Does Illinois charge sales tax on a video game's online subscription, in-game items, and virtual currency?

Plain-English summary

An out-of-state video game publisher asked Illinois whether three add-on offerings sold alongside its video games -- a monthly online subscription, in-game items, and virtual currency -- were subject to Illinois Retailers' Occupation (sales) Tax. The Department concluded that none of the three are taxable. The video game itself is sold separately by a related entity or third-party retailers, who already collect sales tax on it as tangible personal property (canned computer software); this ruling addresses only the three optional add-ons layered on top of that base game purchase.

The Department's reasoning centers on one recurring fact: nothing is downloaded to the player's computer. The subscription only unlocks online, multiplayer access to a game the player already owns; the in-game items (cosmetic skins, gameplay boosts, character name changes, expansion content) are used and viewed only inside the game while connected to the company's servers; and the virtual currency is just an alternate, non-cash payment method for the other two offerings, with no independent real-world value or exchange rights. Because Illinois taxes the transfer of tangible personal property, and treats a "cloud-based delivery system" (software accessed remotely but never downloaded) as outside that definition, none of these transactions involve a taxable transfer.

The Department distinguished this from its own prior guidance in ST 24-0036-GIL, where it said that a game extra could be taxable if purchasing it "unlocks" content that was already preloaded on the original download, or if the extra itself gets downloaded to the game. That is not what happens here: the company's offerings only grant server-side access, so they fall on the exempt side of the line. Similarly, virtual currency is treated like the non-taxable sale of a redeemable card or coupon (per ST 10-0113-GIL) rather than a sale of goods -- tax exposure would only arise later, if the currency is redeemed for something a Player actually receives on the Player's own device.

What this means for you

Video game publishers and platforms

If your online subscriptions, DLC/expansions, or in-game purchases are delivered purely through server-side access -- meaning the player can view or use the content only while connected to your servers, with nothing copied to their local device -- Illinois treats those sales as exempt, non-taxed services rather than sales of tangible personal property. The moment any content is actually downloaded, "unlocked" from data preloaded with the original game, or otherwise transferred to the player's device, that specific transaction can become taxable canned software. Structuring delivery (cloud-only vs. downloadable) has real tax consequences here, and separately stating charges for each type of offering will make the analysis cleaner.

SaaS and digital-goods companies generally

This GIL reinforces Illinois' consistent position (citing its own earlier ST 22-0027-GIL) that a software-as-a-service provider is a "serviceman," not a retailer of tangible personal property, and that Illinois does not tax subscription fees for SaaS delivered via a cloud-based system. But watch the exception: if the provider hands the customer an API, applet, desktop agent, or remote-access agent to reach the provider's network, that transferred component can itself be taxable computer software under 86 Ill. Adm. Code 130.1935(a)(3)-(4), even without a separately stated charge for it.

Accountants and tax professionals advising digital-goods clients

Three doctrines interact in this letter: (1) the tangible-personal-property/cloud-delivery test (86 Ill. Adm. Code 130.1935(a)(3), 130.2105(a)(3)); (2) the five-part canned-software-license exemption test (86 Ill. Adm. Code 130.1935(a)(1)), which the Department found irrelevant here because no software was licensed or transferred at all; and (3) the intangible-redeemable-instrument doctrine from ST 10-0113-GIL, applied to virtual currency. Map your client's actual delivery mechanics onto these three tests separately for each revenue stream -- a single product line (e.g., "the game") can have some components taxable (the base game download) and others exempt (the ongoing subscription and virtual goods).

Common questions

Q: Is a video game's monthly online subscription fee taxable in Illinois?
A: No, when the subscription only grants remote/online access to features (like multiplayer play) for a game the player already purchased, and nothing is downloaded to enable that access. The subscription is treated as a nontaxable service, similar to SaaS.

Q: Are in-game purchases like cosmetic skins, boosts, or expansions taxed?
A: Not in this ruling, because the items are used only within the online game on the company's servers and are not downloaded to or stored on the player's device. If a purchase instead unlocks content pre-loaded on the original download, or is itself downloaded, the Department has said elsewhere (ST 24-0036-GIL) that transaction can be taxable.

Q: Is virtual/in-game currency taxed when purchased?
A: No. The Department treated the purchase of virtual currency like buying a redeemable card or coupon (per ST 10-0113-GIL) -- a sale of an intangible, not of tangible personal property -- especially since the currency has no real-world monetary value and cannot be exchanged for cash.

Q: Does this mean video games themselves are tax-exempt in Illinois?
A: No. The underlying video game, sold by the company's related entity or third-party retailers, is taxed as tangible personal property (canned computer software) with sales tax already collected on that transaction. Only the add-on subscription, in-game items, and virtual currency addressed in this letter were found exempt.

Q: Can I rely on this letter for my own similar business?
A: No. This is a General Information Letter, not a Private Letter Ruling -- it is not a statement of Department policy and is not binding on the Department even for the requesting company, let alone anyone else. It only points to the regulations and prior guidance the Department considers relevant.

Citations and references

Statutes and rules:

• 35 ILCS 120/2; 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax on sales of tangible personal property)
• 35 ILCS 105/3; 86 Ill. Adm. Code 150.101 (Use Tax)
• 35 ILCS 120/2-25 (definition of "computer software")
• 86 Ill. Adm. Code 130.1935 (canned vs. custom software; licensing exemption criteria; cloud-based delivery)
• 86 Ill. Adm. Code 130.2105(a)(3) (electronically transferred data is not tangible personal property)
• 35 ILCS 115/3; 86 Ill. Adm. Code Parts 130 and 140 (Service Occupation Tax on servicemen)
• 86 Ill. Adm. Code 140.101, 140.108 (serviceman tax-base calculation methods)
• 2 Ill. Adm. Code 1200.110(a)(4); 2 Ill. Adm. Code 1200.120 (PLR discretion; GIL non-binding status)

Prior Department guidance cited:

• ST 22-0027-GIL (12/02/2022) (SaaS provider is a serviceman, not subject to Retailers' Occupation Tax)
• ST 10-0113-GIL (redeemable cards/coupons are sales of intangibles, not taxable retail sales)
• ST 24-0036-GIL (downloaded or "unlocked" game extras and in-game currency can be taxable tangible personal property)

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/ST24-0044-GIL.pdf

Original ruling text

ST 24-0044-GIL 12/16/2024 COMPUTER SOFTWARE
The sale of computer software, including online video games, game extras, and ingame currency, downloaded onto a customer’s computer in Illinois constitutes the
sale of tangible personal property subject to Retailers’ Occupation Tax. Illinois does
not tax subscriptions of software as a service. See 86 Ill. Adm. Code 130.1935. (This
is a GIL.)
December 16, 2024
COMPANY1
NAME
EMAIL
Dear NAME:
This letter is in response to your letter dated November 1, 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 https://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:
Private and Confidential
To Whom It May Concern:
COMPANY1 (“COMPANY1” or “we”) respectfully requests written guidance
on behalf of its client (“the Company”), which wishes to remain anonymous
at this time. The Company requests guidance from the Illinois Department of
Revenue (“the Department”) confirming the analysis and conclusions
established in this letter. The relevant facts are set forth below.

COMPANY1/NAME
Page 2
December 16, 2024
Statement of Facts
The Company is an out-of-state video game publisher. The Company, through
a related entity, sells the video game in electronic format through third-party
vendors such as COMPANY2, COMPANY3, and other vendors, and directly to
customers. Note that the Company itself does not sell the video game. Also,
the Company’s related party and/or its wholesalers collect applicable sales
tax on the sale of the video game to the purchaser.
Although the Company does not sell the video game, the Company offers
purchasers of the video game the option to enhance their gaming experience
through the purchase of three additional items. Each of these items is offered
after the sale of the video game and are optional. These additional purchase
offerings include: 1) monthly online subscription that allows the player to play
the game in an online, multi-player setting; 2) in-game items, such as
costumes or weapons, or time saving enhancements; and 3) virtual currency
that allows the purchaser to acquire in-game items or pay for the monthly
online subscription within the game. Note that although the game is sold
separate from the online subscription the game cannot be played without
monthly online subscription. If the subscription is canceled, the player may
continue playing until the subscription period ends. Periodically the Company
may offer free trials of the game and/or monthly online subscription to new
users. These free trials are limited in duration and playability. Below is a
detailed description of each offering.
Offering #1 – Monthly Online Subscription
To play the game, players must first purchase the video game from either the
Company’s related party or a third-party wholesaler. Then, at the player’s
option, the player can enter into a monthly subscription plan offered by the
Company. The subscription plan may be terminated at any time by the player.
Upon termination the player will still retain access until the subscription term
ends. The player at all times maintains ownership rights to the previously
purchased video game.
The monthly subscription plan is required to access the online functionality of
the video game, including playing the video game in a multiplayer setting.
Without the monthly subscription plan, the video game cannot be played
online.

COMPANY1/NAME
Page 3
December 16, 2024
Players may purchase the monthly online subscription using any of the
following four methods:

1. Players may pay the monthly online subscription fee with a credit or
   debit card directly with the Company.
2. Players may pay by redeeming virtual currency (see Offering#3).
3. Players may purchase a timecard from third party retailers (e.g.,
   COMPANY4, COMPANY5, etc.).
4. Players may purchase the monthly online subscription through an
   online third-party seller, and then redeem the subscription with the
   Company.
   Offering #2 – In-Game Items
   The Company offers players the option to purchase in-game items to enhance
   their playing experience. Each of these items are optional and are separately
   stated on sales receipts to the player. Examples of these in-game items are
   bucketed into the following categories:
5. Cosmetic Items:
   o Players can acquire cosmetic items such as costumes, armor,
   outfits, and weapons that customize the appearance of their
   characters and surroundings.
6. Gameplay / Time Savings Boosts:
   o Certain in-game items may offer advantages or shortcuts during
   gameplay, such as boosts to experience points or temporary items
   that enhance character attributes.
7. Digital Services:
   o Players may desire to change the name of their character.
8. Expansions:
   o Players can purchase expansion packs, granting them access to
   new content beyond the originally purchased video game. Players
   may purchase expansion packs from the Company or approved
   third-party retailers (COMPANY2, COMPANY3, COMPANY4, etc.).
   Offering #3 – Virtual Currency
   The Company offers virtual currency that may be redeemed for transactions
   within the online game store. The virtual currency cannot be exchanged for
   real world money. The virtual currency is intended to provide players with an
   alternative payment method for transactions (monthly subscriptions/in-game

COMPANY1/NAME
Page 4
December 16, 2024
items) allowing them to make purchases without directly using a credit or
debit card.
Players may purchase virtual currency using any of following two methods:

1. Players may purchase the currency directly with a credit or debit card,
   or via Amazon Pay or PayPal.
2. Players may in the future purchase the currency through an online
   third-party seller.
   Players who purchase virtual currency may redeem it using two methods:
3. Players may redeem the currency in the online game store for in-game
   items (see Offering#2); or,
4. Players may redeem the currency in the online game store to pay for
   the monthly online subscription (see Offering #1).
   Issue
   Whether the Company’s offerings: 1) Monthly Online Subscription, 2) InGame Items, and 3) Virtual Currency, are subject to sales tax.
   Position
   The charges for Offering#1 - Monthly Online Subscription, Offering#2 - InGame Items, and Offering#3 - Virtual Currency, are not subject to Illinois sales
   tax.
   Discussion
   Offering #1 – Monthly Online Subscription
   Pertinent Authority:
   The Illinois Retailers' Occupation Tax Act imposes a tax upon persons
   engaged in the business of selling tangible personal property to purchasers
   for use or consumption. 1 In Illinois, Use Tax is imposed on the privilege of
   using, any kind of tangible personal property that is purchased at retail from a
   retailer. 2
   1
   2

35 ILCS § 120/2; 86 Ill. Adm. Code 130.101.
35 ILCS § 105/3; 86 Ill. Adm. Code 150.101.

COMPANY1/NAME
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December 16, 2024
Illinois does not have a statutory definition of “Tangible Personal Property”
however it is generally known to mean “existing physically and can be used or
consumed.”3 County courts in Illinois have defined tangible personal
property 4 to mean “that which may be seen, weighed, measured and
estimated by the physical senses and which is capable of being possessed.5
Taken together, these definitions can be taken to mean that Retailers’
Occupation and Use taxes apply when tangible personal property is sold at
retail to be used or consumed in Illinois. “Sale at retail” includes any transfer
of the ownership of or title to tangible personal property to a purchaser, for
use or consumption by any other person to whom such purchaser may
transfer the tangible personal property without a valuable consideration.” 6
In General Information Letter NO. ST-22-0027-GIL, the Department
determined that a provider of software as a service is acting as a serviceman. 7
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. 8 If the provider transfers to
the customer an API, applet, desktop agent, or a remote access agent to
enable the customer to access the provider’s network and services, it appears
the subscriber is receiving computer software that is subject to tax. 9
“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. 10
Computer software provided through a cloud-based delivery system is not
subject to tax. A cloud-based delivery system is one in which computer
Illinois Department of Revenue says “Tangible Personal Property” exists physically (i.e., you can touch it) and can
be used or consumed. https://tax.illinois.gov/questionsandanswers/answer.164.html
4
In re Application of the County Collector, 2011 Ill. App. 3d 100181, 952 N.E.2d 57 (Ill. App. Ct. 2011)
5
Archer Daniels Midland Co. v. City of Chicago, 294 Ill. App. 3d 186, 190 (1997), quoting In re Estate of Berman,
39 Ill. App. 2d 175, 178 (1963).
6
35 ILCS § 120/1.
7
ST-22-0027-GIL 12/02/2022 COMPUTER SOFTWARE.
8
(35 ILCS 115/3); see also 86 Ill. Adm. Code Parts 130 and 140. ST-22-0027-GIL 12/02/2022.
9
See 86 Ill. Adm. Code Parts 130 and 140.
10
35 ILCS 120/2-25.
3

COMPANY1/NAME
Page 6
December 16, 2024
software is never downloaded onto a client's computer and only accessed
remotely. 11
Information or data that is electronically transferred or downloaded is not
considered the transfer of tangible personal property in Illinois. 12 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. 13
Canned software is generally subject to Illinois sales tax, however licensed
software is not taxable if: (i) the license is evidenced by signed, written
agreement; (ii) the license restricts the customer from duplicating the
software; (iii) the customer cannot sublicense the software without the
licensor’s permission and continued control; (iv) for little or no charge the
customer can secure a new copy of the software if lost or damaged; and (v)
the customer must return or destroy their copy of the software at the end of
the license term (this last requirement is deemed satisfied for perpetual
licenses, even if not laid out in the written agreement). 14
Analysis
In Illinois, taxes apply when tangible personal property is sold at retail to be
used or consumed in Illinois. “Sale at retail” includes any transfer of the
ownership of or title to tangible personal property to a purchaser, for use or
consumption by any other person to whom such purchaser may transfer the
tangible personal property without a valuable consideration.” 15
The Company’s offering does not qualify as tangible personal property, as no
tangible personal property is transferred as part of the transaction.
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. 16
The Company’s offering meets the definition of cloud-based delivery of
computer software. No computer software, as defined above, is downloaded
onto the player’s computer. The player may only remotely access the
86 Ill. Adm. Code 130.1935(a)(3).
See 86 Ill. Adm. Code 130.2105(a)(3).
13
See 86 Ill. Adm. Code 130. 1935.
14
Ill. Admin. Code tit. 86 § 130.1935(a)(1).
15
35 ILCS § 120/1.
16
86 Ill. Adm. Code 130.1935(a)(3).
11
12

COMPANY1/NAME
Page 7
December 16, 2024
Company’s content through their online account on the Company’s remote
server.
Further, in General Information Letter NO. ST-22-0027-GIL, the Department
determined that a provider of software as a service is acting as a serviceman. 17
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. 18 If the provider transfers to
the customer an API, applet, desktop agent, or a remote access agent to
enable the customer to access the provider’s network and services, it appears
the subscriber is receiving computer software that is subject to tax. 19
Here, the Company provides remote access only to individual Players who
have purchased a subscription. Only these Players can access the content on
the Company’s server remotely. Players cannot download, copy or otherwise
modify the software on the Company’s server. Nor can Players download any
digital content from the Company’s servers. The Company does not provide
software to Players, and only provides remote access contingent on Players
purchasing a monthly subscription. If a subscription is cancelled the Player
may only continue accessing the digital content on the Company’s servers
until the end of the prepaid subscription term. After this date, Players will need
to repurchase a monthly subscription.
Additionally, Illinois statutes state that computer software provided through a
cloud-based delivery system is not subject to tax. Further, if the information
is not electronically transferred or downloaded it is not a transfer of tangible
personal property, and therefore not taxable.
Here, as discussed above, no property is transferred or electronically
downloaded by the Player. The video games offered by the Company are only
accessible after paying a subscription fee, and only then may Players access
content on their servers.
While canned software is generally subject to Illinois sales tax, licensed
software is not taxable if: (i) the license is evidenced by signed, written
agreement; (ii) the license restricts the customer from duplicating the
software; (iii) the customer cannot sublicense the software without the
licensor’s permission and continued control; (iv) for little or no charge the
ST-22-0027-GIL 12/02/2022 COMPUTER SOFTWARE.
(35 ILCS 115/3); see also 86 Ill. Adm. Code Parts 130 and 140. ST-22-0027-GIL 12/02/2022.
19
See 86 Ill. Adm. Code Parts 130 and 140.
17
18

COMPANY1/NAME
Page 8
December 16, 2024
customer can secure a new copy of the software if lost or damaged; and (v)
the customer must return or destroy their copy of the software at the end of
the license term (this last requirement is deemed satisfied for perpetual
licenses, even if not laid out in the written agreement). 20
The Company's offering does not need to be evaluated under the five-part test
for the taxability of licensed software in Illinois because it is not canned
licensed software. The service provided is a monthly subscription that grants
players remote access to video games they have already purchased from a
third-party retailer, rather than involving the sale or licensing of software.
Therefore, the conditions outlined in the five-part test—such as the need for a
signed, written agreement; restrictions on duplication; sublicensing controls;
provisions for replacement copies; and requirements to return or destroy the
software—are not relevant in this context. The Company is not involved in the
distribution or control of the software; instead, it simply offers a service to
provide access to games that users already own. Consequently, the tax
implications associated with software licensing do not pertain to this
subscription service.
Given that the Company’s offering, Monthly Subscription Fees, does not meet
the definitions of tangible personal property, does not need to be evaluated
under the five-part software licensing test, and instead qualifies as a cloudbased delivery system, this offering should not be subject to Illinois’ Retailers’
Occupation Tax and Use Tax.
Offering #2 – In-Game Items
The Illinois Department of Revenue decided in General Information Letter No.
ST 10-0113-GIL that persons who are engaged in the business of selling cards
or coupons, which entitle purchasers to the right to redeem those cards for
tangible personal property, are not engaged in selling tangible personal
property. Rather, they are making sales of intangibles. Such sales are not
subject to the Retailer’s Occupation Tax. However, when those cards or
coupons are used to purchase tangible personal property, the retailers
transferring that tangible personal property incur Retailer’s Occupation Tax
liability based on their gross receipts from those sales.
Similar to the facts above, the Company’s second offering is not taxable. Ingame items used within the Company’s video games are not transferred to the
Player’s computers and are not downloadable for access outside of the game

20

Ill. Admin. Code tit. 86 § 130.1935(a)(1).

COMPANY1/NAME
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December 16, 2024
played online. Thus, the Company’s offering does not meet the definition of a
retail transaction of tangible personal property.
For the same reasons specified above in Offering #1, the Company’s second
offering does not meet the definition of computer software that is delivered
electronically. In-game items are distinct from these categories because
there is no electronic delivery to the Player. Similar to the SaaS analysis
mentioned above, Players may only access the video games and relevant ingame items via the internet and with a subscription.
Therefore, the sale of in-game items is not subject to Retailers’ Occupation
Tax and Use Tax in Illinois.
Offering #3– Virtual Currency
Pertinent Authority
The Illinois Retailers' Occupation Tax Act imposes a tax upon persons
engaged in the business of selling tangible personal property to purchasers
for use or consumption. 21 In Illinois, Use Tax is imposed on the privilege of
using, any kind of tangible personal property that is purchased at retail from a
retailer. 22
Illinois does not have a statutory definition of “Tangible Personal Property”
however it is generally known to mean “existing physically and can be used or
consumed.”23 County courts in Illinois have defined tangible personal
property 24 to mean “that which may be seen, weighed, measured and
estimated by the physical senses and which is capable of being possessed.25
Taken together, these definitions can be taken to mean that Retailers’
Occupation and Use taxes apply when tangible personal property is sold at
retail to be used or consumed in Illinois. “Sale at retail” includes any transfer
of the ownership of or title to tangible personal property to a purchaser, for
use or consumption by any other person to whom such purchaser may
transfer the tangible personal property without a valuable consideration.” 26

35 ILCS § 120/2; 86 Ill. Adm. Code 130.101.
35 ILCS § 105/3; 86 Ill. Adm. Code 150.101.
23
Illinois Department of Revenue says “Tangible Personal Property” exists physically (i.e., you can touch it) and
can be used or consumed. https://tax.illinois.gov/questionsandanswers/answer.164.html.
24
In re Application of the County Collector, 2011 Ill. App. 3d 100181, 952 N.E.2d 57 (Ill. App. Ct. 2011).
25
Archer Daniels Midland Co. v. City of Chicago, 294 Ill. App. 3d 186, 190 (1997), quoting In re Estate of Berman,
39 Ill. App. 2d 175, 178 (1963).
26
35 ILCS § 120/1.
21
22

COMPANY1/NAME
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December 16, 2024
“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. 27
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. 28
The Illinois Department of Revenue decided in General Information Letter No.
ST 10-0113-GIL that persons who are engaged in the business of selling cards
or coupons, which entitle purchasers to the right to redeem those cards for
tangible personal property, are not engaged in selling tangible personal
property. Rather, they are making sales of intangibles. Such sales are not
subject to the Retailer’s Occupation Tax. However, when those cards or
coupons are used to purchase tangible personal property, the retailers
transferring that tangible personal property incur Retailer’s Occupation Tax
liability based on their gross receipts from those sales.
Analysis
In Illinois, taxes apply when tangible personal property is sold at retail to be
used or consumed in Illinois. “Sale at retail” includes any transfer of the
ownership of or title to tangible personal property to a purchaser, for use or
consumption by any other person to whom such purchaser may transfer the
tangible personal property without a valuable consideration.” 29
The Company’s offering does not qualify as tangible personal property, as no
tangible personal property is transferred as part of the transaction.
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. 30
27

35 ILCS 120/2-25.
86 Ill. Adm. Code 130.1935(a)(3).
29
35 ILCS § 120/1.
30
86 Ill. Adm. Code 130.1935(a)(3).
28

COMPANY1/NAME
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December 16, 2024
The Company’s offering meets the definition of cloud-based delivery of
computer software. No computer software, as defined above, is downloaded
onto the player’s computer. The player may only remotely access the
Company’s content through their online account on the Company’s remote
server.
Per, General Information Letter NO. ST-10-0113-GIL, Companies engaged in
the business of selling cards or coupons, which entitle purchasers to the right
to redeem those cards for tangible personal property, are not engaged in
selling tangible personal property. Rather, they are making sales of
intangibles. Such sales are not subject to the Retailers' Occupation Tax.
Here, Company does not offer physical cards that entitle players the right to
redemption in the online account. Instead, the Company offers players the
ability to purchase virtual currency in their online account on the Company’s
servers. This virtual currency can be used to purchase in-game items, as well
as to pay for monthly subscription fees. The virtual currency once purchased
does not have real world value nor can it be exchanged for real-world money.
If the player uses virtual currency to purchase in-game items, these can only
be viewed or accessed while playing the game on the Company’s server.
Purchased in-game items cannot be downloaded to player’s computers. The
items immediately after purchase are directly added into the video game
content. As such, there is no transfer of tangible personal property, and the
transaction should not be taxed.
Therefore, the sale of virtual currency is not subject to Retailers’ Occupation
and Use Tax in Illinois.
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). The Department has
declined to issue a Private Letter Ruling in response to your request. We hope, however, the
following General Information Letter will be helpful in addressing your question.
Retailers’ Occupation Tax and Use Tax

COMPANY1/NAME
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December 16, 2024
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.
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. Information or data that is electronically
transferred or downloaded is not considered the transfer of tangible personal property in
this State. The Department 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 86 Ill. Adm. Code 130.2105(a)(3).
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) separately-stated
selling price of tangible personal property transferred incident to service; (2) 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.
Using the first method, servicemen may separately state the selling price of each
item transferred incident to 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 methods provide that in no event may the tax base be less than the

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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 to remit to the Department.
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 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). See 86 Ill. Adm. Code 140.101(f). 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.
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.
If a company 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. Video, text, information, or data that is electronically transferred, viewed,
or downloaded is not considered the transfer of tangible personal property in this State. See
86 Ill. Adm. Code 130.2105(a)(3).
Computer Software
“‘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

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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,
including video games, that is not custom software is considered to be canned computer
software.
If transactions for the licensing of computer software meet 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. A license of
software is not a taxable retail sale if:
A)
customer;
B)
C)
software

It is evidenced by a written agreement signed by the licensor and the
It restricts the customer’s duplication and use of the software;
It prohibits the customer from licensing, sublicensing or transferring the

continued

to a third party (except to a related party) without the permission and
control of the licensor;

D)

The licensor has a policy of providing another copy at minimal or no charge if

the
and

agreement,
statement

customer loses or damages the software, or permitting the licensee to make
keep an archival copy, and such policy is either stated in the license
support by the licensor’s books and records, or supported by a notarized
made under penalties of perjury by the licensor; and

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E)

at
the case of a

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

If a license of canned computer software or video game does not meet all of the criteria, the
software is taxable.
Software as a Service
Software as a service is generally defined as a cloud computing service model where
the provider licenses the use of computer software to a client and manages all needed
physical and software resources. The possession and ownership of software remains with
the provider, and the client accesses the software on web-enabled devices over the
internet. The software is often provided on a subscription basis.
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 (35 ILCS 115/3), and
is calculated as explained above. Illinois does not tax subscriptions of software as a service.
Computer software is defined broadly in the Retailers’ Occupation Tax Act. 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. If a provider of such 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)(3) and (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.
The Department has previously stated that the sale of extras and in-game currency
could constitute a sale of tangible personal property in Illinois subject to State and local
retailers’ occupation tax. ST 24-0036-GIL. Depending on the nature of the extras and how
they are used by the purchaser will determine whether they are taxable. If the sale of extras
merely “unlocks” content that was preloaded on the initial download or purchase of the
game, then that would constitute a sale of tangible personal property. Similarly, a purchaser
buying an extra item that is downloaded to the game would also be a sale of tangible
personal property (canned computer software). ST 24-0036-GIL.

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However, if the purchase merely allows the player to access the item on the
Company’s server through online play and nothing is ever downloaded or unlocked in the
original, downloaded game then such transaction would not be a sale of tangible personal
property.
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,
Kimberly Rossini
Associate Counsel
KAR:slc