Does Illinois Retailers' Occupation Tax or Use Tax apply to a company's various cloud-based (SaaS) software products -- tax-preparation, bookkeeping, self-employed finance, professional tax-prep, and payroll offerings -- including their related free mobile apps, desktop conversion tools, and occasional downloadable components?

Plain-English summary

This ruling answers a big question for cloud software companies: if your customers never download anything, do you owe Illinois sales tax? The Department's general rule, repeated throughout this letter, is that "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." But the letter also shows how easily that answer flips: the moment any executable file, applet, plug-in, or mobile app is transferred to the customer's device, that transfer counts as a taxable transfer of "computer software" under 35 ILCS 120/2-25 -- even if there's no separate charge for it -- unless the transfer qualifies as a non-taxable software license meeting all five conditions of 86 Ill. Adm. Code 130.1935(a)(1). Critically, the Department flagged that click-to-accept "I agree" terms of service do NOT satisfy the requirement of a written agreement signed by both the licensor and the customer, so none of the company's standard click-wrap agreements qualified for the license exemption.

The company in this ruling sold five distinct SaaS product lines, each analyzed separately. Software Product 1 is an online tax-preparation service (available in four versions, priced differently based on return complexity) that lets users prepare and e-file or print federal and state personal income tax returns entirely online. The Department found the core online service not taxable, since nothing is downloaded to prepare or file a return, and even downloading a PDF copy of the finished return does not count as receiving computer software. However, two narrow situations DO involve a download: (1) a free mobile app that provides a nicer interface for the same online service, and (2) in rare cases, when a user needs to amend a return from a prior year after that year's version has been retired from the live online platform, the company gives the user a downloadable desktop copy of that old year's software at no charge. Both of those downloads are taxable transfers of computer software (unless a valid signed license applies), even though the underlying online service itself is not.

Software Product 2 is online bookkeeping/accounting software for small businesses (comparable to a "SOFTWARE PRODUCT 2A" cloud tier, with separate desktop "2B" and server-installed "2C" versions that are already taxed as their own SKUs). The cloud tier operates entirely in a browser with no plug-in or executable installed, and the Department ruled it not taxable on that basis. But the company also offers, for free, a mobile app and a "connected desktop application" that gives a native-app experience on the user's own computer -- both are downloads of computer software and therefore taxable unless a valid license applies, again undercut by the click-wrap ULA.

Software Product 3 is an online expense-tracking and quarterly-tax tool for self-employed individuals (mileage tracking, deduction categorization, estimated tax calculations). Because it involves no download of any kind for its core functionality, the Department found it not taxable. Its free mobile app, however, adds a GPS-based mileage-tracking feature not available through the browser alone, and downloading that app is a taxable transfer of computer software absent a qualifying license. The Department noted it did not have enough information about the "other services" (insurance-related offerings) sometimes bundled with Product 3 to rule on their taxability.

Software Product 4 is professional tax-preparation software marketed to CPAs, enrolled agents, and other paid preparers, used to prepare and e-file returns for their clients. It has no desktop version at all -- it's accessed solely online. The Department found the core service, and its optional add-on features (e-signature requests, shared client-data repository with Product 2, and a client data-request portal), all not taxable because none of them require any download. The one exception: Product 4 offers a free data-conversion service to import data from competing tax-prep software, but using it requires the customer to download and run an executable file on their own computer to extract the old data (an actual employee then manually completes the conversion). That executable download is a taxable transfer of computer software unless covered by a valid license.

Software Product 5 is online payroll software (paycheck processing, direct deposit, payroll tax payment and filing, W-2 issuance), sold standalone or bundled with Product 2, in Basic/Enhanced/Full Service tiers. Like the others, using the core service requires no download of any program, module, or executable file, so the Department found it not taxable, along with its optional add-on features (an employee self-service portal for W-4s and W-2 delivery, and an optional workers'-compensation referral service). The one physical wrinkle: some Product 5 subscribers can opt in to receive updated labor-law posters by U.S. mail. Those posters are tangible personal property. The Department could not tell from the facts whether the company itself prints the posters (in which case it owes Use Tax on its cost price, assuming the fourth of the four serviceman tax-calculation methods applies) or has a supplier print them (in which case the multi-service rules of 86 Ill. Adm. Code 140.145 govern instead).

Standing behind all five product analyses is the Department's general legal framework for "servicemen": a business that sells services (rather than tangible goods) is taxed only on the tangible personal property it transfers incident to that service, calculated by one of four methods (separately-stated selling price; 50% of the entire bill; Service Occupation Tax on cost price for a registered de minimis serviceman; or Use Tax on cost price for a non-registered de minimis serviceman). If no tangible personal property changes hands, none of the four sales/use tax types (Retailers' Occupation Tax, Use Tax, Service Occupation Tax, Service Use Tax) apply at all. The ruling reaffirms that "canned" (non-custom) computer software is always treated as tangible personal property no matter how it's delivered -- disc, download, or otherwise -- while true custom-written software may escape taxable-sale treatment; but a license of canned software escapes tax only if it meets all five 130.1935(a)(1) conditions, most notably a signed (not click-wrap) written agreement.

What this means for you

If you sell software purely as a cloud/SaaS service

As long as your customers only access your software remotely -- through a browser or app that connects to your servers, with nothing installed or downloaded to run the core service -- Illinois generally will not treat that access as a taxable sale of tangible personal property, and you're not liable for Retailers' Occupation Tax, Use Tax, Service Occupation Tax, or Service Use Tax on it.

If any part of your offering involves a download

Watch closely for anything that leaves your servers and lands on a customer's device: a mobile app, a desktop "connected" application, a plug-in, an API or applet used to access your service, a data-conversion executable, or a legacy desktop program handed over for any reason (even "free," even to fix a gap like amending an old return). Under this ruling's reasoning, each of those is a transfer of "computer software," which is taxable unless it separately qualifies for the software-license exemption -- regardless of whether you charge extra for it.

If you want to rely on the software-license exemption

Simply having customers click "I agree" to your terms of service will not satisfy 86 Ill. Adm. Code 130.1935(a)(1). The Department requires a written agreement actually signed by both the licensor and the licensee, plus restrictions on duplication/transfer, a replacement-copy or archival-copy policy, and a return/destroy-at-end-of-license provision. Click-wrap alone leaves any downloaded software fully taxable.

If your service involves any mailed or printed physical items

Bundled physical goods (like the labor-law posters here) are analyzed separately from the software question. If you print them yourself, you likely owe Use Tax on your cost to produce them; if a third-party supplier prints and provides them, the multi-service provider rules under 86 Ill. Adm. Code 140.145 determine your liability instead.

Common questions

Q: We sell purely browser-based SaaS with nothing ever installed on the customer's device. Do we owe Illinois sales tax?
A: Generally no. The Department repeatedly confirms that cloud-based software never downloaded to the customer's computer, and only accessed remotely, is not subject to Retailers' Occupation Tax or Service Occupation Tax.

Q: Our SaaS product has a free companion mobile app. Does giving that away for free change anything?
A: Yes. Even though the app is free and merely provides a nicer interface to the same underlying online service, downloading it is a transfer of computer software. It's taxable under one of the four serviceman tax-calculation methods unless it qualifies as a non-taxable software license.

Q: A user needs to amend a return from a prior year, and we can only give them a downloadable desktop version of that old year's software since it's no longer live online. Is that download taxable?
A: Yes, per this ruling's reasoning -- providing a functioning downloaded copy of the software, even for a legitimate business reason and at no charge, is a transfer of computer software subject to tax absent a qualifying license.

Q: We offer a free data-conversion tool that customers must download and run to extract data from a competitor's software before we manually import it. Is that download taxable?
A: Yes. The executable file the customer downloads and runs on their own computer is a transfer of computer software, taxable unless it meets the license exemption -- even though the conversion service itself is provided for free and performed manually by company employees afterward.

Q: Can we avoid tax on these downloads just by putting "click I agree to accept" language in our terms of service?
A: No. The Department specifically found that an electronically-accepted "I agree" license does not satisfy the written-and-signed-agreement requirement of 86 Ill. Adm. Code 130.1935(a)(1), so click-wrap terms alone will not exempt a software download from tax.

Q: Some of our SaaS features (e-signature requests, shared client data repositories, online support portals) are offered free with no download at all. Are those taxable?
A: No. Features that involve no transfer of any file, program, or executable to the customer's device remain outside the sales/use tax base, regardless of whether the core subscription itself is paid.

Q: We mail physical labor-law compliance posters to subscribers who opt in. Does that create a tax obligation separate from the software analysis?
A: Potentially yes. Posters are tangible personal property. If the company itself prints them, Use Tax applies on the cost price (under the de minimis serviceman method); if a third-party supplier prints them, the multi-service provider rules of 86 Ill. Adm. Code 140.145 apply instead.

Q: Does it matter that some of our software is available in both a cloud version and a separately-purchased desktop version?
A: The desktop/downloadable SKUs are already treated (and taxed) as ordinary sales of canned computer software regardless of this ruling; this letter only addresses the SaaS/cloud-access versions and any incidental downloads tied to them.

Citations and references

• 35 ILCS 120/2 -- Retailers' Occupation Tax Act, tax on sellers of tangible personal property
• 35 ILCS 120/2-25 -- Retailers' Occupation Tax Act definition of "computer software"
• 35 ILCS 105/3 -- Use Tax Act, tax on the privilege of using tangible personal property in Illinois
• 35 ILCS 115/3 -- Service Occupation Tax Act, tax on tangible personal property transferred incident to a sale of service
• 86 Ill. Adm. Code 130.101 -- Retailers' Occupation Tax regulations, nature of the tax
• 86 Ill. Adm. Code 130.1935 -- computer software regulations (canned vs. custom software; license exemption criteria)
• 86 Ill. Adm. Code 140.101 -- Service Occupation Tax regulations, servicemen
• 86 Ill. Adm. Code 140.145 -- multi-service provider tax liability rules
• 86 Ill. Adm. Code 150.101 -- Use Tax regulations, nature of the tax
• 86 Ill. Adm. Code 150.130 -- Use Tax credit for Retailers' Occupation Tax paid
• 2 Ill. Adm. Code 1200.110 -- Private Letter Ruling procedures and binding effect
• 2 Ill. Adm. Code 1200.120 -- General Information Letter procedures (referenced to distinguish PLRs from GILs)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2017.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2017/st-17-0006-plr.pdf

Original ruling text

ST 17-0006-PLR 08/14/2017

COMPUTER SOFTWARE

A provider of software as a service is acting as a serviceman. If the provider does not transfer
any tangible personal property to the customer, then the transaction generally would not be
subject to Retailers’ Occupation Tax, Use Tax, Service Occupation Tax, or Service Use Tax. 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. See 86 Ill. Adm. Code Parts
130 and 140. (This is a PLR.)

August 14, 2017

Dear Xxxxx:
This letter is in response to your letter dated February 3, 2017, in which you requested
information. The Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are
issued by the Department in response to specific taxpayer inquiries concerning the application of a
tax statute or rule to a particular fact situation. A PLR is binding on the Department, but only as to the
taxpayer who is the subject of the request for ruling and only to the extent the facts recited in the PLR
are correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in
the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information
Letter (“GIL”) is to direct taxpayers to Department regulations or other sources of information
regarding the topic about which they have inquired. A GIL is not a statement of Department policy
and is not binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website
at www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to
your inquiry.
Review of your request disclosed that all the information described in paragraphs 1 through 8
of Section 1200.110 appears to be contained in your request. This Private Letter Ruling will bind the
Department only with respect to COMPANY for the issue or issues presented in this ruling, and is
subject to the provisions of subsection (e) of Section 1200.110 governing expiration of Private Letter
Rulings. Issuance of this ruling is conditioned upon the understanding that neither COMPANY nor a
related taxpayer is currently under audit or involved in litigation concerning the issues that are the
subject of this ruling request. In your letter you have stated and made inquiry as follows:
COMPANY (“Company”) received correspondence, dated August XX, XXXX, from your
office regarding the COMPANY’s collection of Illinois Retailer’s Occupation Tax and Use
Tax (“S/U Tax”) on computer software provided through a cloud-based service, often
referred as Software as a Service or “SaaS”. We have attached, as Exhibit A, a copy
of such letter for your reference.
On behalf of COMPANY and pursuant to Ill. Admin. Code tit. 2, §1200.110, we
respectfully submit this request for formal written and binding guidance from the Illinois
Department of Revenue (“DOR”) on the proper application of Illinois S/U Tax pertaining
to COMPANY’s cloud-based products and services as described below.

ST 17-0006-PLR
Page 2

FACTS
COMPANY develops and sells a variety of software solutions to customers located in
Illinois that are each available in several differing formats including physical delivery via
CD; electronic download of software programs; and cloud based (SaaS) offerings
wherein the customer merely accesses programming via the internet. This letter only
seeks clarification with respect of COMPANY’s products that are provided as a SaaS
offering and does not involve the similar software titles that may be purchased through
various retail channels and/or electronic download. In those situations involving a
delivery of software programs, the company has and will continue to apply Illinois S/U
tax on all product delivered to customers in Illinois.
COMPANY’s various SaaS offerings generally are categorized into one of the following
major SaaS product groups and are described in greater detail below:

1. SOFTWARE PRODUCT 1
2. SOFTWARE PRODUCT 2
3. SOFTWARE PRODUCT 3
4. SOFTWARE PRODUCT 4
5. SOFTWARE PRODUCT 5
   For each of the SaaS offerings described herein, the customer (“User”) is provided
   access to the software offering via the internet. The actual software program is not
   downloaded onto the User’s computer. Rather, COMPANY’s data centers, located in
   STATE 1 and STATE 2, house the systems, networks and databases required to
   operate and deliver each of COMPANY’s SaaS offerings described herein. The User
   simply accesses such software, via an internet connection, using their computer, laptop,
   tablet, smartphone or any other internet capable device. There are limited situations
   wherein certain information, forms, executable files or other programming language is
   downloaded by a subset of the Users. We believe each of these situations are relatively
   minor and not the true object of the SaaS offering purchased by the User. We have
   identified and included below a discussion of these situations wherein something may
   be downloaded with respect to each of the SaaS offerings.
   We have also included copies of the current User license agreement (ULA) which
   provides a more exhaustive description of the SaaS offerings and contractual
   relationship between COMPANY and its customers.
6. SOFTWARE PRODUCT 1
   We have attached, as Exhibit B, the current ULA for SOFTWARE PRODUCT 1 Online.
   SOFTWARE PRODUCT 1 Online is a software offering that allows Users an
   online/cloud access to COMPANY’s SOFTWARE PRODUCT 1 software for purposes of
   preparing and filing their federal and state personal income tax returns. The
   SOFTWARE PRODUCT 1 Online software cannot be downloaded by the User. If a
   User prefers to obtain a downloaded copy of the software product, they must purchase
   a desktop version of the SOFTWARE PRODUCT 1 software. Those various desktop

ST 17-0006-PLR
Page 3

versions of the software are separate SKUs and all applicable tax is collected and
remitted.
With respect to SOFTWARE PRODUCT 1 Online, the User simply accesses the
software and inputs their tax data into the system via an internet connection. Users can
also choose to import certain financial data from other financial software products, third
party financial institutions, and/or employers to alleviate the need to enter such data
manually. In each of these situations, the User provides SOFTWARE PRODUCT 1
Online with direct access to the third party systems (i.e., by inputting User credentials
and passwords). Thereafter, SOFTWARE PRODUCT 1 Online connects directly to the
other systems and pulls the requisite information (e.g., W-2 data, 1099’s, etc.). In these
data transfer situations, nothing is downloaded to the User’s computer to facilitate the
data connection or transfer of data.
COMPANY’s Terms of Service for SOFTWARE PRODUCT 1 Online grants the User
the right to use and provide the User services in order “to prepare valid federal and/or
state tax return(s) for which the User has paid the applicable fee(s), and after proper
registration and payment of any applicable fees, to file electronically and/or print such
federal and/or state tax return.”1 Services “include [] any state version of SOFTWARE
PRODUCT 1 Online Software made available through” the SOFTWARE PRODUCT 1
website.2 The product cannot be used to prepare tax returns or related schedules on a
commercial or professional basis.3

SOFTWARE PRODUCT 1 Online provides four distinct versions of the SaaS offering,
including:





SOFTWARE PRODUCT 1A – for the simplest returns:
SOFTWARE PRODUCT 1B– for taxpayers who itemize deductions;
SOFTWARE PRODUCT 1C– for taxpayers who own investments or rental
property; and
SOFTWARE PRODUCT 1D – for small business owners.

There is a fee for each of these SaaS offering with the exception of the “SOFTWARE
PRODUCT 1A” and certain other special editions made available to members of the
Armed Forces. While the capabilities and functionality of each SaaS offering may differ
somewhat, the User interface with each version is the same. Specifically, none of these
differing versions results in the transfer of any programs or executable files to the user’s
device. As such, for purposes of this request, we will discuss each of these collectively
as SOFTWARE PRODUCT 1 Online.

COMPANY Terms of Service for SOFTWARE PRODUCT 1 Online Tax Preparation Services – Tax Year 2015; Additional Terms
and Conditions for the SOFTWARE PRODUCT 1 Online Tax Preparation Services (January 2016) § (B)(1.1). Available at
WEBSITE (Accessed Nov. 5, 2016).
2
Id. at § (B)(2.1).
3
Id at § (B)(1.3).
1

ST 17-0006-PLR
Page 4

Once a User chooses the appropriate online product, they must create an online
account with COMPANY to sign into any SOFTWARE PRODUCT 1 software offering
within their account. As part of account set up, Users will receive a text/email message
with a security code to secure and confirm the account setup process. Upon completion
of the account set up, in order to determine which product is most appropriate for the
User, SOFTWARE PRODUCT 1 Online prompts the User with various questions
regarding their personal tax situations.
Thereafter, SOFTWARE PRODUCT 1 Online prompts the User with more detailed
questions relating to income and deductions for purposes of computing a complete and
accurate tax return. Users input their personal tax return data on various entry screens
and, based on the data inputs and the User’s response to various questions,
SOFTWARE PRODUCT 1 Online will calculated [sic] the appropriate tax refund or
additional tax payment due.
The User is responsible for the accuracy and
completeness of all information entered into SOFTWARE PRODUCT 1 Online. It
should also be noted that the User can complete all data entry processes relating to
their return, including all tax calculations performed by the software, without ever
purchasing the SaaS offering. However, a User cannot print or electronically file the tax
return without first completing the payment process for SOFTWARE PRODUCT 1
Online.
Once the User pays for the SaaS offering, the User may then file the return(s)
electronically or, in some cases, may choose to print the return and file the printed
return by mailing it to the IRS or other state taxing agency. If the User chooses to file
the return(s) electronically, the tax return will be forwarded to COMPANY’s Electronic
Filing Center, where it will be converted to and stored in a standardized format, and
then transmitted to the applicable federal and/or state taxing authority.
Upon completion of the return, whether filed electronically or through mail, the User can
download a Portable Document Format, (“PDF”) copy of his or her return. The “soft”
copy of the final returns, related data entry worksheets and any underlying data imports
are stored by SOFTWARE PRODUCT 1 Online for at least seven years, as required by
the IRS.
While the User can download a PDF version of their final return or choose to print such
return, we believe these objects merely represent the output of the SaaS offering. The
true object of this SaaS offering is access to the proprietary SOFTWARE PRODUCT 1
Software engine to accurately compile, compute and prepare the required tax returns.
While Users typically do not receive any executable files or program code with the
purchase SOFTWARE PRODUCT 1 Online services, there are two specific situations
wherein a “program” is downloaded by Users. These two situations are as follows:


Amended Returns. In situations wherein a SOFTWARE PRODUCT 1 Online
User needs to amend a return filed using SOFTWARE PRODUCT 1 Online, they
must use the same SOFTWARE PRODUCT 1 Online software to amend such
returns. If such online software has already been rolled forward to the

ST 17-0006-PLR
Page 5

subsequent tax year, however, the User will be provided a link to download a
desktop version of the applicable prior years’ SOFTWARE PRODUCT 1 software
for no additional charge. If the User, however, is amending a return prepared in
the current year, the User only has access to the SOFTWARE PRODUCT 1
Online software. As such, these situations wherein a User is provided a link to a
downloadable version of the software will only occur once the calendar year has
advanced (and the online software has also advanced to a later tax year).
The number of Users who obtain a desktop version of SOFTWARE PRODUCT 1
software to amend a prior year return filed through SOFTWARE PRODUCT 1
Online is very minimal and, as such, it is not commercially viable for the
Company to make such software available via the online platform beyond the
current tax filing season.


Mobile Apps. There is a noteworthy “free” optional feature that individuals can
access whether or not they are a SOFTWARE PRODUCT 1 Online User. This
free feature is a mobile application that can be downloaded through certain “App
Stores” (e.g., iTunes) that provide Users with a more appealing interface to the
SOFTWARE PRODUCT 1 Online software when accessed on a mobile device.
The Mobile app is downloaded for no charge and provides connectivity to
SOFTWARE PRODUCT 1 Online. Anybody, whether or not a SOFTWARE
PRODUCT 1 Online User, can download and use the mobile app for free.
SOFTWARE PRODUCT 1 Online can be used with or without the Mobile App on
a smart phone (i.e., a User can access their SOFTWARE PRODUCT 1 Online
account through an internet browser on their mobile device). The Mobile App,
however provides a customized interface that improves the experience on these
smaller devices. As noted in the ULA, “[Users] will need to check the Services
website to ensure your mobile device and telecommunications provider is
compatible with SOFTWARE PRODUCT 1 Online. COMPANY is not obligated
to provide a compatible version of the Services for all mobile devices or
telecommunication providers, which are subject to change by COMPANY at any
time with reasonable notice…”4
When available for the specific device, the Mobile App can be downloaded to a
phone or tablet for free. However, the User must still have a SOFTWARE
PRODUCT 1 Online account to use the SOFTWARE PRODUCT 1 Online
software. This account is the same as the account they can access through a
computer. Users can have a SOFTWARE PRODUCT 1 Online account without
ever downloading the Mobile app or, if they prefer, they can set up such account
and prepare/file their tax returns using SOFTWARE PRODUCT 1 Online wholly
through the Mobile App. There is no difference in the underlying software utilized
to process and ultimately file the return with the taxing authorities.

4

Id. at (B)(8).

ST 17-0006-PLR
Page 6

In each of the situations noted above, a User receives certain program code. In the
case of the Mobile App, it is not SOFTWARE PRODUCT 1 Online code but rather a free
app that allows for a more appealing interface for use of the SOFTWARE PRODUCT 1
Online software.
In the case of Users amending old returns, they will receive a fully functioning copy of
the SOFTWARE PRODUCT 1 software they used online in the earlier year(s). These
situations are rare and such program is never provided to the User until after that tax
year’s program has been removed from the online platform. In such situations, the
older year’s software program no longer holds any commercial value to the Company.
As such, the Company has concluded it is more cost effective to simply provide a
working copy of the software as opposed to maintaining a fully functioning system
online for the small number of Users who may require the service. It should also be
noted that this software program would never be provided to a User in the same
calendar year in which they purchase the SOFTWARE PRODUCT 1 Online software
service (as that software would always be available online in the same calendar year).
Rather, these unique situations will usually occur 1-3 years later when a User discovers
a need to amend a tax return.
In either situation, we do not believe the transfer of such programming is the true object
of the SOFTWARE PRODUCT 1 Online transaction. Rather, they are situations
wherein a User receives a specific program, in a separate transaction, for no additional
charge.

2. SOFTWARE PRODUCT 2
   SOFTWARE PRODUCT 2 is a software offering that allows Users to maintain books
   and records for small businesses through an online/cloud access to COMPANY’s
   SOFTWARE PRODUCT 2 software.
   SOFTWARE PRODUCT 2 can be purchased in several versions including:
   
   
   

SOFTWARE PRODUCT 2A – provides online access of the software to Users;
SOFTWARE PRODUCT 2B – is a downloaded version of the software that a
customer installs onto their own local machine, and
SOFTWARE PRODUCT 2C – an SOFTWARE PRODUCT 2C version of the
software that is downloaded and installed onto a company’s internal servers and
can be accessed by up to thirty Users.

The SOFTWARE PRODUCT 2A software cannot be downloaded in whole or in part by
the User. If a User prefers to obtain a desktop version of the software product (or any
component offering), they must separately purchase one of the desktop version of
SOFTWARE PRODUCT 2. The various desktop versions of the software are separate
SKUs and all applicable Illinois tax is collected and remitted.
While the facts in this ruling request will focus on SOFTWARE PRODUCT 2A, the
overall functionality of the SOFTWARE PRODUCT 2A, SOFTWARE PRODUCT 2B ,

ST 17-0006-PLR
Page 7

and SOFTWARE PRODUCT 2C versions of the software are generally the same,
though the SOFTWARE PRODUCT 2B and SOFTWARE PRODUCT 2C versions
currently offer greater breadth and, in some cases, depth of features compared to the
Online version.
SOFTWARE PRODUCT 2A is “an online solution for businesses to perform accounting
and business tasks through an online account (a “SOFTWARE PRODUCT 2A
Account”). Each SOFTWARE PRODUCT 2A Account may only be used to support one
business.”5 SOFTWARE PRODUCT 2A allows Users to:





track income and expenses for tax and business management purposes;
create invoices and estimates for customers;
manage vendors and record bills payable; and
review a variety of reports.

Because small businesses vary greatly in the complexity of their accounting needs,
SOFTWARE PRODUCT 2A has three different versions of the SaaS offering currently
available:
 SOFTWARE PRODUCT 2Ab – a software service designed for smaller, less
complex businesses;
 SOFTWARE PRODUCT 2Ac – a software service for more complex businesses
that want to manage and pay bills and prepare reports through SOFTWARE
PRODUCT 2; and
 SOFTWARE PRODUCT 2Ad – a software service for users that also want more
advanced functionality through SOFTWARE PRODUCT 2A, such as tracking
inventory, tracking time and costs to specific customers, and planning through
budgets.
Each of the versions of SOFTWARE PRODUCT 2A operate completely within a web
browser and do not require any “plug-in” or “executable” file to be installed on the user’s
computer. In addition, SOFTWARE PRODUCT 2A has no offline capability to allow
users to utilize the software when offline. The SOFTWARE PRODUCT 2A software
does not install any security software or other modules on the user’s computer. While
the company offers three distinct versions of the SaaS offering, the underlying interface
with the User is comparable. As such, for purposes of this letter, we will simply discuss
them collectively herein as SOFTWARE PRODUCT 2A.
Users must accept PRODUCT SOFTWARE 2s’ current year licensing agreement for
SOFTWARE PRODUCT 2A upon subscription. Users also agree to license terms for
the use of COMPANY 1 (“Third Party Code”). We have attached for your reference, as
Exhibit C, the current ULA for SOFTWARE PRODUCT 2A.

5

COMPANY Terms of Service for SOFTWARE PRODUCT 2A, SOFTWARE PRODUCT 2Aa, SOFTWARE PRODUCT 3 and
SOFTWARE PRODUCT 5 in the United States (March 2016) § (B)(1.1). Available at WEBSITE (Accessed Nov. 7, 2016).

ST 17-0006-PLR
Page 8

All User data is maintained on the SOFTWARE PRODUCT 2A servers while the
subscriber maintains an active account. The SOFTWARE PRODUCT 2A data retention
policy allows for one year of “read-only” access to Users data from the date of
cancellation of a subscribed account. If the User’s credit card is declined (a “passive
cancellation [sic]), the User has a 14-day grace period to update the billing information,
while still retaining full access to their data. After the grace period, the account is
considered cancelled and User will have read-only access to the data for a one year
period. Within the read-only period, the User can export their data in a variety of
formats including:




spreadsheet files (such as excel);
SOFTWARE PRODUCT 2 data format – for uploading into a separately
purchased desktop version of the SOFTWARE PRODUCT 2 software; or
Other competing products – if capable of connecting to SOFTWARE PRODUCT
2A and pulling the data via the SOFTWARE PRODUCT 2A APIs. SOFTWARE
PRODUCT 2A does not provide a “push” feature to move data to other software
offerings.

SOFTWARE PRODUCT 2A provides its User the ability to import and/or export data to
and from SOFTWARE PRODUCT 2A (with assistance from SUPPORT). Upon initial
set up, the User is able to convert data from other accounting systems into SOFTWARE
PRODUCT 2A. If the data is being transferred from a desktop version of SOFTWARE
PRODUCT 2, such transfer can occur by allowing SOFTWARE PRODUCT 2A to
access the User’s desktop version of SOFTWARE PRODUCT 2 software. The data will
then be pulled from the desktop software and directly imported into SOFTWARE
PRODUCT 2A. In order to transfer data from another, non-COMPANY accounting
program, the User must contact COMPANY’s SUPPORT to get assistance with the data
import process.
It must be noted that SOFTWARE PRODUCT 2A offers a free mobile application
(“Mobile App”) that allows a User to access their SOFTWARE PRODUCT 2A services
on a mobile phone or other device. These Mobile Apps are downloaded from either the
STORE 1 or STORE 2 for free. The User will not be able to access SOFTWARE
PRODUCT 2A in the app without first logging-into their SOFTWARE PRODUCT 2A
account using their User Credentials. Users who have already created accounts in the
web application and have an active SOFTWARE PRODUCT 2A Account subscription
can login to the mobile apps with their same credentials.
Users who are new to
SOFTWARE PRODUCT 2A can create new User Credentials for a new SOFTWARE
PRODUCT 2A Account from within the Mobile App (after downloading it for free from
STORE 1 or STORE 2). Note that, as of today, new accounts created from within the
mobile application are limited to the SOFTWARE PRODUCT 2Ab version.
SOFTWARE PRODUCT 2A also offers a “free” connected desktop application that
allows a User to access the SOFTWARE PRODUCT 2A services through a native
application on their PRODUCT 1 or PRODUCT 2 computer. This experience is similar
to other offerings that have both web based and desktop apps, such as SOFTWARE
APPLICATION 1 and SOFTWARE APPLICATION 2. The SOFTWARE PRODUCT 2A

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PRODUCT 2 and PRODUCT applications can be downloaded directly from
COMPANY’s website.
Additionally, Users on PRODUCT 1 can download the
SOFTWARE APPLICATION 3 from STORE 3.

3. SOFTWARE PRODUCT 3
   SOFTWARE PRODUCT 3 is a separate “online solution for the self-employed to
   manage and categorize their personal and business finances through an online account
   (each a “SOFTWARE PRODUCT 3 Account”). Each SOFTWARE PRODUCT 3
   Account may only be used to support one self-employed individual.”6 SOFTWARE
   PRODUCT 3 includes categorization of business and personal expenses; identification
   and classification of tax deductible expenses; mileage tracking; calculation of estimated
   quarterly taxes; home office deduction tracking; and healthcare deduction tracking.
   SOFTWARE PRODUCT 3 can also be combined with another separately purchased
   offering, SOFTWARE PRODUCT 1 Online (discussed above), in order to file taxes most
   effectively. We have attached, as Exhibit C, a copy of the current ULA for SOFTWARE
   PRODUCT 3.
   SOFTWARE PRODUCT 3 Users agree to additional terms related to services offered
   exclusively to the unique nature of self-employed businesses, such as filing and paying
   quarterly estimated income tax payments to taxing authorities. Users may
   ...select to have COMPANY submit your request to pay your estimated
   quarterly taxes electronically and your request will be transmitted to the
   applicable federal and/or state taxing authority (the “Electronic Filing
   Services”). You are responsible for verifying the status of your estimated
   tax payment, to confirm that your estimated tax payment has been
   received and accepted by the applicable taxing authority, and if
   necessary, for filing and paying it manually in the event that the taxing
   authority rejects your payment (e.g., incorrect bank account number,
   invalid pin, duplicate payment).7
   SOFTWARE PRODUCT 3 Users may also be provided a variety of other service
   offerings (such as insurance information and other products / services targeted to the
   self-employed). None of these services / offerings involve the transfer or download of
   any software.
   It must also be noted that SOFTWARE PRODUCT 3 offers a free mobile application
   (“Mobile App”) that allows a User to access their SOFTWARE PRODUCT 3 services on
   a mobile phone or other device. These Mobile Apps are downloaded from either
   STORE 1 or STORE 2 for free. The User will not be able to access SOFTWARE
   PRODUCT 3 in the app without first logging-into their SOFTWARE PRODUCT 3
   account using their User credentials. Users who have already created accounts in the
   web application and have an active SOFTWARE PRODUCT 3 Account subscription can
   login to the mobile apps with their same credentials. Users who are new to
   6
   7

Id. at (B)(1.3).
Id. at (B)(4).

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SOFTWARE PRODUCT 3 can create new User Credentials for a new SOFTWARE
PRODUCT 3 Account from within the Mobile App (after downloading it for free from
STORE 1 or STORE 2).
It should also be noted that the SOFTWARE PRODUCT 3 Mobile App provides a
functionality that is not available solely through the online service. Specifically, a User
can track business mileage by accessing the GPS feature of the mobile device. This
information is synced with the online software to provide tracking and documentation of
eligible business expenses. Without this free Mobile App, Users must track and enter
this data manually.

4. SOFTWARE PRODUCT 4
   SOFTWARE PRODUCT 4 is an online tax preparation software service that is very
   similar in many regards to the SOFTWARE PRODUCT 1 Online service described
   above. This SaaS offering, however, is targeted to professional tax preparers such as
   small accountants, CPAs, Enrolled Agents and other tax preparation businesses.
   SOFTWARE PRODUCT 4 allows its Users to prepare and file individual, partnership,
   corporation, and exempt organization tax returns for their respective clients.
   SOFTWARE PRODUCT 4 provides online/cloud access to Users to prepare income tax
   returns and manage accounting data. SOFTWARE PRODUCT 4 is not available in a
   desktop version for download by the User, and instead is accessed solely via the
   internet and used exclusively through an online account.
   COMPANY’s Terms of Service for SOFTWARE PRODUCT 4 grants the User the right
   to use and provides the User services in order to “prepare valid federal and supported
   state tax return(s) for which [the User has] paid applicable fee(s) and after proper
   registration and any applicable payment, to file electronically and/or print such tax
   returns(s) [sic].8 We have attached, as Exhibit D, a copy of the current ULA for
   SOFTWARE PRODUCT 4.
   In order to use SOFTWARE PRODUCT 4, Users create an online account providing
   basic information such as name, email, and firm name. After registering with
   SOFTWARE PRODUCT 4, Users may begin preparing various federal and state tax
   returns by either manually entering client data online or importing data from sources
   such as a SOFTWARE PRODUCT 4 Account and/or third-party payroll providers.
   Users may also use the “SOFTWARE PRODUCT 4C” software service (described
   below) which allows Users to request and gather data from their clients and directly
   import such data into SOFTWARE PRODUCT 4. Thereafter, SOFTWARE PRODUCT
   4 calculates the estimated tax liability or refund based on the financial information
   entered foe [sic] each specific client. Users are responsible for all content posted on
   SOFTWARE PRODUCT 4.9

COMPANY Terms of Service for SOFTWARE PRODUCT 4 – Tax Year 2015 (April 2016) § (B)(1.1). available at WEBSITE
(Accessed Nov. 7, 2016)
9
Id. at (A)(6.1).
8

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Upon completion of forms, the User pays for the services and thereafter the User may
file the return(s) electronically or by printing and mailing them to the IRS or other state
taxing agency. Users pay a set fee to COMPANY depending on the number of returns
that are printed or electronically filed. If the User chooses to file the return(s)
electronically, the tax return will be forwarded to COMPANY’s “Electronic Filing Center,”
where it will be transmitted to the applicable federal and/or state taxing authority.
If the User decides to file the return(s) electronically, the tax returns
…will be transmitted electronically to the COMPANY Electronic Filing
Center, where they will be transmitted to the applicable federal or state
authority. COMPANY will retain any records required by law. COMPANY
cannot guarantee that the taxing authority will accept a return due to
circumstances beyond COMPANY’s control (e.g., incorrect User
information, malfunction of the tax authority’s system, etc.). You are
responsible for verifying the status of returns that you file electronically to
confirm that it has been received and accepted by the applicable taxing
authority and, if necessary, for filing them manually.10
The User can download a portable document format (“PDF”) copy of their client’s tax
return(s) to be used outside the SOFTWARE PRODUCT 4 platform. The electronic
copy of the filed returns and related worksheets / data are stored by SOFTWARE
PRODUCT 4 for at least seven years, as required by the IRS. Users may also use the
software service to file amended returns at no additional cost.
SOFTWARE PRODUCT 4 provides a comprehensive conversion service to convert
data from other professional tax software products. There is no separate charge for the
conversion services. The User launches SOFTWARE PRODUCT 4 and chooses the
option for converting data. The User must download an executable file from
SOFTWARE PRODUCT 4 and run such executable file on their computer to gather the
requisite data from the old service provider’s software. The data is then uploaded into
an COMPANY tool called “COMPANY for Conversion.” The data conversion is not
automatic. Rather, an COMPANY [sic] employee will take the file and perform whatever
conversion processes are necessary to make it available in the User’s SOFTWARE
PRODUCT 4 Account. The Users are notified via email when their files have been
converted. The next time the customer logs into their SOFTWARE PRODUCT 4
Account, the User can see their converted clients and tax returns.
Additional Services and Features: Additional services and features can be added to
SOFTWARE PRODUCT 4. Some of these features are provided free of charge
whereas other services require and additional, add-on-subscription. These services
include SOFTWARE PRODUCT 4A, SOFTWARE PRODUCT 4B, and SOFTWARE
PRODUCT 4C described in greater detail below:
SOFTWARE PRODUCT 4A: The IRS and some states allow electronic
signatures of tax returns. COMPANY’s optional “eSignature” feature is
10

Id. at (B)(3)(A).

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integrated into SOFTWARE PRODUCT 4 and allows Users to send an
electronic signature request through a secure email link to their clients.
The User’s customer signs electronically and approves the return on their
device. Users may pay for a package of electronic signatures or a set fee
per signature. This feature does not require any download or transfer of
COMPANY proprietary code or software to the Users’ device.
SOFTWARE PRODUCT 4B:
For Users with both SOFTWARE
PRODUCT 2Aa and SOFTWARE PRODUCT 4 accounts, the data is
stored in a single repository of client data (“Customer Profile”) so that the
data is available in both programs. This service is free and available
within SOFTWARE PRODUCT 4. No programs or files are transferred to
the User’s computer.
SOFTWARE PRODUCT 4C: As discussed above, Users can use this
online service to send data requests and information/documentation back
and forth with their respective clients. This online service also provides
the User with real-time status updates on any outstanding requests. This
service is free and available within SOFTWARE PRODUCT 4.11 The
service does not involve the downloading of any files or programs onto the
User’s computer. Rather, all services are handled exclusively through the
User’s online account.
SOFTWARE SUPPORT:
SOFTWARE PRODUCT 4 also provides
optional, free SOFTWARE SUPPORT where Users can ask advice from
SOFTWARE PRODUCT 4 employees, contractors, or other Users on how
to properly use the software given a specific client’s facts. SOFTWARE
PRODUCT 4 SOFTWARE SUPPORT do not provide tax technical advices
or answers to common tax question. Users may also access an online
portal with hundreds of answers to tax and product related questions.
Again, none of these services require the User to download any programs,
modules, executable files or other software to receive the available
services.
Mobile Access: SOFTWARE PRODUCT 4 may also be accessed through a User’s
mobile device or any other device with internet access. The product is built for mobile
responsiveness, which means the application will change its layout based on the type of
device being used to access the services. A mobile app or additional software is not
required. Instead, use of SOFTWARE PRODUCT 4:
…may be available through a compatible mobile device, Internet access,
and may require software. You agree that you are solely responsible for
these requirements, including applicable charges, updates and fees as
well as the terms of your agreement with your mobile device and
telecommunications providers.12
11
12

Id. at (B)(9).
Id. at (A)(4).

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5. SOFTWARE PRODUCTS 5
   COMPANY provides online SOFTWARE PRODUCT 5 that can be purchased through
   SOFTWARE PRODUCT 2 or can be purchased as a standalone service offering.
   These online SOFTWARE PRODUCT 5 are offered in various versions, including:
   
   
   

Basic
Enhanced
Full Service

Each of these versions of the SaaS offering provide differing levels of functionality and
benefit to the user, however, the underlying software element is similar. As such, we
will discuss these various SaaS offering collectively herein as “SOFTWARE PRODUCT
5” We have attached, as Exhibit C, a copy of the current ULA for Payment Services.
The SOFTWARE PRODUCT 5 are completely an online SaaS offering as there is no
desktop version of this software available. As such, Users must access the software
services through an internet connection and may, or may not, choose to link such
services to other existing financial or bookkeeping software (such as SOFTWARE
PRODUCT 2A). In addition to SaaS offerings, certain versions (e.g., Full Service) will
also include certain human services to perform various payroll related tasks for the
customer. These incremental services, performed by COMPANY employees and/or
contractors, are not discussed herein.
Once the User has established their account, depending on the version of the SaaS
offering they obtained, they can perform some or all of the following:








enter and maintain employee information;
process paychecks,
direct deposits of employee payments,
payroll reports,
electronic payment of federal and state payroll taxes,
filing of related tax forms, and
issue annual tax forms (e.g., W-2).

Then online software takes the User inputs and performs all computations, tax
calculations, withholding requirements, etc. When linked to the User’s bookkeeping
software, much of the information needed to complete the routine payroll functions may
be uploaded directly from the other software (such as SOFTWARE PRODUCT 2A).
With the higher levels of the SaaS offering, Users can also download reports and files
directly to their accountants or other tax service providers. These reports would have
the details necessary to file any applicable payroll tax returns.
Similar to SOFTWARE PRODUCT 2A, the use of SOFTWARE PRODUCT 5 does not
involve the download of any program, module, executable file or other application onto

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the User’s computer to utilize the software services. Many government agencies
require an online account be created in order to remit appropriate payroll taxes. The
User agrees that, upon the User’s consent, SOFTWARE PRODUCT 5 may create an
account on behalf of the User.13 In addition, the User agrees that payments of related
payroll taxes will be initiated through the Automatic Clearing House (“ACH”) process.
User
…authorize[s] us to initiate electronic withdrawals from [its] bank account
to fund Direct Deposits and/or Payroll Tax Payments, as applicable, (each
term defined separately below and referred to collectively as “Payroll
Service Payments”), although under certain circumstances we may use
wire drawdown requests or other funding methods (“Debits”). Debits will
also be initiated to pay fees for Payroll Services, special processing any
sales, use or other taxes payable on Payroll Services, and for adjustments
to these various amounts.14
User agrees to a variety of services that are required in order to properly file payroll tax
returns. These services include providing electronic signatures that may be required by
taxing authorities, permission to file tax returns, and direct deposition authorization. 15
The Users of SOFTWARE PRODUCT 5 may also access other features, including:
SOFTWARE PRODUCT 5A: SOFTWARE PRODUCT 5 provides an ancillary service
available under certain subscriptions referred to as SOFTWARE PRODUCT 5A
Services. Through SOFTWARE PRODUCT 5A,
…employees may have access to an online employee website and may
be able to provide [User] their information, including information relating to
their W-4’s and payroll payment preferences (i.e. direct deposit,
paycheck).
Depending on [User’s] SOFTWARE PRODUCT 5
subscription, you may have the option to furnish your employee(s) with
their W-2 in an electronic format in lieu of a paper format, and/or you may
have the option of turning off SOFTWARE PRODUCT 5A. If [User]
elect[s] to furnish electronic W-2s, [User] must notify your employee(s) of
the option to receive electronic W-2s in a manner that allows the
employee(s) to link to an electronic consent that demonstrates that the
employee(s) can access the W-2s electronically.16
Users of SOFTWARE PRODUCT 5 agree that its employee’s [sic] W-2 information may
be sent to SOFTWARE PRODUCT 1 Online, another COMPANY software offering, for
the benefit of User’s employees. W-2 data is “transmitted via an encrypted, secure
connection to the SOFTWARE PRODUCT 1 Servers for automatic download into
SOFTWARE PRODUCT 1 if your employees elect to use the tax filing software or

13

Id at (B)(3.2)(b),
Id. at (B)(3.2)(c)
15
Id. at (B)(3.2)-(B)(3.4)
16
Id. at (B)(3.5)
14

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services and choose to import their W-2 data automatically. Users do have the option
of turning off this functionality through SOFTWARE PRODUCT 5.”17
SOFTWARE PRODUCT 5B: Finally, depending on the state, SOFTWARE PRODUCT
5’ Users may be offered a Workers’ Compensation SOFTWARE PRODUCT 5B Service.
This service is wholly optional and limited information, such as FEIN information, is
shared with participating insurance carriers. This information will not be shared until
User registers for and authorizes this add-on-service.
None of these software services require or involve the download of any application,
module, executable file or other program to access the SaaS offering. It should be
noted, however, that Users of the SOFTWARE PRODUCT 5 may also sign-up for an
optional service to receive updated labor law posters that are required by federal and/or
state labor laws. In such situations, the User periodically receives, via US mail, updated
labor law posters for display in their business locations.
RULING REQUEST
We specifically request the Department’s written and binding confirmation that the
Illinois Retailer’s [sic] Occupation Tax and Use Tax does not apply to the following SaaS
offerings:

1. SOFTWARE PRODUCT 1 Online – including situations wherein a User may
   download a free mobile app to access such software service and/or situations
   wherein a User may receive, in a subsequent year, a downloaded version of
   the old SOFTWARE PRODUCT 1 software needed to amend a return
   prepared online.
2. SOFTWARE PRODUCT 2A – including situations wherein a User may
   receive an executable file in order to convert data on their personal machine
   into a format that can be later uploaded into a new SOFTWARE PRODUCT
   2A account;
3. SOFTWARE PRODUCT 3 – including situations wherein a User may
   download a free mobile app to access such software service;
4. SOFTWARE PRODUCT 4 – specifically including those situations wherein
   Users may be provided with a downloaded, executable file that is used by
   SOFTWARE PRODUCT 4 employees to convert new Users prior year client
   data into formats that can be uploaded into the SOFTWARE PRODUCT 4
   software; and including situations wherein a User may download a free
   mobile app to access such software service;
5. SOFTWARE PRODUCTS 5

17

Id at (B)(3.7)

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We respectfully request your prompt attention to this request. Please do not hesitate to
contact me.
DEPARTMENT’S RESPONSE:
Sales Tax
The Illinois Retailers' Occupation Tax Act imposes a tax upon persons engaged in this State in
the business of selling tangible personal property to purchasers for use or consumption. See 35 ILCS
120/2; 86 Ill. Adm. Code 130.101. In Illinois, Use Tax is imposed on the privilege of using, in this
State, any kind of tangible personal property that is purchased anywhere at retail from a retailer. See
35 ILCS 105/3; 86 Ill. Adm. Code 150.101. These taxes comprise what is commonly known as
“sales” tax in Illinois. If the purchases occur in Illinois, the purchasers must pay the Use Tax to the
retailer at the time of purchase. The retailers are then allowed to reduce the amount of Use Tax they
must remit by the amount of Retailers' Occupation Tax liability which they are required to and do pay
to the Department with respect to the same sales. See 86 Ill. Adm. Code 150.130.
Service Transactions
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 purchase
of tangible personal property that is transferred to the service customer may result in either Service
Occupation Tax liability or Use Tax liability for the servicemen depending upon his activities. The
serviceman’s liability may be calculated 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.

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. However,
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.

ST 17-0006-PLR
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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.
Generally, sales of “canned” computer software are taxable retail sales in Illinois. Canned computer
software is considered to be tangible personal property regardless of the form in which it is
transferred or transmitted, including tape, disc, card, electronic means, or other media. 86 Ill. Adm.
Code 130.1935. However, if the computer software consists of custom computer programs, then the
sales of such software may not be taxable retail sales. Custom computer programs or software are
prepared to the special order of the customer. The selection of pre-written or canned programs
assembled by vendors into software packages does not constitute custom software unless real and
substantial changes are made to the programs or creation of program interfacing logic. See 86 Ill.
Adm. Code 130.1935(c)(3). Computer software that is not custom software is considered to be
canned computer software.
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)

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.

If a license of canned computer software does not meet all the criteria the software is taxable.
Please note that the license agreements in which the customer electronically accepts the
terms by clicking “I agree” does not comply with the requirement of a written agreement signed by the

ST 17-0006-PLR
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licensor and customer. In order to comply with the requirements as set out in (a)(1) of Section
130.1935 you must have a written “signed” agreement.
Computer software is defined broadly in the Retailers’ Occupation Tax Act. 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. 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 Company is making sales of service and is a serviceman. As a serviceman, the Company
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. Currently, 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.
SOFTWARE PRODUCT 1
In your letter you state that SOFTWARE PRODUCT 1 Online is a “software offering that allows
users an online/cloud access to COMPANY’s SOFTWARE PRODUCT 1 software for purposes of
preparing their federal and state personal income tax returns.” SOFTWARE PRODUCT 1 Online is
comprised of four distinct offerings: SOFTWARE PRODUCT 1A, SOFTWARE PRODUCT 1B,
SOFTWARE PRODUCT 1C, and SOFTWARE PRODUCT 1D. There is a fee for each offering
except the SOFTWARE PRODUCT 1A. SOFTWARE PRODUCT 1 Online software cannot be
downloaded by a User, and no programs or executable files are transferred to the User’s device. The
User can download a PDF copy of a return or print a copy of the return. A User may also use the
same SOFTWARE PRODUCT 1 Online software to file an amended return. If the online software
has been “rolled forward” to a subsequent year, the Company will provide a link to the User to
download a desktop version of the software for the applicable year for no additional charge. The
Company also provides a free mobile app that anyone can download to a mobile device. The User
must have a SOFTWARE PRODUCT 1 Online account to use the SOFTWARE PRODUCT 1 Online
software.
SOFTWARE PRODUCT 1 Online is not subject to Retailers’ Occupation Tax or Service
Occupation Tax because 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. It is our understanding the ability to download a PDF or
print a return on a User’s device does not involve the transfer of any computer software to the User,
and the Company does not incur any tax liability on these options. In two situations the User does
download computer software: when it is necessary to enable a User to file an amended return and in
the case of mobile apps. Computer software is defined broadly in the Retailers’ Occupation Tax Act.
Although there may not be a separate charge to the Users for the downloaded computer software and
mobile app, they are nonetheless subject to tax under one of the four methods discussed above,
unless the transfer of the software qualifies as a non-taxable license of computer software.

ST 17-0006-PLR
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The Terms of Agreement for SOFTWARE PRODUCT 1 Online (Exhibit B) state that the User
agrees to the terms of the Agreement by clicking “I Agree” or by installing, accessing or using the
service. As noted above, a license agreement in which the customer electronically accepts the terms
of the license by clicking “I agree” does not comply with the requirement of a written agreement
signed by the licensor and customer set out in (a)(1) of Section 130.1935.

SOFTWARE PRODUCT 2
According to your letter, “SOFTWARE PRODUCT 2 is a software offering that allows users to
maintain books and records for small businesses through an online/cloud access to COMPANY’s
SOFTWARE PRODUCT 2 software” and has three versions: SOFTWARE PRODUCT 2Ab,
SOFTWARE PRODUCT 2Ac and SOFTWARE PRODUCT 2Ad. SOFTWARE PRODUCT 2A
software has no offline capability and cannot be downloaded by a User, and no “plug-ins or
executable files are transferred to the User’s device. All User data is maintained on SOFTWARE
PRODUCT 2A servers and the User has the ability to import and/or export data to and from
SOFTWARE PRODUCT 2A. The Company also provides a free mobile app that allows a User to
access SOFTWARE PRODUCT 2A services from a mobile phone or other device. SOFTWARE
PRODUCT 2A also offers a free connected desktop application that allows Users to access
SOFTWARE PRODUCT 2A from a computer.
SOFTWARE PRODUCT 2A is not subject to Retailers’ Occupation Tax or Service Occupation
Tax because 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. In two situations the User does download computer software: when a User
downloads the desktop application or the mobile app. Although there may not be a separate charge
to the Users for the desktop application or the mobile app, it is nonetheless subject to tax under one
of the four methods discussed above, unless the transfer of software qualifies as a non-taxable
license of computer software.
The Terms of Agreement for SOFTWARE PRODUCT 2A, SOFTWARE PRODUCT 3 and
SOFTWARE PRODUCT 5 (Exhibit C) state that the User agrees to the terms of the Agreement by
clicking “I Agree” or by installing, accessing or using the service. A license agreement in which the
customer electronically accepts the terms of the license by clicking “I agree” does not comply with the
requirement of a written agreement signed by the licensor and customer set out in (a)(1) of Section
130.1935.
SOFTWARE PRODUCT 3
According to your letter, SOFTWARE PRODUCT 3 is an “online solution for the self-employed
to manage and categorize their personal and business finances through an online account.” Users
may also obtain other services targeted to the self-employed. SOFTWARE PRODUCT 3 and the
other services do not require the transfer or download of any software. SOFTWARE PRODUCT 3
offers a free, downloadable mobile app that allows Users to access their account from a mobile
phone or device.
SOFTWARE PRODUCT 3 is not subject to Retailers’ Occupation Tax or Service Occupation
Tax because computer software provided through a cloud-based delivery system – a system in which

ST 17-0006-PLR
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computer software is never downloaded onto a client’s computer and is only accessed remotely – is
not subject to tax. Computer software is downloaded when a User downloads the mobile app.
Although there may not be a separate charge to the Users for the mobile app, it is nonetheless
subject to tax under one of the four methods described above, unless the transfer qualifies as a nontaxable license of computer software. The Department has insufficient information on the other
service offerings Users may also be provided to render a decision on the taxability of these services.
SOFTWARE PRODUCT 4
In your letter you state that SOFTWARE PRODUCT 4 is an online tax preparation software
service for professional tax preparers. It provides “online/cloud access to Users to prepare income
tax returns and mange accounting data.” SOFTWARE PRODUCT 4 is not available in a desktop
version and is “accessed solely via the internet and used exclusively through an online account.”
Users pay a set fee based on the number of returns that are printed or filed electronically. Users can
download a PDF copy of a return. SOFTWARE PRODUCT 4 also offers a conversion service to
convert data from other tax software. There is no separate charge for this service but Users must
download an executable file from the SOFTWARE PRODUCT 4 and run the executable file on their
computers to gather the necessary data to upload to SOFTWARE PRODUCT 4.
Additional services and features may be added to SOFTWARE PRODUCT 4: SOFTWARE
PRODUCT 4A, SOFTWARE PRODUCT 4B, SOFTWARE PRODUCT 4C and SOFTWARE
SUPPORT. Users may pay for a package of signatures or a set fee per signature. The other features
or services are free of charge. None of the features involve or require the transfer or download of any
files, code, software, or programs to the Users’ computers or devices. SOFTWARE PRODUCT 4
may be accessed through a User’s mobile device or other device with internet access. A mobile app
or additional software is not necessary.
SOFTWARE PRODUCT 4 and the additional services and features SOFTWARE PRODUCT
4A, SOFTWARE PRODUCT 4B, SOFTWARE PRODUCT 4C and SOFTWARE SUPPORT are not
subject to Retailers’ Occupation Tax or Service Occupation Tax because 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. It is our understanding
the ability to download a PDF of a return or print a return on a User’s device does not involve the
transfer of any computer software to the User, and therefore the Company does not incur any tax
liability on these options. Computer software is downloaded when a User downloads the executable
file. Although there may not be a separate charge to the Users for the executable file used to convert
data from other tax software, it is nonetheless subject to tax under one of the four methods described
above, unless the transfer of software qualifies as a non-taxable license of computer software.
The Terms of Agreement for SOFTWARE PRODUCT 4 (Exhibit D) state that the User agrees
to the terms of the Agreement by clicking “I Agree” or by installing, accessing or using the service. A
license agreement in which the customer electronically accepts the terms of the license by clicking “I
agree” does not comply with the requirement of a written agreement signed by the licensor and
customer set out in (a)(1) of Section 130.1935.
SOFTWARE PRODUCT 5
The Company also offers standalone SOFTWARE PRODUCT 5 that are available only online
through an internet connection. The Company offers various versions of this offering; Basic,

ST 17-0006-PLR
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enhanced and Full Service. Users may also access other features, including SOFTWARE
PRODUCT 5A and SOFTWARE PRODUCT 5B. If a User signs up for the optional poster service,
the Company provides the user with updated labor law posters that are required by federal and state
labor laws. The use of the SOFTWARE PRODUCT 5 and other features does not require the
download of any programs, module, executable file or other application onto the User’s computer to
utilize the software services and features. COMPANY SOFTWARE PRODUCT 5 and the additional
features SOFTWARE PRODUCT 5A, SOFTWARE PRODUCT 5B and optional poster service are not
subject to Retailers’ Occupation Tax or Service Occupation Tax because 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. It is not clear if
COMPANY is printing the posters or is having them printed by a supplier. If COMPANY prints the
posters it is liable for Use Tax on the cost price of the posters (assuming it elects the fourth method of
calculating its service tax liability). If the posters are printed for COMAPNY by a supplier, COMPANY
is in a multi-service situation and tax liability is determined in accordance with 86 Ill. Adm. Code
140.145.
The factual representations upon which this ruling is based are subject to review by the
Department during the course of any audit, investigation, or hearing and this ruling shall bind the
Department only if the factual representations recited in this ruling are correct and complete. This
Private Letter Ruling is revoked and will cease to bind the Department 10 years after the date of this
letter under the provisions of 2 Ill. Adm. Code 1200.110(e) or earlier if there is a pertinent change in
statutory law, case law, rules or in the factual representations recited in this ruling.
I hope this information is helpful. If you have further questions related to the Illinois sales tax
laws, please visit our website at www.tax.illinois.gov or contact the Department’s Taxpayer
Information Division at (217) 782-3336.
Very truly yours,

Richard S. Wolters
Chairman, Private Letter Ruling Committee
RSW:bkl