Does Illinois sales tax apply to a self-publishing platform's charge for online book-drafting access and to the printed book it produces?

Plain-English summary

A company that runs a self-publishing platform asked the Illinois Department of Revenue whether its charges are taxable. Customers pay the company for access to an online platform where a recipient can draft a personal book over a 12-month window (adding text and photos, with no editing by the company), and the company then uses a third-party printer to bind and print the finished book. On the invoice, platform access was billed at $64.00 and the printed book at $6.00. The taxpayer had originally asked for a binding Private Letter Ruling, but the Department decided the request needed facts too specific for that process, and instead issued this General Information Letter (GIL), which is explicitly not a statement of Department policy and is not binding.

Because it's a GIL, the Department did not tell this taxpayer "yes, taxable" or "no, exempt." Instead, it summarized the general legal framework so the company could evaluate its own transactions. Three ideas from that framework matter most: (1) software-as-a-service ("SaaS") access that is only used remotely and never downloaded to the customer's computer is not subject to Illinois Retailers' Occupation Tax; (2) downloads of "canned" (prewritten, general-use) computer software are taxable, even though other digital downloads like e-books, music, or digital newspapers are not, because those are treated as intangible information rather than tangible personal property; and (3) when a transaction mixes a service with tangible personal property (a "mixed transaction"), Service Occupation Tax applies to the property, calculated either on its separately stated selling price or, if not separately stated, on 50% of the total bill (but never less than the serviceman's cost).

The letter also recaps a narrower exemption: items that have no commercial value to anyone but the purchaser who ordered them (the regulation's examples are things like personalized business cards, greeting cards, and nameplates) are not subject to Retailers' Occupation Tax. The taxpayer had argued its self-drafted, sentimental books should qualify under this "personalized property" exemption and that its platform access should be treated as exempt SaaS. The Department did not adopt or reject that argument — it only restated the applicable regulations and left the specific application to the taxpayer.

What this means for you

Software vendors and SaaS companies

If your product is accessed only remotely and never downloaded onto the customer's device, Illinois generally treats that access as not subject to Retailers' Occupation Tax. But the moment you deliver an API, applet, desktop agent, or remote-access agent to the subscriber's own system, the Department treats that as delivering computer software to the customer, which is taxable unless it independently qualifies for the narrow license exemption in 86 Ill. Adm. Code 130.1935(a)(1). Note also that "clickwrap" agreements (checking a box or clicking "I agree") do not satisfy that exemption's written-and-signed requirement unless the electronic signature is verifiable and authenticated.

Businesses selling a mix of service and tangible goods

If your transaction bundles a service (like platform access) with something tangible that gets physically delivered (like a printed book), you're in "mixed transaction" territory under the Service Occupation Tax rules. Separately stating the price of the tangible item on the invoice lets you base tax on that stated price; if you don't separate it out, tax defaults to 50% of the entire bill, with a floor equal to your cost of the property. The GIL notes the taxpayer here did separately state its platform-access and book charges, which the taxpayer argued kept the mixed-transaction 50%-of-bill rule from applying.

Accountants and tax professionals

This GIL is useful as a framework reference, not as precedent for a specific client. It confirms the Department still applies the older "computer software provided through a cloud-based delivery system... is not subject to sales tax" standard from prior PLRs and GILs (citing ST 20-0004-PLR, ST 21-0006-PLR, and ST 21-0022-GIL), while also confirming canned software downloads remain taxable under 130.1935 and 130.2105. Because a GIL isn't binding and doesn't resolve fact-specific questions, clients with genuinely novel fact patterns may still need to pursue a Private Letter Ruling under 2 Ill. Adm. Code 1200.110.

Common questions

Q: Did the Department decide whether this company's platform fees are taxable?
A: No. The Department declined to issue a binding Private Letter Ruling because the question required very specific facts, and issued this GIL instead, which only explains the general rules — it does not resolve the taxpayer's transaction one way or the other.

Q: Is SaaS access taxable in Illinois?
A: Generally no, as long as the software is never downloaded and is only accessed remotely (a "cloud-based delivery system" under 86 Ill. Adm. Code 130.1935(a)(3)). If the provider instead delivers an API, applet, or agent onto the subscriber's system, that is treated as delivering software, which is taxable unless a specific license exemption applies.

Q: Are digital downloads like e-books taxable?
A: Downloaded information or data — such as e-books, music, newspapers, or magazines — is treated as an intangible and is not subject to Retailers' Occupation or Use Tax. This is different from "canned" (prewritten, general-use) computer software downloads, which are taxable tangible personal property regardless of the medium used to deliver them.

Q: What happens when a sale mixes a taxable service with a physical product?
A: That's a "mixed transaction" under the Service Occupation Tax rules (86 Ill. Adm. Code 140.101). If the price of the tangible property is separately stated on the bill, tax applies to that stated price. If it isn't separately stated, tax applies to 50% of the entire bill, but never less than the serviceman's cost of the property transferred.

Q: Can I rely on this letter for my own business?
A: No. A GIL is not a statement of Department policy and is not binding on the Department for anyone, including the requester. It only points to the regulations that likely apply; consult a licensed Illinois tax professional for how they apply to your specific facts.

Citations and references

Statutes:

• 35 ILCS 105/3-45 (retailer maintaining a place of business in Illinois)
• 35 ILCS 105/2 (Use Tax Act definitions)
• 35 ILCS 120/2 (Retailers' Occupation Tax Act, imposition of tax)
• 35 ILCS 120/2-25 (definition of computer software)

Regulations:

• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax)
• 86 Ill. Adm. Code 130.120 (tangible personal property)
• 86 Ill. Adm. Code 130.1935 (canned computer software and license exemption criteria)
• 86 Ill. Adm. Code 130.1995 (personalized tangible personal property exemption)
• 86 Ill. Adm. Code 130.2105 (taxable computer software transactions)
• 86 Ill. Adm. Code 140.101, 140.106, 140.108, 140.109 (Service Occupation Tax tax-base methods)
• 86 Ill. Adm. Code 140.145 (multi-service situations)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure)
• 2 Ill. Adm. Code 1200.120 (General Information Letters)

Related Department letters cited in this GIL:

• ST 20-0004-PLR
• ST 21-0006-PLR
• ST 21-0022-GIL

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/ST24-0024-GIL.pdf

Original ruling text

ST 24-0024-GIL 06/04/2024 COMPUTER SOFTWARE
This letter discusses computer software and digital information. See 86 Ill. Adm.
Code 130.1935 and 86 Ill. Adm. Code 130.2105. (This is a GIL).

June 7, 2024
NAME
COMPANY
ADDRESS
Dear NAME:
This letter is in response to your letter dated March 31, 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. 2 Ill. Adm.
Code 1200.120. You may access our website at https://tax.illinois.gov to review
regulations, letter rulings and other types of information relevant to your inquiry.
Whether 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). A request for a
private letter ruling must be made by, or on behalf of, an identified taxpayer. The
Department will not issue letter rulings to taxpayer representatives for anonymous or
unidentified taxpayers. 2 Ill. Adm. Code 200.110(a)(1). If there is case law or there are
regulations dispositive of the subject of the request, the Department will also decline to
issue a private letter ruling on the subject. 2 Ill. Adm. Code 200.110(a)(3)(D). There is
also certain information that must be included in each request for a private letter ruling
as provided in 2 Ill. Adm. Code 200.110(b)(1)-(8). The Department determined not to
issue a Private Letter Ruling in response to your request. However, the Department is
issuing a General Information Letter to help address your question. In your letter you
have stated and made inquiry as follows:
The purpose of this request is to obtain a private letter ruling from
the Office of Legal Services of the Illinois Department of Revenue
(“Department”) on behalf of our client, (hereinafter, referred to as the
“Company”), in order to receive a determination regarding the taxability or

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exemption of the Company’s services that the Company sells within
Illinois. We request this determination from the Department to ensure that
the Company complies with Illinois sales and use tax requirements. The
Company does not have the same issue under audit or appeal with the
Department or any other taxing or revenue authority. The Company has
not been notified an audit or examination is pending. The Company is not
currently litigating the issues. The Company does not require a
determination of nexus in the state.
FACTS
The Company is an online seller which provides platform access for
its customers to draft a self-drafted book. This process involves the
Company’s customers pre-paying for the right to use the platform and a
specified number of book copies. The Company initiates an email
notification to the intended recipient, explaining the details of the
forthcoming [redacted] book. The recipients are granted a 12-month
window, which starts from the email sending date, to complete the writing
of the recipient’s [redacted] book, which uses the company’s self-service
online platform. On the invoice, the customer’s total charge for platform
access is $64.00 and the sale of the book is $6.00.
The Company does not edit any of the recipient’s content but
serves as a platform to which the recipients can use it to draft their
[redacted] story. By using the platform, the recipients can insert text and
pictures, with no additional edits made by the Company. Upon completion
of the draft text, the Company utilizes a third-party printing company,
which binds and prints the text. The Company grants the recipient a
license to use the platform for them to draft their content. Based on a
walkthrough provided by the Company, the platform contains various
sections, where recipients can add and answer questions [redacted], save
their drafted stories and update, customize and preview their cover page.
ISSUES & REQUESTED ADVISEMENT
The Company requests the Department to provide guidance on:

1. Whether the Company is providing a service that is subject to tax or
   exempt under Illinois Tax Law.
   Applicable Law & Analysis
   Any retailer or retailer maintaining a place of business in Illinois is
   engaged in making “sales at retail”, has nexus with Illinois and must
   collect retailer occupation tax. 35 ILCS 105/3 45. A “retail [sic] maintaining

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a place of business in Illinois” is a retailer who engages in activities in
Illinois, which activities in the state in which the retail business engaging in
such activities is located would constitute maintaining a place of business
in that state. 35 ILCS 105/2.
Under the software-as-a-service (“SaaS”) model, a consumer
purchases access to another’s software application over the Internet.
owned, operated and maintained by a SaaS provider [sic]. The software is
not downloaded or otherwise transferred to the customer. Computer
software access in a SaaS model is not subject to sales tax in Illinois. The
Illinois Department of Revenue has issued a variety of literature, such as
private letter rulings, that state “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 sales tax.” See ST 20-0004-PLR; ST 21-0006 PLR; ST
21-0022 GIL.
The term “tangible personal property” means something the exists
physically (i.e., you can touch it and can be used or consumed. 86 Ill Adm.
Code 130.120. However, items that have no commercial value to anyone
other than the purchaser for whom it is produced (e.g., personalized
business cards calling cards, greeting cards, letterheads, envelopes,
labels, name plates, badges and medallions) are not subject to Retailers’
Occupation Tax. 86 III. Adm. Code 130.1995.
As it relates to mixed transactions, that being, transactions that sale
[sic] both services and tangible personal property, tangible personal
property transferred incidental to a sale of a service is subject to service
occupation tax. 86 Ill Adm. Code 140.101. Tax is imposed on the selling
price of the tangible personal property. Id. If the selling price of each item
of tangible personal property transferred incident to a sale of service is not
stated as a separate item on the serviceman’s billing to the service
customer, then the tax imposed shall be based on 50% of the
serviceman’s entire billing to the service customer, but in no event shall
this amount be less than the cost price to the serviceman of the tangible
personal property so transferred. Id. If tangible personal property is
transferred incidental to a sale of a service, the tax would be imposed on
the selling price of the tangible personal property. Id.
Analysis
The Company’s platform access is not subject to sales tax in
Illinois. First, the Company’s platform likely falls into the definition of SaaS,
whereby a license is granted to the recipient the right to use a software or
application over the internet. The recipient does not have the right to

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download or change the platform but is rather using the platform to draft
his/her [redacted] story.
The sale of a book is generally subject to sales tax. However,
information or data that is downloaded electronically, such as downloaded
books, does not constitute the transfer of tangible personal property and is
not subject to taxation. Here, a self-drafted book is akin to a downloaded
book, as the Company’s customers are using the platform to draft their
own [redacted] story. If the Department views the sale being that of a
physical book as opposed to the right to access a platform, the sale of the
customized book will fall under the Department’s exemption of
personalized tangible personal property, where items do not have a
commercial value. The recipients of the Company are drafting their selfcreated book not for inherent commercial value, but to pass along to their
generations. Hence, these items do not have intrinsic usefulness and
general utility and do not have commercial value, but rather, sentimental
value for the recipient’s families. Therefore, the Department will find this a
nontaxable sale.
If the state views this as a mixed transaction, the law provides that
if the tangible personal property is not separately stated from the sale of
the service, the tax imposed should be 50% of the entire bill, but no less
than the cost of the tangible personal property. Here, the Company’s
invoices provide a breakdown between the platform access and the sale
of the book. Thus, the laws surrounding mixed transactions are not
applicable.
CONCLUSION
Based on the foregoing, and based upon our review of the
Company’s facts, as well as the law cited, taxation should not apply to
neither the sale of the book nor the right to use the Company’s platform.
DEPARTMENT’S RESPONSE:
Due to the need for very specific facts, your question cannot be addressed in the
context of a General Information Letter. However, this letter will provide you with basic
guidelines that may be used to determine whether your client engages in taxable
transactions under Illinois law.
I.

Retailers’ Occupation 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

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or consumption. 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. 35 ILCS 105/3; 86 Ill. Adm. Code
150.101. These taxes comprise what is commonly known as “sales” tax in Illinois.
However, sellers of personalized business calling cards, greeting cards, letterheads,
envelopes, labels, name plates, badges, medallions and the like do not incur Retailers’
Occupation Tax liability on their receipts from such sales because they are primarily
engaged in a service occupation in producing or procuring such items, which have no
commercial value for their customers. 86 Ill. Adm. Code 130.1995(b)(1).
II.

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.
Servicemen may calculate their tax base in one of four ways: (1) Service
Occupation Tax on separately-stated selling price of tangible personal property
transferred incident to service; (2) Service Occupation Tax on 50% of the serviceman’s
entire bill; (3) Service Occupation Tax on the serviceman’s cost price if the serviceman
is a registered de minimis serviceman; or (4) Use Tax on the serviceman’s cost price if
the serviceman is de minimis and is not otherwise required to be registered under
Section 2a of the Retailers’ Occupation Tax Act. See 86 Ill. Adm. Code Sections
140.106; 140.108; and 140.109.
Using the first method, servicemen may separately state the selling price of each
item transferred as a result of sales of service. The tax is based on the separately
stated selling price of the tangible personal property transferred. If servicemen do not
wish to separately state the selling price of the tangible personal property transferred,
those servicemen must use the second method where they will use 50% of the entire
bill to their service customers as the tax base. Both of the above methods provide that
in no event may the tax base be less than the cost price of the tangible personal
property transferred. Under these methods, servicemen may provide their suppliers
with Certificates of Resale when purchasing the tangible personal property to be
transferred as a part of sales of service. They are required to collect the corresponding
Service Use Tax from their customers. 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. Servicemen may qualify as de minimis if they determine that
their annual aggregate cost price of tangible personal property transferred incident to

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sales of service is less than 35% of their annual gross receipts from service transactions
(75% in the case of pharmacists and persons engaged in graphic arts production). This
class of registered de minimis servicemen is authorized to pay Service Occupation Tax
(which includes local taxes) based upon the cost price of tangible personal property
transferred incident to sales of service. Servicemen that incur Service Occupation Tax
collect the Service Use Tax from their customers. They remit tax to the Department by
filing returns and do not pay tax to their suppliers. They provide suppliers with
Certificates of Resale for the tangible personal property transferred to service
customers. See 86 Ill. Adm. Code 140.109.
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. Servicemen may qualify as de minimis if they determine
that the annual aggregate cost price of tangible personal property transferred as an
incident of sales of service is less than 35% of the servicemen’s annual gross receipts
from service transactions (75% in the case of pharmacists and persons engaged in
graphic arts production). 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.
If an entity provides services that are accompanied with the transfer of tangible
personal property, including computer software, such service transactions are generally
subject to tax liability under one of the four methods set forth above. 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.
III.

Multi-Service Situations

Multi-service situations exist where a primary serviceman subcontracts work to a
secondary serviceman in order to obtain part or all of the products and services desired
by the service customer. See 86 Ill. Adm. Code 140.145. In a multi-service situation
the tax liability is determined in accordance with 86 Ill. Adm. Code 140.145. The point
at which Service Occupation Tax or Use Tax will be incurred depends upon whether the
primary and secondary servicemen are registered or de minimis. 86 Ill. Adm. Code
140.145.
In multi-service situations, a primary serviceman’s cost price is determined either
by the separately stated selling price of the tangible personal property transferred from
a secondary serviceman, or if the secondary serviceman does not separately state the
cost of goods, it is presumed that the primary serviceman’s cost price is 50% of the
secondary serviceman’s total charge. 86 Ill. Adm. Code 140.301(a).

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For transactions between de minimis servicemen each paying Use Tax, if a
primary de minimis serviceman who incurs a Use Tax liability on his cost price
subcontracts service work to a secondary de minimis serviceman who also incurs a Use
Tax liability on his cost price, the primary de minimis serviceman does not incur a Use
Tax liability if the secondary de minimis serviceman has paid, or will remit, Illinois Use
Tax on his cost price of any tangible personal property transferred to the primary
serviceman and certifies that fact in writing to the primary de minimis serviceman. 35
ILCS 115/2(g); 86 Ill. Adm. Code 140.145(a). For content requirements of certifications
refer to Section 140.145(b), 86 Ill. Adm. Code 140.145(b).
With respect to multi-service transactions between registered and unregistered
servicemen each located in Illinois, if a registered primary serviceman located in Illinois
subcontracts work to an unregistered secondary serviceman located in Illinois who
opted to incur Use Tax as described in Section 140.108, tax will be incurred and
remitted to the Department at two levels. The secondary de minimis serviceman will
pay Use Tax to his supplier on the tangible personal property transferred to the primary
serviceman. When the registered primary serviceman makes a sale of service to his
service customer, he will incur Service Occupation Tax on either his selling price or his
cost price. That is because a registered primary serviceman cannot provide a
Certificate of Resale to the unregistered secondary serviceman and an unregistered
secondary serviceman is not authorized to accept Certificates of Resale from his
customers. As a result, the tax will be paid twice to the Department. 86 Ill. Adm. Code
140.145(d).
When both primary servicemen and secondary servicemen are registered,
primary servicemen should provide secondary servicemen with a Certificate of Resale.
86 Ill. Adm. Code 140.145(c). A primary serviceman would then incur Service
Occupation Tax based upon the separately stated selling price of the property or 50% of
the bill to the service customers.
In multi-service situations, in order for both the primary de minimis serviceman
and the secondary de minimis serviceman to obtain any of the exemptions listed in
Section 140.108(a)(2)(A) and (B), the primary de minimis serviceman should provide
the secondary de minimis serviceman with the proper documentation certifying the
exemption. 86 Ill. Adm. Code 140.108(a)(2)(E).
It should be noted that sales of book binding by bookbinders and other tangible
personal property by graphic arts servicemen in Illinois as an incident to the furnishing
of services is a taxable transaction. 86 Ill. Adm. Code 140.140(i).
IV.

Computer software and digital data or information.

Information or data that is downloaded electronically, such as downloaded books,
musical recordings, newspapers or magazines, does not constitute the transfer of

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tangible personal property. These types of transactions represent the transfer of
intangibles and are thus not subject to Retailers’ Occupation and Use Tax. However,
downloads of canned software, as defined more fully in 86 Ill. Adm. Code 130.1935, are
subject to Retailers’ Occupation and Use Tax. 86 Ill. Adm. Code 130.2105(a)(3).
“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. Computer software
includes all types of software including operational, applicational, utilities, compliers,
templates, shells and all other forms. 86 Ill. Adm. Code 130.1935(a).
Generally, sales or transfers of “canned” computer software intended for general
or repeated use are taxable retail sales in Illinois. Canned 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. The sale or
transfer by a retailer of computer software which is subject to manufacturer licenses
restricting the use or reproduction of the software is also taxable. 86 Ill. Adm. Code
130.1935(a). However, if all of the criteria provided in subsection (a)(1) of Section
130.1935 are met, then neither the sale or transfer of the software nor the subsequent
software updates are subject to Retailers’ Occupation Tax. Specifically, a license of
software is not a taxable retail sale if:
A)
customer;

It is evidenced by a written agreement signed by the licensor and the

B)

It restricts the customer’s duplication and use of the software;

C)

It prohibits the customer from licensing, sublicensing or transferring the
software to a third party (except to a related party) without the permission
and continued control of the licensor;

D)

The licensor has a policy of providing another copy at minimal or no
charge if the customer loses or damages the software, or of permitting the
licensee to make and keep an archival copy, and such policy is either
stated in the license agreement, supported by the licensor’s books and
records, or supported by a notarized statement made under penalties of
perjury by the licensor; and

E)

The customer must destroy or return all copies of the software to the
licensor at the end of the license period. This provision is deemed to be
met, in the case of a perpetual license, without being set forth in the
license agreement.

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86 Ill. Adm. Code 130.1935(a)(1). If a license of canned computer software does not
meet all the criteria, the software is taxable.
Please note that it is very common for software to be licensed over the internet
and the customer to accept the license terms by checking a box or clicking “I agree”.
Acceptance in this manner does not constitute a written agreement signed by the
licensor and the customer for purposes of subsection (a)(1)(A) of Section 130.1935. 86
Ill. Adm. Code 130.1935(a)(1)(A)(ii). To meet the signature requirement for an exempt
software license, the agreement must contain the written signature of the licensor and
customer. An electronic agreement in which the customer accepts the license by
means of an electronic signature that is verifiable and can be authenticated and is
attached to or made part of the license will comply with this requirement. 86 Ill. Adm.
Code 130.1935(a)(1)(A)(i).
A provider of software as a service is acting as a serviceman. As a serviceman,
the seller does not incur Retailers’ Occupation Tax. Service Occupation Tax is imposed
upon all persons engaged in the business of making sales of service on all tangible
personal property transferred incident to a sale of service, including computer software,
and is calculated as explained above.
Computer software is defined broadly in the Retailers’ Occupation Tax Act.
However, computer software provided through a cloud-based delivery system is not
subject to tax. A cloud-based delivery system is one in which computer software is
never downloaded onto a client’s computer and only accessed remotely. 86 Ill. Adm.
Code 130.1935(a)(3). If a provider of a service provides to the subscriber an API,
applet, desktop agent, or a remote access agent to enable the subscriber to access the
provider’s network and services, the subscriber is receiving computer software. 86 Ill.
Adm. Code 130.1935(a)(4). Although there may not be a separate charge to the
subscriber for the computer software, it is nonetheless subject to tax, unless the transfer
qualifies as a non-taxable license of computer software.
I hope this information is helpful. If you require additional information, please
visit our website at https://tax.illinois.gov or contact the Department’s Taxpayer
Information Division at (217) 782-3336.
Very truly yours,

Katarzyna Kowalska
Associate Counsel

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