Does Illinois charge sales tax on digital art files that customers download electronically?

Plain-English summary

A home-based graphic designer asked the Illinois Department of Revenue whether she owed Illinois sales tax, or had any other Illinois tax responsibilities, on the digital art she sells. She sells only through one online marketplace and never ships anything physical: customers simply download her files (PDFs, SVGs, DXFs, and similar formats) and can print or use the artwork however they like, such as ironing a design onto a shirt or mug. She was also weighing whether to let customers commercially reprint a design on up to 100 items, but was considering dropping that option specifically to avoid triggering nexus in other states.

The Department explained that Illinois' Retailers' Occupation Tax and Use Tax, together commonly called "sales tax," apply only to sales or purchases of tangible personal property (86 Ill. Adm. Code 130.101; 86 Ill. Adm. Code 150.101). Neither tax applies to a sale of a service that doesn't involve transferring tangible personal property to the customer. The Department had already ruled, in an earlier letter, that electronic downloads of music or video are not sales of tangible personal property for these purposes (ST-11-0035-GIL, May 13, 2011). Applying that same reasoning here, the Department concluded that selling digital art that's downloaded electronically is not a sale of tangible personal property either, so it is not subject to the Retailers' Occupation Tax Act or the Use Tax Act.

This is a General Information Letter (GIL), not a binding Private Letter Ruling, so it doesn't carry the force of a decision made on this specific taxpayer's full facts. It also answers only the sales/use tax question that was asked; it doesn't address income tax or say anything about how allowing commercial reprints of up to 100 items might change the picture.

What this means for you

Digital artists and designers selling downloadable files

If you sell only digital files, such as art, patterns, templates, or similar downloadable content, and customers receive them purely electronically with nothing physical ever shipped, Illinois does not treat that as a sale of tangible personal property. Under this letter's reasoning, that means no Illinois Retailers' Occupation Tax or Use Tax applies to those sales. The letter does not say anything about income tax, so it doesn't tell you whether selling into Illinois creates any income tax filing obligation.

Small online sellers worried about multistate nexus

The designer in this letter was specifically trying to figure out whether selling digital files creates Illinois nexus, and was even considering removing a commercial-reprint option to avoid it. The Department's answer addressed only whether the sale itself is taxable, since Illinois sales/use tax nexus questions become moot once the underlying sale isn't a taxable transaction to begin with. The letter does not say whether allowing customers to commercially reprint a design on up to 100 items would change that analysis, so if your business model includes licensing for reproduction rather than a pure digital download, this letter doesn't cover that scenario.

Common questions

Q: Does Illinois sales tax apply to digital downloads like art files, e-books, or similar digital products?
A: Under this letter's reasoning, no. Illinois Retailers' Occupation Tax and Use Tax apply only to sales of tangible personal property, and the Department has treated purely electronic downloads (here, digital art; previously, downloaded music and video) as not meeting that definition.

Q: Is this letter legally binding on the Department?
A: No. It's a General Information Letter (GIL), issued under 2 Ill. Adm. Code 1200.120. A GIL just points a taxpayer to relevant regulations and prior guidance; it is not a statement of Department policy and does not bind the Department the way a Private Letter Ruling would.

Q: Does this letter mean I have no Illinois tax obligations at all if I sell digital downloads?
A: Not necessarily. The letter answers only the Retailers' Occupation Tax and Use Tax question the taxpayer asked. It does not address income tax or any other tax type.

Q: What if I let customers use my digital files for commercial reprinting, like printing a design on 100 shirts to resell?
A: The letter doesn't say. The taxpayer mentioned considering that option but said she might remove it to avoid nexus concerns, and the Department's response focused only on the underlying sale of the digital file itself, not on downstream commercial use or reprinting.

Citations and references

Statutes and rules:

• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax imposed on sales of tangible personal property)
• 86 Ill. Adm. Code 150.101 (Use Tax imposed on tangible personal property purchased at retail)
• 86 Ill. Adm. Code 150.130 (retailer's credit against Use Tax for Retailers' Occupation Tax paid)
• ST-11-0035-GIL (May 13, 2011) (prior Department guidance on electronic downloads of music/video)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2019.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2019/st19-0002-gil.pdf

Original ruling text

ST 19-0002-GIL 02/27/2019 RETAILERS’ OCCUPATION TAX
Illinois Retailers' Occupation and Use Taxes do not apply to sales of service that do not involve
the transfer of tangible personal property to customers. See 86 Ill. Adm. Code 130.101 and
150.101. (This is a GIL.)

February 27, 2019

Dear Xxxxx:
This letter is in response to your letter received January 25, 2019, in which you requested
information. The Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are
issued by the Department in response to specific taxpayer inquiries concerning the application of a
tax statute or rule to a particular fact situation. A PLR is binding on the Department, but only as to the
taxpayer who is the subject of the request for ruling and only to the extent the facts recited in the PLR
are correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in
the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information
Letter (“GIL”) is to direct taxpayers to Department regulations or other sources of information
regarding the topic about which they have inquired. A GIL is not a statement of Department policy
and is not binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website
at www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to
your inquiry.
The nature of your inquiry and the information you have provided require that we respond with
a GIL. In your letter you have stated and made inquiry as follows:
My name is NAME, and I am in need of legal ruling on whether I have any nexus relation to
your state.
I have already contacted your customer service department, and was
recommended to mail you for something official. Specifically, I sell digital art flies [sic] that are
only transferred electronically. I need to know how Title 86 Part 130 Section 130.2000 and Title
86 Part 130 Section 130.2105 would apply to me. I want to know if what I sell is considered
tangible in Illinois, and if I have any responsibilities toward the state whatsoever. The following
is a description of my business.

My Business Description
I have a very small business I run from my home in STATE. My Business only has a physical
tie to my home in STATE. I have no physical nexus in any other state. I am a graphic
designer that sells simple pieces of art in a digital format via the marketplace BUSINESS. I
only sell on the marketplace BUSINESS. I do not ship anything physical. All of my digital files
are downloaded electronically by my clients as files like (pdf’s, svg’s, dxf’s, etc). My clients
are free to use the art for personal use in any way they like. Typically this means printing it
and ironing it on a shirt, mug, frame, etc. I am also considering allowing them to use the
digital file for printing the art on up to 100 items for commercial use. (Although, I would likely
remove this if it would be the difference between triggering nexus or not.) Since my business
is very small I want to avoid triggering nexus in as many states as possible at all costs. The
full extent of my advertising is ads I may place on the marketplace BUSINESS or social media
to promote my listings on BUSINESS.

ST 19-0002-GIL
Page 2

I would very much appreciate if I could receive a call from your department upon receiving this
letter. The sooner I know how to handle your state, the better I can shape my plans for
dealing with these new nexus environment. If what I sell is not taxable or considered
intangible, please also detail if I would have any responsibilities to your state at all.
DEPARTMENT’S RESPONSE:
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 86 Ill.
Adm. Code 130.101. 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 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.
Illinois Retailers' Occupation and Use Taxes do not apply to sales of service that do not involve
the transfer of tangible personal property to customers. The Department has stated in the past that
the sale of electronic downloads of music or video from the Internet is not considered the sale of
tangible personal property for purposes of liability under the Retailers' Occupation Tax Act and Use
Tax Act. ST-11-0035-GIL (May 13, 2011). The sale of art in digital format that is downloaded
electronically would not be subject to the Retailers' Occupation Tax Act and Use Tax Act.
I hope this information is helpful. If you require additional information, please visit our
website at www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217)
782-3336.

Very truly yours,

Richard Wolters
Associate Counsel
RSW:rkn