Does Illinois sales/use tax apply to a SaaS company's paid subscription fees and its free downloadable mobile app?

Plain-English summary

A youth-sports team management company (referred to in the ruling as "Company1") asked the Illinois Department of Revenue whether its subscription revenue and its free mobile app were subject to Illinois sales or use tax. Company1's app lets families and coaches schedule games and practices, track stats, message each other, and view real-time video/audio content for youth baseball, softball, and other sports. The core scheduling, messaging, and live-content features are free. Paying subscribers to "PLAN1" or "PLAN2" get extra passive content -- things like play-by-play audio, event overviews, full event videos, season stat summaries, and downloadable highlight clips.

The Department declined to issue the requested Private Letter Ruling, explaining that existing law and regulations already resolve the question, and issued this General Information Letter instead. Its response lays out the general framework rather than a specific yes/no tied to Company1's exact plan structure, but the framework answers the practical questions:

1. The SaaS subscription fees themselves are not taxable. Illinois taxes "canned" (prewritten) computer software as tangible personal property, but it does not tax software-as-a-service that is hosted in the cloud and only ever accessed remotely -- never downloaded onto the customer's device. 86 Ill. Adm. Code 130.1935(a)(3). Because Company1's PLAN1/PLAN2 features are accessed through the website or app rather than downloaded as separate software, that access is treated as nontaxable SaaS.
2. A free downloadable app is a closer question, but is typically untaxed too -- for a different reason. If a SaaS provider gives a subscriber an API, applet, desktop agent, or "remote access agent" app to reach its network, that app itself counts as computer software, and its transfer is taxable unless it meets the five-part nontaxable-license test in 86 Ill. Adm. Code 130.1935(a)(1) (written/e-signed agreement, use restrictions, no unauthorized sublicensing, replacement-copy policy, and return/destroy-at-end-of-license terms). However, when the customer downloads that app for free from a server located outside Illinois, and the provider is also located outside Illinois, the provider has exercised no power or control over the property inside Illinois -- so the provider owes no Use Tax as a "donor," and the customer owes no Use Tax either, because the customer didn't acquire the software in a retail transaction.
3. Downloaded digital content (video clips, stats) is not taxable tangible personal property at all. Illinois treats downloaded data or information -- like player statistics, video content, and highlight clips -- as an intangible transfer, not a sale of tangible personal property, regardless of whether it's free or comes with a paid PLAN. 86 Ill. Adm. Code 130.2105(a)(3).

What this means for you

SaaS and app companies

If your product is accessed entirely through a browser or an app interface without the customer ever downloading separate software, your subscription fees are not subject to Illinois Retailers' Occupation, Use, or Service Occupation Tax -- that's true whether the plan is a flat monthly fee or tiered (like Company1's free/PLAN1/PLAN2 structure). But watch for any feature that pushes an API, applet, desktop agent, or "remote access agent" to the customer's device: the Department treats that as a transfer of computer software in its own right, separately taxable unless it satisfies the five-part license test -- regardless of whether you separately charge for it.

Companies with a free downloadable app

Giving away your app for free doesn't automatically make it tax-free on its own terms; a downloaded app is still "computer software." What saves it here is the mechanics of the transaction: the app is downloaded directly from an out-of-state server by the customer, so the out-of-state provider never exercises power or control over the software inside Illinois, and the customer didn't buy it at retail. If your app is instead hosted or distributed from Illinois-based infrastructure, or if there's a separate charge involved, this reasoning may not carry over.

Companies that bundle digital content into paid tiers

Extra digital content -- stat packages, video clips, highlight reels -- delivered electronically to subscribers is treated as intangible information, not as a taxable sale of tangible personal property, whether it's bundled into a paid plan or given away free. That holds even though the underlying platform delivering the content is a paid subscription.

Accountants and tax professionals

Note that the Department expressly declined to issue a Private Letter Ruling here because it found "laws and regulations dispositive of the subject of the request" -- so this GIL restates the general rule (SaaS untaxed if never downloaded; downloaded apps/APIs are software but escape tax through the out-of-state-donor mechanic; digital content is intangible) rather than confirming Company1's specific fact pattern is compliant. The Department cited its own prior rulings on materially similar facts (e.g., ST 24-0002-PLR, ST 24-0003-PLR) as consistent with this outcome, but a GIL is not binding precedent for any other taxpayer.

Common questions

Q: Do I owe Illinois sales tax on SaaS subscription revenue?
A: Not if the software is hosted in the cloud and the customer only ever accesses it remotely, without ever downloading it onto their own device. Illinois does not tax that kind of SaaS arrangement. 86 Ill. Adm. Code 130.1935(a)(3).

Q: What if my SaaS product also requires the customer to download an app, API, or agent to connect?
A: That download is itself "computer software" and is taxable unless it satisfies the five-part nontaxable-license test in 86 Ill. Adm. Code 130.1935(a)(1) -- even if you don't charge separately for it. However, if the customer downloads it for free from a server located outside Illinois and you (the provider) are also located outside Illinois, neither you nor the customer owes Illinois Use Tax on that download, because you never exercised power or control over the software inside Illinois and the customer didn't acquire it in a retail transaction.

Q: Is downloadable content like video clips or stat packages taxable?
A: No. Illinois treats electronically transferred or downloaded data and information -- including video content, player statistics, and similar digital content -- as an intangible transfer, not a sale of tangible personal property, so it isn't subject to Retailers' Occupation or Use Tax.

Q: Why didn't the Department just say "yes, your specific plans are exempt"?
A: The Department declined to issue the Private Letter Ruling the company requested, stating that existing statutes and regulations already dispose of the issue, and responded with this GIL instead. A GIL only points to the relevant rules -- it is not binding on the Department and does not confirm any particular taxpayer's specific facts comply.

Q: Can I rely on this letter for my own SaaS company?
A: Not directly. A GIL is not a statement of Department policy and is not binding on the Department for anyone, including the requester. It shows how the Department reasons through the SaaS/computer-software rules, but your own facts (where your servers sit, whether you transfer an API/agent, how your license terms are structured) need to be checked against 86 Ill. Adm. Code 130.1935 independently.

Citations and references

Statutes:

• 35 ILCS 120/2 (Retailers' Occupation Tax on sales of tangible personal property)
• 35 ILCS 120/2-25 (statutory definition of "computer software")
• 35 ILCS 105/3, 105/3-45 (Use Tax imposition and collection)
• 35 ILCS 115/3 (Service Occupation Tax on tangible personal property transferred incident to a service)

Regulations:

• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax regulations)
• 86 Ill. Adm. Code 130.1935(a) (canned software taxable regardless of delivery method)
• 86 Ill. Adm. Code 130.1935(a)(1), (a)(1)(A)(i) (five-part nontaxable software-license test; e-signature acceptable)
• 86 Ill. Adm. Code 130.1935(a)(3) (SaaS accessed only remotely, never downloaded, is not taxable)
• 86 Ill. Adm. Code 130.1935(a)(4) (a transferred API/applet/desktop agent/remote access agent is taxable computer software)
• 86 Ill. Adm. Code 130.2105(a)(3) (downloaded digital data/information is an intangible, not taxable tangible personal property)
• 86 Ill. Adm. Code 140.101, 140.106, 140.108, 140.109 (Service Occupation Tax base calculation methods)
• 86 Ill. Adm. Code 150.101, 150.401, 150.701(a) (Use Tax imposition and collection)
• 86 Ill. Adm. Code 150.305(c) (Use Tax owed by a donor of gifted tangible personal property)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedures)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedures)

Source

• Landing page: Illinois 2025 Sales Tax Letter Rulings
• Original PDF: ST25-0045-GIL.pdf

Original ruling text

ST 25-0045-GIL

8/19/2025

COMPUTER SOFTWARE

Illinois does not tax subscriptions of software as a service. That is, 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. See 86 Ill. Adm. Code 130.1935(a)(3). (This
is a GIL.)
August 19, 2025
NAME
COMPANY
ADDRESS
EMAIL
Dear NAME:
This letter is in response to your letter dated June 6, 2025, 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.
Whether to issue a private letter ruling in response to a letter ruling request is within
the discretion of the Department. 2 Ill. Adm. Code 1200.110(a)(4). If there is case law or
there are regulations dispositive of the subject of the request, the Department will decline
to issue a private letter ruling on the subject. 2 Ill. Adm. Code 1200.110(a)(3)(D). Having
reviewed your request, the Department notes that there are laws and regulations dispositive
of the subject of the request. Thus, the Department is declining to issue a private letter ruling
in response to your request. However, 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:
Pursuant to 2 Ill. Adm. Code 1200.110, we are submitting this request for a
Private Letter Ruling with respect to Illinois Service Occupation Tax (“SOT”),

COMPANY1
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August 19, 2025
Retailers’ Occupation tax (“ROT”) and Use Tax (collectively, “sales tax”) on
behalf of our client, COMPANY1 (referred to herein as “COMPANY1”). 1
COMPANY1 is seeking guidance as to whether the COMPANY1 services
provided through its website and mobile application (i.e., the “APP”), 2 as
described more fully below, are subject to Illinois sales tax.
General Information:
COMPANY1 is registered to do business in Illinois and presently remits Illinois
ROT on the subscription fees paid by customers in Illinois for COMPANY1
“PLAN1” and “PLAN2” services. COMPANY1’s sales and use tax returns are
not being examined as part of an Illinois Department of Revenue (“the
Department”) audit and are not part of pending litigation in which the
Department is named as a plaintiff or defendant. This Private Letter Ruling
request is not based on alternative plans of proposed transactions or a
hypothetical situation
To the best of the knowledge of COMPANY1 and COMPANY1’s
representatives, the Department has not previously ruled on the same or a
similar issue for COMPANY1 or a predecessor. In addition, COMPANY1 (or a
representative thereof) has not submitted a previous Private Letter Ruling
Request to the Department for the same or similar issue. There is no known
dispositive case law concerning the transactions that are the subject of this
request, and COMPANY1 knows of no authority contrary to the authorities
referred to and cited in this request.
Statement of Facts:
COMPANY1 is a member of the COMPANY2 family of businesses. COMPANY1
is headquartered outside of Illinois and has no servers (owned, leased or
otherwise) in Illinois.
COMPANY1 provides a cloud-based platform designed to be a one-tap app
supporting youth sports teams and their team management of pre-game, ingame, and post-game activities. Features include scheduling
communications and messaging between families and coaches, DATA
TRACKING and stat tracking, and in-app REAL-TIME CONTENT DELIVERY of
youth sports games that is accessible from anywhere. This app is currently

Enclosed as Exhibit A, please find a copy of the Power of Attorney Form IL-2848 authorizing the
representation of COMPANY1 in this request.
2
WEBSITE
1

COMPANY1
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August 19, 2025
used primarily for baseball and softball, but other sports are available
including basketball, football, volleyball, soccer, and lacrosse.
More specifically, by using COMPANY1 services through the APP or online,
“users” 3 have access to features and functionality such as (i) easy-to-use
DATA TRACKING, (ii) in-app REAL-TIME CONTENT DELIVERY or replay of
sporting events; (iii) ability to watch, modify or share generated video clips and
save video clips to a player’s “PROFILE” (iv) scheduling practices and games,
including RSVP capability and schedule change notifications (iv) connections
with other users via video sharing, photo sharing, and in-app messaging (v)
game and season stats, box scores, EVENT OVERVIEW, and a play-by-play
recap, and (vi) other features functionality that may be made available
through the services.
COMPANY1’s services and functions are accessed through the APP
downloaded free of charge to a smart device including mobile phone, or
online through its website. If users would like additional features, they can
also pay to subscribe and access additional “PLAN1” or “PLAN2” services and
features, as discussed below. COMPANY1’s cloud-based software is not
downloaded to any server or similar platform in Illinois. Most of COMPANY1’s
live game services require internet access. However, offline mode is
supported for post-game content, for example the DATA TRACKING function.
To access COMPANY1’s services and features, a new user opens COMPANY1
online through its website or downloads the APP for free and is then asked to
create a user account by providing an email address and password. (Attached
as Exhibit B are screen shots of the “create account” flow.) Once a user has
registered online and/or downloaded the APP, if accessing via a mobile
application (accessing the platform via a mobile application is preferred for
optimal and expanded use as the mobile app has more features), a user can
select and start using COMPANY1’s free services, which include access to
game and practice schedules, REAL-TIME VIDEO CONTENT DELIVERY, and
team messaging, or sign up for one of the following PLAN subscription plans
offered on either a monthly or annual basis after a free trial period:

1. PLAN1, provided at $$$/month or $$$/year and includes all
   features provided for free, plus live play-by-plays, box scores,
   REAL-TIME AUDIO CONTENT DELIVERY, EVENT OVERVIEW, and
   live game alerts; or
   COMPANY1’s “users” include registered users who create an account, team administrators (e.g., coaches
   or team manager) with administrator access to sports team pages, or a guest, who access only a portion of
   the services that do not require an account or other login (e.g., COMPANY1’s public facing website).

3

COMPANY1
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August 19, 2025

2. PLAN2, provided at $$$/month or $$$/year and includes all
   features included in the PLAN1 subscription plan, plus full event
   videos, season statistic summaries, DATA VISUALIZATION,
   highlight clipping, and shareable PROFILE.
   Attached hereto as Exhibit C, are screenshots of the various services and
   features that come with the free and PLAN services plans. Users can change
   their subscription plan whenever they desire. 4
   Features that are provided for free generally require the user to input
   information and actively interact with the application (e.g., search for a team,
   message with other users, DATA TRACKING, share calendar schedules, etc.).
   The additional paid-for services offered in the “PLAN1” and “PLAN2” plans
   generally provide users with more passive information and functionality, such
   as additional streaming options, EVENT OVERVIEW, team and players
   statistics, etc., or PLAN fan experiences, such as no ads, replay, game
   summaries, etc., with little or no user input (i.e., these PLAN services and
   features are automatically pushed out or made readily available to the user).
   All the additional paid-for services offered in PLAN subscription plans are
   accessible through the APP or through COMPANY1’s website. The new item
   transferred to customers participating in these plans is additional digital
   content (e.g., player statistics, VIDEO CONTENT DELIVERY, video clips),
   which can be electronically transferred or downloaded to the customer’s
   smart device. For example, in the PLAN2 subscription plan, subscribers
   receive player highlight clips. These video clips can be downloaded to the
   subscriber’s mobile device and accessed through the APP.
   Statement of Relevant Authorities
   Illinois ROT is imposed on persons engaged in the business of selling tangible
   personal property at retail. 35 ILCS 120/2; 86 Ill Adm. Code 130.101. A
   complimentary Use Tax is imposed on the privilege of using, in Illinois, any
   kind of tangible personal property that is purchased anywhere at retail from a
   retailer. See 86 Ill Adm. Code 150.101. If the retail purchases occur in Illinois,
   the purchasers must pay Use Tax to the retailer at the time of purchase. 35
   ILCS 105/3-45; 86 Ill. Adm. Code 150.401. If the purchases occur outside
   Illinois, purchasers must self-assess and remit their Use Tax liability directly
   to the Department. 35 ILCS 105/3-45; 86 Ill. Adm. Code 150.701(a).
   Enclosed as Exhibit D, please find a copy of COMPANY1’s Terms of Use and Privacy Policy with certain
   relevant language highlighted.
   4

COMPANY1
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August 19, 2025
The Illinois SOT, and its complimentary Use Tax, is imposed on persons
transferring tangible personal property as an incident to the sale of a service
(i.e., “servicemen”). 35 ILCS 115/3. Servicemen may calculate their tax base
and liability in one of four ways, depending on how they operate their
business. 86 Ill. Adm. Code Sections 140.106-09.
Illinois considers prewritten, or canned software to be tangible personal
property and therefore subjects it to taxation, regardless of the method of
delivery. 86 Ill. Adm. Code 130.1935(a). Taxable prewritten software includes
computer programs held for general or repeated sale or lease. 86 Ill. Adm.
Code 130.1935(a). However, if licensed computer software meets certain
additional criteria, the software could be considered a nontaxable license of
computer software. See 86 Ill. Adm. Code 130.1935(a)(1). 5
Alternatively, the Department has advised that computer software provided
through a cloud-based delivery system (a system in which computer software
is never downloaded onto a customer’s computer and is accessed only
remotely), such as Software-as-a-Service (“SaaS”), is not subject to tax. See,
e.g., Ill. Priv. Ltr. Rul. No. ST 24-0002-PLR, 9/17/2024. The Department has
also advised that if a provider of SaaS services, provides a subscriber with an
API (Application Programming Interface), applet, desktop agent, or remote
access agent (“App”) to enable the customer to remotely access the
provider’s network and services, the customer is considered to have received
computer software. The transfer of such App (or computer software) would be
a transfer of tangible personal property, subject to SOT, even if there is no
separate charge to download the App, unless the transaction qualifies as a
nontaxable license of computer software pursuant to the five-part test set
forth in 86 Ill. Adm. Code 130.1935(a)(1).
However, if a SaaS customer downloads an App for free from an out-of-state
service provider’s web site or server that is also located outside of Illinois, the
service provider, even though it is donating the App software to the customer, 6
has exercised no power or control over the property in Illinois. See, e.g., Ill.
Priv. Ltr. Rul. No. ST 24-0003-PLR, 9/26/2024; Ill. Priv. Ltr. Rul. No. ST 24-0002PLR, 9/17/2024; Ill. Gen. Info. Ltr. Rul. No. ST 21-0001-GIL, 1/15/2021; Ill. Gen.
Info. Ltr. Rul. No. ST 20-0018-GIL, 9/28/2020. As such, because the service
Use of the APP and PLAN subscription plans that are paid for do not require a written agreement signed by
the licensor and the customer.
6
A donor who purchases tangible personal property and gives the tangible personal property to a donee
makes a taxable use of the property when making the gift. A donor owes Use Tax on the donor’s cost price of
the tangible personal property that is transferred. See 86 Ill. Adm. Code 150.305(c).
5

COMPANY1
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August 19, 2025
provider has not made any taxable use of the software (App) remotely
accessed and downloaded for free by the Illinois customer, the service
provider incurs no Use Tax. The customer also incurs no use tax because the
customer did not acquire the software (App) in a retail transaction.
Additionally, because Illinois does not tax SaaS subscriptions, there is no
sales tax due to Illinois on the SaaS subscription. As a result, no Illinois sales
tax is due on the downloading of the free App or the nontaxable SaaS
subscription.
Information services, such as information or data (e.g., video, text, etc.) that
is electronically transferred, downloaded or viewed, is not considered the
transfer of taxable tangible personal property in Illinois. See 86 Ill. Adm. Code
130.2105(a)(3); see also Ill. Priv. Ltr. Rul. No. ST 24-0002-PLR, 9/17/2024.
Downloading digital media is considered an intangible transfer and therefore
not subject to sales tax. Ill. Gen. Info. Ltr. Rul. No. Letter ST 06-0071-GIL,
4/19/2006.
Analysis of Relevant Authorities
Access to COMPANY1’s core services and the APP are free to COMPANY1
users and guests. Registered COMPANY1 users can also sign up for paid PLAN
subscriptions for access to “PLAN1,” or “PLAN2” services and functions.
COMPANY1 services, including all functionality in each of the three plans (i.e.,
free, PLAN1 or PLAN2), is hosted in the cloud and accessed remotely by
customers through COMPANY1’s website or through the free downloaded
application.
If COMPANY1 services are accessed by a user through COMPANY1’s website,
and no API or similar remote access agent is otherwise transferred to the
customer by COMPANY1 for access, this should be considered SaaS without
the transfer of tangible personal property and therefore, nontaxable in Illinois.
See, e.g., Ill. Priv. Ltr. Rul. No. ST 24-0002-PLR, 9/17/2024. To the extent
customers access COMPANY1 services by downloading the free mobile
application donated to them by COMPANY1, the customer could be
considered to have received taxable computer software, unless it qualifies as
a nontaxable license of computer software under 86 Ill. Adm. Code
130.1935(a)(1). However, because customers download the APP for free from
out-of-state web sites and out-of-state servers, there is no exercise of
ownership or control over the property (App) in the state by the vendor, and
therefore, no Illinois sales or use tax is incurred on the transactions (i.e., the
use of the free APP in Illinois or COMPANY1 paid for services, which are SaaS
and/or information services), regardless of whether it’s considered a

COMPANY1
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August 19, 2025
nontaxable license of computer software. As discussed above, the only
additional feature available to customers participating in a PLAN1 or PLAN2
subscription plan is further digital content (e.g., player statistics, VIDEO
CONTENT DELIVERY, video clips), which can be electronically transferred or
downloaded to a subscriber’s smart device. In Illinois, electronically
transferred or downloaded data or information is not deemed to be the
transfer of tangible personal property. See Ill. Gen. Info. Ltr. Rul. No. ST 200018-GIL, 09/28/2020; Ill. Priv. Ltr. Rul. No. ST 24-0003-PLR, 9/26/2024. 7 As
such, no tangible personal property is transferred to subscribers as part of the
additional services provided in COMPANY1’s PLAN subscription plans and
therefore this additional digital content or features should not be subject to
sales tax.
COMPANY1’s facts and services are materially similar to the taxpayer’s facts
and services in Ill. Priv. Ltr. Rul. No. ST 24-0002-PLR, 9/17/2024, where the
Department recently ruled that the taxpayer’s SaaS subscriptions and free
App downloaded from servers located outside of Illinois were not subject to
Illinois sales tax. Like the taxpayer in Private Letter Ruling ST 24-0002-PLR,
COMPANY1 sells SaaS and/or information service subscriptions to access
information hosted in the cloud via its website or APP downloaded for free
from servers located outside of Illinois.
Ruling Request
Based on the foregoing authorities, and recent Department letter rulings,
COMPANY1 respectfully requests the Department to rule that the revenue
generated from COMPANY1’s PLAN subscription plans are not subject to
sales tax in Illinois, and that its APP remotely downloaded without charge is
not subject to Illinois Use Tax.
In the event the Department determines that the revenue generated from
PLAN subscriptions is taxable or that the APP is subject to Use Tax, we
respectfully request the opportunity to discuss this matter with the
Department before a final letter ruling is issued.
We request that the identification of taxpayer and its services be deleted from
any publicly disseminated version of this request and/or any associated
documentation pursuant to 2 Ill. Adm. Code 1200.110(b)(6). A redacted

Based on these and other Department letter rulings, 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. Thus, if no tangible property is transferred as part of the services, the transaction
is not subject to sales tax.

7

COMPANY1
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August 19, 2025
version of this request will be provided following this request and prior to
publication.
Thank you for your consideration and attention to this matter. To the extent
you need additional information to provide guidance, please let us know.
DEPARTMENT’S RESPONSE:
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 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. If the purchases occur in
Illinois, the purchasers must pay the Use Tax to the retailer at the time of purchase. 35 ILCS
105/3-45; 86 Ill. Adm. Code 150.401. 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. 86 Ill. Adm. Code 150.130(b). If the purchases occur outside Illinois,
purchasers must self-assess their Use Tax liability and remit it directly to the Department.
See 35 ILCS 105/3-45; 86 Ill. Adm. Code 150.701(a).
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) 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. See 86 Ill. Adm. Code Sections 140.106;
140.108; and 140.109.

COMPANY1
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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 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. 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. These
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.

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III.

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
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)

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

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 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.

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.

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Please note that it is very common for software to be licensed over the internet and
the customer to click “I agree” or to check a box that states that he or she accepts the
license terms. 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.
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. 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 tangible
personal property. This would also apply to digital content such as player statistics, VIDEO
CONTENT DELIVERY, and video clips. 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).
B. Software as a service.
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.
Computer software is defined broadly in the Retailers’ Occupation Tax Act and
Service Occupation Tax Act. However, Illinois does not tax subscriptions of software as a
service. That is, 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. 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 API, applet, desktop
agent, or a remote access agent, it is nonetheless subject to tax, unless the transfer qualifies
as a non-taxable license of computer software. If an Illinois customer downloads computer
software for free (such as an App, API, applet, desktop agent, or remote access agent) from

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an out-of-State retailer’s or serviceman’s web site or server that is also located out of State,
the retailer or serviceman, even though it is donating tangible personal property to the
customer, has exercised no power or control over the property in Illinois. The retailer or
serviceman, the donor, would not have made any taxable use of the property in Illinois. The
customer, the donee, would incur no Use Tax liability as the customer did not acquire the
software from a retail transaction. See 86 Ill. Adm. Code 150.305(c) and ST 24-0003-PLR, ST
24-0002-PLR, ST 21-0008-PLR, ST 20-0004-PLR, ST 24-0006-GIL, ST 23-0002-GIL, ST 220027-GIL, ST 21-0001-GIL, and ST 19-0007-GIL.
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
Katarzyna A. Kowalska
Associate Counsel
KAK:sce