute the transfer of tangible personal property. These
types of transactions represent the transfer of intangibles and are thus not subject to
Retailers’ Occupation and Use Tax. 86 Ill. Adm. Code 130.2105(a)(3). Membership
fees are not gross receipts from the sale of tangible personal property. Membership
fees are gross receipts received in exchange for an intangible. 86 Ill. Adm. Code
130.401(d).
You are free to submit a request for a private letter ruling. I would note that your
letter lacks sufficient detail for each of the products for the Department to render a
ruling. In the event you elect to file a such a request, I recommend providing a more
thorough description of each to the products for which you request a ruling.
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,
Richard S. Wolters
Associate Counsel
RSW:sce