Does Illinois sales/use tax apply to a web-based (SaaS) fleet management service and the free companion mobile app that goes with it?

Plain-English summary

This Illinois Private Letter Ruling addresses a company (called "COMPANY1" in the redacted text) that runs a web-based fleet management service -- software that helps trucking and vehicle-fleet operators track fuel purchases, vehicle condition, mileage, and inspections. The service is delivered as Software as a Service (SaaS): customers access the software over the internet while it runs entirely on the company's own cloud servers. Customers cannot install, download, or otherwise take control of the underlying software, servers, or infrastructure.

In addition to the core web-based service, the company built a companion mobile app that it gives customers for free. Drivers can optionally download the app to a phone or tablet to more easily enter fuel and mileage data (instead of a paper log), including limited offline entry of vehicle-inspection data. The app does not do anything beyond data entry for fleet management -- it cannot send or receive messages.

The Department's ruling covers two separate questions. First, is the core SaaS subscription taxable? The Department said no: Illinois's four "sales tax" style levies -- the Retailers' Occupation Tax, Use Tax, Service Occupation Tax, and Service Use Tax -- all depend on a transfer of tangible personal property (which, under Illinois law, includes most "canned" computer software). Because the company's proprietary software never leaves its own servers and the customer receives no tangible personal property, the SaaS subscription is a nontaxable service.

Second, does giving away the free mobile app change that answer? The Department said no, for a narrower reason: the app is downloaded by Illinois customers from a server located outside Illinois. Under the Department's existing General Information Letter guidance (ST 19-0007-GIL), when an out-of-state retailer lets an Illinois customer download free software from an out-of-state server, the retailer has exercised no power or control over that property in Illinois, so no taxable use occurs there either for the retailer (as donor) or the customer (as donee). The Department separately noted that the mobile app's license also appeared to satisfy Illinois's five-part test for exempt software licenses (86 Ill. Adm. Code 130.1935(a)(1)) based on the company's terms of service, but the Department's formal ruling did not rest on that point and it expressly declined to rule on whether the five-part test was met.

Like all PLRs, this ruling binds the Department only as to this specific taxpayer and only if the facts described (the SaaS delivery model, the free out-of-state download, the written and signed terms of service) are accurate and complete.

What this means for you

SaaS and cloud software companies

If your software runs entirely on your own servers and customers only access it remotely -- with no download, install, or transfer of the underlying application -- Illinois treats that as a nontaxable service, not a taxable sale of tangible personal property. This tracks a consistent line of Illinois guidance (GILs and PLRs cited in this ruling) holding that pure cloud-based delivery is not subject to Retailers' Occupation Tax, Use Tax, Service Occupation Tax, or Service Use Tax. But if you additionally provide subscribers an API, applet, desktop agent, or remote access agent to reach your network, the Department has held that counts as providing "computer software" -- a different result than pure browser/portal access.

Companies giving away companion apps or software for free

The favorable "no taxable use" result for the free mobile app here depended specifically on the app being downloaded from a server located outside Illinois. The Department's reasoning was that the retailer, as donor, exercised no power or control over the property "in Illinois." If your servers or the point of download are inside Illinois, this specific rationale may not apply, and you would need to separately analyze whether your software license meets the five-part test below to stay exempt.

Anyone licensing software in Illinois

Separately from the SaaS/free-app analysis, this ruling restates Illinois's five-part test for when a software license is NOT a taxable retail sale (86 Ill. Adm. Code 130.1935(a)(1)): (1) a written agreement signed by both licensor and customer; (2) restrictions on the customer's duplication and use; (3) a prohibition on the customer sublicensing or transferring the software to third parties without the licensor's continued control; (4) a policy of replacing lost/damaged copies at minimal or no cost (or allowing an archival copy); and (5) a requirement that the customer destroy or return all copies at the end of the license term (automatically satisfied for perpetual licenses). Note that a click-to-accept "I agree" checkbox does NOT satisfy the "written agreement signed by" requirement under existing Department guidance cited in this ruling -- you generally need an actual electronic or ink signature.

Common questions

Q: Does Illinois tax SaaS (Software as a Service) subscriptions?
A: Not under this ruling's facts. Because the software runs only on the provider's own servers and the customer never receives the software itself, the Department treated the SaaS fleet management subscription as a nontaxable service, not a sale of tangible personal property.

Q: Does it matter that the company also gives away a free mobile app?
A: In this case, no additional tax resulted, but the ruling's reasoning was narrow: it relied on Department guidance that when a customer downloads free software from an out-of-state server, neither the donor (retailer) nor the donee (customer) has exercised "power or control" over that property in Illinois, so no Use Tax liability arises. The Department did not decide the separate question of whether the app's license independently qualifies as an exempt software license.

Q: What is the "five-part test" mentioned in the ruling, and why does it matter?
A: It is the test in 86 Ill. Adm. Code 130.1935(a)(1) for when licensing canned computer software is NOT a taxable retail sale (see the five conditions listed above). The company argued its mobile app license met all five parts, and the Department reviewed those facts, but its formal ruling ultimately turned on the "no power or control in Illinois" rationale rather than resolving the five-part-test question -- the Department explicitly said it "expresses no opinion" on that point.

Q: Would providing an API or remote-access agent change the outcome?
A: Possibly. The Department noted elsewhere in the same ruling that if a SaaS provider gives subscribers an API, applet, desktop agent, or remote access agent to reach the provider's network, the subscriber is considered to be receiving "computer software" -- which is treated differently from pure web/browser access with no software transfer.

Q: Can any other Illinois business rely directly on this ruling?
A: No. As a Private Letter Ruling, it binds the Department only with respect to the specific taxpayer that requested it, and only to the extent that taxpayer's stated facts were correct and complete. Other businesses with similar (but not identical) facts should not assume the same result and should seek their own guidance.

Q: How long is this ruling valid?
A: The ruling states it will be revoked and cease to bind the Department 10 years after the June 10, 2020 letter date (per 2 Ill. Adm. Code 1200.110(e)), or earlier if there is a relevant change in statutory law, case law, rules, or the underlying facts.

Citations and references

• 35 ILCS 120/1 (Retailers' Occupation Tax Act -- "sale at retail" definition)
• 35 ILCS 120/2 (Retailers' Occupation Tax Act -- imposition of tax)
• 35 ILCS 120/2-25 (Retailers' Occupation Tax Act -- definition of "computer software")
• 35 ILCS 105/3 (Use Tax Act -- imposition of tax)
• 35 ILCS 115/3 (Service Occupation Tax Act -- imposition of tax)
• 35 ILCS 110/3 (Service Use Tax Act -- imposition of tax)
• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax -- nature of tax)
• 86 Ill. Adm. Code 130.1935 (canned and custom computer software)
• 86 Ill. Adm. Code 130.1935(a)(1) (five-part test for exempt software licenses)
• 86 Ill. Adm. Code 130.1935(c)(3) (custom computer programs)
• 86 Ill. Adm. Code 130.2105(a)(3) (transfers of information or data)
• 86 Ill. Adm. Code 140.101(a) (Service Occupation Tax -- nature of tax)
• 86 Ill. Adm. Code 140.125(x) (definition of "computer software" under the Service Occupation Tax)
• 86 Ill. Adm. Code 150.101 (Use Tax -- nature of 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)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedures)
• Ill. Priv. Ltr. Rul. ST 17-0006-PLR (8/14/2017) (cited for serviceman's tax liability calculation methods and cloud-based delivery)
• Ill. Priv. Ltr. Rul. ST 17-0007-PLR (3/2/2017) (cited on SaaS providers acting as servicemen)
• Ill. Priv. Ltr. Rul. ST 18-0010-PLR (9/26/2018) (cited on acceptable electronic signatures for software licenses)
• Ill. Priv. Ltr. Rul. ST 06-0005-PLR (12/16/2006) (cited on electronic signature not meeting written-signature requirement)
• Ill. Priv. Ltr. Rul. ST 18-0003-PLR (2/8/2018) (cited on verifiable electronic signatures satisfying the requirement)
• Ill. Gen. Info. Letter No. ST 11-0052 (6/30/2011) (cited on database access without software transfer)
• Ill. Gen. Info. Letter No. ST 12-0011-GIL (2/29/2012) (cited on click-to-accept licenses)
• Ill. Gen. Info. Letter No. ST 16-0038-GIL (8/18/2016) (cited on cloud-based delivery not being taxable)
• Ill. Gen. Info. Letter No. ST 16-0034-GIL (8/17/2016) (cited on API/remote-access agents as computer software)
• Ill. Gen. Info. Letter No. ST 19-0007-GIL (3/20/2019) (cited on cloud-based delivery and free out-of-state downloads)

Subject

Computer Software

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2020.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2020/st20-0004-plr.pdf

Original ruling text

ST 20-0004-PLR 06/10/2020 COMPUTER SOFTWARE
This letter discusses computer software. See 86 Ill. Adm. Code 130.1935. (This is a PLR.)
June 10, 2020

RE: COMPANY
Dear Xxxx:
This letter is in response to your letter dated December 19, 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.
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:
This private letter ruling is respectfully submitted to the Illinois Department of Revenue
(“Department”) on behalf of our client, COMPANY. (d/b/a COMPANY1) (hereinafter referred to
as COMPANY1) pursuant to Ill. Admin Code § 1200.110.
COMPANY1 requests guidance regarding the application of Illinois sales and use tax to certain
services the company provides to its customers. We have attached a completed Illinois Power
of Attorney Form (Form IL 2848) for you reference, attached hereto as Exhibit A.
COMPANY1 is not currently registered for Illinois sales and use tax purposes. COMPANY1 has
not been contacted by the State of Illinois, the Multistate Tax Commission, or any other agent
thereof for purposes of an audit with regard to an Illinois state tax obligation, if any. To the best
of their knowledge, COMPANY1 and its REPRESENTATIVE, affirm that the Department has not
previously ruled on the same or a similar issue for COMPANY1, nor has the taxpayer or its
representative previously submitted the same or a similar issue to the Department, but withdrew
it before a ruling was issued.

ST-20-0004-PLR
Page 2
To facilitate your review of the information necessary to render a response to this information
request, we have presented the request in the following manner:
I.
II.
III.
IV.
V.
I.

Facts
Issue
Pertinent Authority
Discussion
Ruling Request

Facts

COMPANY1 provides a web-based fleet management service for handling the administration,
management, and record-keeping of motor vehicle fleets. See Sample COMPANY1 Agreement,
attached as Exhibit B; and Sample COMPANY1 Invoice, attached as Exhibit C. COMPANY1
provides its services via a “Software as a Service” (“SaaS”) model. This SaaS model is a webbased software model that allows a consumer to access a vendor’s software application that is
running on a cloud-based infrastructure. Under this model, the software resides exclusively on
the vendor’s server and is accessed by the customer via the Internet. Customers generally
cannot install, download, or transfer the application software to their own computers. The SaaS
provider owns, operates, and maintains the software applications, as well as the servers that
support the application software. Thus, the customer has no control over the network, servers,
operating systems, storage, or application capabilities.
In 20XX, COMPANY1 developed an application which it provides to its customers for free.
Customers have the option of downloading the application to a personal device, such as a
phone, table, etc., which the customer can then use to more easily upload vehicle information
necessary for fleet management. COMPANY1 does not provide the customer with the personal
device (i.e., tablet, cell phone, etc.) for use with the application; nor does it provide any other
tangible personal property.
For example, a truck driver typically uses the application on his/her cell phone to upload
information regarding fuel purchases, such as fuel cost, fuel quantity, vehicle condition, or to
keep track of mileage of the vehicle. Prior to the introduction of the application, a truck driver
would keep a manual paper log of the same information and turn the log into the office at the
end of a trip for manual entry into the fleet management system.
Historically, the user of the application could only upload information into the application when
they were connected to the Internet. However, COMPANY1 recently introduced a limited “optin” feature that allows the user to enter information specific to vehicle inspections into the
application whether or not the are connected to the Internet, which can be uploaded at a later
time. However, the majority of other data and information related to fleet management has to
be entered into the application while connected to the Internet.
It is important to note that the users of the application are typically the motor vehicle operators,
who only have access to a portion of the platform for purposes of data entry. The individuals
using the fleet management software solution for purposes of managing the vehicle fleet typically
view the data through a web portal on their computers but will also have the ability to view the
information on the application as well.

ST-20-0004-PLR
Page 3

Finally, it is worth noting that the application does not have the capability of sending or receiving
messages, such as communications with a dispatcher, etc. The application is used solely for
uploading data related to fleet management.
II.

Issue
A. Whether COMPANY1’s provision of web-based fleet management services via a
SaaS model are [sic] subject to Illinois’ Retailers’ Occupation Tax, Use Tax,
Service Occupation Tax or Service Use Tax.

III.

Pertinent Authority

Generally
In Illinois, the tax commonly referred to as a “sale and use tax,” is actually four distinct occupation
and privilege taxes that are imposed on the sale and use of tangible personal property in Illinois.
The Retailers’ Occupation Tax (ROT) is imposed on all persons engaged in the business of
selling tangible personal property at retail in the state.1 The Use Tax (UT) is a complementary
privilege tax imposed on the privilege of using tangible personal property in Illinois, which is
purchased at retail.2 “Sale at retail” means “any transfer of the ownership of or title to tangible
personal property to a purchaser, for the purpose of use or consumption.”3
The Service Occupation Tax (SOT) is imposed on tangible personal property transferred by a
serviceperson as an incident to the provision of a service.4 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. 5 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.6

1

35 ILCS 120/2.
35 ILCS 105/3.
3
35 ILCS 120/1.
4
35 ILCS 115/3; 86 Ill. Admin. Code § 140.101(a).
5
Ill. Priv. Ltr. Rul. ST 17-0006-PLR (8/14/2017) at p. 11.
6
Id.
2

ST-20-0004-PLR
Page 4
The Service Use Tax (SUT) is a complementary privilege tax imposed on the privilege of using
in Illinois real or tangible personal property that is acquired as an incident to the purchase of a
service.7
Information or Data
Information or data that is electronically transferred or downloaded is not considered the transfer
of tangible personal property in Illinois.8
Computer Software
In Illinois, computer software (other than custom software programs) is included within the
statutory definition of “tangible personal property,” and its sale or use is taxable.9 “Computer
software” means “all types of software including operational, applicational, utilities, compliers
[sic], template, shells and all other forms.”10 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.11 The sale at retail, or transfer, of canned software
intended for general or repeated use is taxable, including the transfer by a retailer of software
which is subject to manufacturer licenses restricting the use or reproduction of the software.” 12
However, 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 of permitting the licensee to make and
keep an archival copy, and such policy is either stated in the license agreement,
supported by the licensor’s books and records, or supported by a notarized statement
made under penalties of perjury by the licensor; and
E) the customer must destroy or return all copies of the software to the licensor at the
end of the license period. This provision is deemed to be met, in the case of a
perpetual license, without being set forth in the license agreement.13
7

35 ILCS 110/3.
86 Ill. Admin. Code § 130.2105(a)(3); see also Gen. Info. Letter No. ST 11-0052 (6/30/2011) (“If a company provides access to a
database of information and does not transfer any software or other tangible personal property to its customers, the company would
not incur Illinois Retailers’ Occupation Tax, Use Tax, Service Occupation Tax, or Service Use Tax liability.”)
9
35 ILCS 120/1; 35 ILCS 120/2; 35 ILCS 115/3; 35 ILCS 110/3; 86 Ill. Admin. Code § 140.125(x).
10
86 Ill. Admin. Code § 140.125(x).
11
Id.
12
Id.; 86 Ill. Admin. Code § 130.1935(a)
13
86 Ill. Admin. Code § 130.1935(a)(1).
8

ST-20-0004-PLR
Page 5
The Department has stated that software licensed over the Internet requiring the customer to
check a box that states he or she accepts the license terms, does not constitute a written
agreement signed by the licensor and the customer for purposes of Ill. Admin. Code
130.1935(a)(1)(A).14 To meet the signature requirement for an exempt software license, the
agreement must contain the written signature of the licensor and customer, either in ink or
electronically.15
If a transaction does not involve the transfer of any tangible personal property to the customer,
then it generally would not be subject to the ROT, UT, SOT or SUT.16
Application Service Providers
In Illinois, the provision of Software as a Service (“SaaS”), also known as an Application Service
Provider (“ASP”), is not taxable: “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.”17
A provider of SaaS is acting as a serviceman and the transaction would not be subject to tax in
Illinois where no tangible personal property is transferred to the customer.18 If a SaaS provider
provides to its subscribers an API, applet, desktop agent or a remote access agent to enable
the subscriber to access the provider’s network and services, the Department has held that the
subscriber is receiving computer software.19
However, if an Illinois customer downloads computer software for free (such as a mobile
application) from an out-of-state retailer’s website/server, the retailer “has exercised no power
or control over the property in Illinois.”20 The Department found that in that instance, the retailer
– or donor – would have exercised no taxable use of the property in Illinois. Furthermore, the
customer – or donee – would incur no Use Tax liability for the retailer to collect and remit to the
State of Illinois.21
IV.

Discussion
A. COMPANY1’s provision of web-based fleet management services via a
SaaS model are not subject to Illinois’ Retailers’ Occupation Tax, Use Tax,
Service Occupation Tax or Service Use Tax, and any tangible personal
property provided via a mobile application meets the 5-part test for
software licenses and would not be considered a taxable retail sale.

COMPANY1 provides a web-based fleet management service for handling the
administration, management, and record-keeping of motor vehicle fleets. See Sample
14

See, e.g., Ill. Gen. Info. Letter No. ST 12-0011-GIL (2/29/2012); Ill. Gen. Info. Letter No. ST 19-0007-GIL (3/20/2019).
Ill. Priv. Ltr. Rul. ST 18-0010-PLR (9/26/2018).
16
Ill. Priv. Ltr. Rul. ST 17-0006-PLR (8/14/2017).
17
See Ill. Gen. Info. Letter No. ST 19-0007-GIL (3/20/2019) at p. 4; Ill. Priv. Ltr. Rul. ST 17-0006-PLR (8/14/2017); Ill. Gen. Info.
Letter No. ST 16-0038-GIL (8/18/2016).
18
See, e.g., Ill. Priv. Ltr. Rul. ST 17-0007-PLR (3/2/2017) at p. 5.
19
Il. Gen. Info. Letter No. ST 19-0007-GIL (3/20/2019) at p. 4.
20
Id.
21
Id.
15

ST-20-0004-PLR
Page 6
COMPANY1 Agreement, attached as Exhibit B; and Sample COMPANY1 Invoice,
attached as Exhibit C. COMPANY1 provides its services via a “Software as a Service”
(“SaaS”) model. As such, COMPANY1’s customers access the service via the Internet,
but have no control over the network, servers, operating systems, storage or proprietary
software used to provide the service.
In 20XX, COMPANY1 developed an application which it provides to its customers free of
charge. Customers have the option of downloading the application to a personal device,
such as a phone, tablet, etc., which the customer can then use to more readily upload
vehicle information necessary for its fleet management. COMPANY1 does not provide
the customer with the personal device (i.e., table, cell phone, etc.) for use with the
application nor does it provide any other tangible personal property. Typically, a truck
driver uses the application on his/her cell phone to upload vehicle information regarding
fuel purchases such as fuel cost, fuel quantity, or to keep track of mileage, etc. Prior to
the introduction of the application, a truck driver would keep a manual paper log of the
same information and turn the log into the office at the end of a trip for manual entry into
the fleet management system.
COMPANY1’s provision of fleet management services involves both a nontaxable service
(i.e. the provision of fleet management services via a SaaS model), and tangible personal
property (the application). Under the SaaS model, COMPANY1’s proprietary software
resides exclusively on its servers and is accessed by the customer via the Internet.
COMPANY1’s customers cannot install, download, or transfer the proprietary software to
their own computers. COMPANY1 owns, operates, and maintains the proprietary
software used to provide its fleet management services. COMPANY1’s customers have
no control over the network, servers, operating systems, storage, or software capabilities.
Illinois does not impose sales tax on SaaS.22 In fact, there have been several rulings over
recent years which expressly state that “computer software provided through a cloudbased 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.”23
However, COMPANY1’s customers may also download an application to their personal
devices free of charge, which may be used to more easily upload vehicle information to
COMPANY1’s fleet management system. The term “computer software” is broadly
defined to include “all types of software including operational, applicational, utilities,
compilers, templates, shells and all other forms. 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.”24 SaaS providers who offer
its subscribers an API, applet desktop agent or a remote access agent as a means for

22

35 ILCS 120/1; 35 ILCS 120/2; 35 ILCS 115/3; 35 ILCS 110/3; See also Ill. Gen. Info. Letter No. ST 19-0007-GIL (3/20/2019); Ill.
Priv. Ltr. Rul. ST 17-0006-PLR (8/14/2017); Ill. Gen. Info. Letter No. ST 16-0038-GIL (8/8/2016).
23
See Ill. Gen. Info. Letter No. ST 19-0007-GIL (3/20/2019); Ill. Priv. Ltr. Rul. ST 17-0006-PLR (8/14/2017); Ill. Gen. Info. Letter
No. ST 16-0038-GIL (8/8/2016).
24
86 Ill. Admin. Code § 130.1935(a)

ST-20-0004-PLR
Page 7
the subscriber to access the provider’s services are deemed to be offering its customers
computer software.25
The Department, however, recently held in General Information Letter ST 19-0007-GIL
(3/20/2019) that:
if an Illinois customer downloads computer software for free from an out-of-state
retailer’s web site or server that is also located out-of-state, the retailer, even
though it is donating tangible personal property to the customer, has exercised no
power or control over the property in Illinois. In this instance, the donor would not
have made any taxable use of the property in Illinois. The customer, the donee,
would incur no Use Tax liability for the retailer to collect and remit to Illinois. Illinois
does not tax subscriptions.26
In this case, there is no separate charge for the downloaded application, but rather the
application is available to customers free of charge as an incidental component to the
fleet management service, which is provided via a SaaS model. COMPANY1’s Illinoisbased customers are downloading the mobile application from servers located outside of
Illinois. Therefore, pursuant to recent Department interpretation, COMPANY1 has not
exercised any power or control over the computer software in Illinois, and thus did not
make any taxable use of the property in Illinois. Neither the customer (as donee) nor
COMPANY1 (as donor) would incur Use Tax liability in conjunction with the download of
the mobile application.
Based on the foregoing, the fleet management services provided by COMPANY1 via a
SaaS model should be considered a nontaxable service under Illinois’ retailers’
occupation and use tax laws.
Furthermore, COMPANY1’s mobile application would also meet the five-part test for
software licenses under Ill. Admin. Code § 130.1935(a)(1) and as such, would not be
considered a taxable retail sale in Illinois. Under the regulation, 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 of permitting the licensee to make and
keep an archival copy, and such policy is either stated in the license agreement,
25

See Ill. Gen. Info. Letter No. ST 19-0007-GIL (3/20/2019); Ill. Gen. Info. Letter No. ST 17-0007-GIL (3/2/2017); Ill. Gen. Info.
Letter No. ST 16-0034-GIL (8/17/2016).
26
Ill. Gen. Info. Letter No. ST 19-0007-GIL (3/20/2019) (emphasis added).

ST-20-0004-PLR
Page 8
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.27
In the present case, COMPANY1’s downloaded application meets all the requirements of the
five-part test:

1. COMPANY1’s license of its SaaS models for provision of its fleet management
   services are evidenced by a written agreement signed by the licensor and the
   customer. See Sample COMPANY1 Agreement, Exhibit B at p. 6. As discussed
   above, in addition to granting its customers access to its services via the Internet,
   COMPANY1 developed an application which it provides to its customers free of
   charge. Customers have the option of downloading the application to a personal
   device, such as a phone, tablet, etc., which the customer can then use to more readily
   upload vehicle information necessary for its fleet management. The agreement
   provides that the “Terms of Service” (attached hereto as Terms of Service, Exhibit D)
   found on COMPANY1’s website are incorporated as part of every Agreement. See
   Sample COMPANY1 Agreement, Exhibit B, at p. 2. These “Terms of Service”
   specifically state that “these terms of service are legally binding contract between
   [Company] and COMPANY and govern [Company’s] access to any service we
   provide…through our websites and through our mobile apps.” Therefore, both the
   provision of its services via the web or mobile application are governed by the terms
   of the written, signed agreement – thus satisfying the first condition.
2. COMPANY1’s license agreement terms restrict the customer’s duplication and use of
   the software. The terms of COMPANY1’s license agreement typically provide as
   follows:
   •

License: Company shall grant a nonexclusive, nontransferable license for an
unlimited number of users during the term of this Agreement for the use of
COMPANY1 Manage, a fleet management platform for managing Customer’s
assets.

See Sample COMPANY1 Agreement, Exhibit B at p. 2. Furthermore, the “Terms
of Service’ provide as follows:
•

[Company] may not attempt to modify, translate, adapt, edit, copy, decompile,
disassemble, or reverse engineer any software used or provided by us in
connection with the Service.

See Terms of Service - Account Terms, Exhibit D at p. 2, ¶ 8.

27

86 Ill. Admin. Code § 130.1935(a)(1).

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3. COMPANY1’s license agreement 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 COMPANY1.
   •

License: Company shall grant a nonexclusive, nontransferable license for an
unlimited number of users during the term of this Agreement for the use of
COMPANY1 Manage, a fleet management platform for managing Customer’s
assets.

See Sample COMPANY1 Agreement, Exhibit B at p. 2. In addition, the “Terms
of Service” provides [sic] as follows:
•

[The Company] shall not copy, sell, transfer, distribute, publish, or assign your
license to our Service in any format to any third party.”

See Terms of Service - Intellectual Property, Exhibit D at p. 6.

4. COMPANY1 has a policy of providing another copy at minimal or no charge if the
   customer loses or damages the software, or of permitting the license to make and
   keep an archival copy.
5. COMPANY1’s SaaS license agreements typically provide that all copies of the
   software must be destroyed at the end of the license period. Pursuant to the “Terms
   of Service”:
   All of [the Company’s] information will be immediately deleted from the Service
   (including our secure servers used to store your information) upon cancelation.
   If you want to preserve your information, you must export your information
   before canceling your account. Your information cannot be recovered once
   your account is canceled.
   See Terms of Service – Cancellation and Termination, Exhibit D at p. 4.
   Thus, COMPANY1’s mobile application license clearly meets the five-part test provided by Ill.
   Admin. Code 130.1935(a)(1), and therefore, would not be considered a taxable retail sale in
   Illinois.
   V.

Ruling Request

Based on the foregoing, COMPANY1 respectfully requests that the Department rule that
COMPANY1’s provision of fleet management services delivered via a SaaS model constitutes
a nontaxable service and is not subject to Illinois’ Retailers’ Occupation Tax, Use Tax, Service
Occupation Tax or Service Use Tax.
In the event that the Department determines that COMPANY1’s services are subject to tax, we
respectfully request an opportunity to discuss this matter with the Department before a final letter
ruling is issued. In addition, we respectfully reserve the right to pursue a voluntary disclosure
agreement to disclose any potential sales or use tax liabilities, if necessary.

ST-20-0004-PLR
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Thank you again for your consideration of this matter. If you have any questions, please do not
hesitate to call me at (215) 837-9767.
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. 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 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.
“‘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;
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

D)

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E)

books and records, or supported by a notarized statement made under penalties of
perjury by the licensor; and
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.
In order to comply with the requirements as set out in Section 130.1935(a)(1), there must be a
written “signed” agreement. A license agreement 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
licensor and customer. The Department previously held that an electronic signature did not comply
with the requirement of Section 130.1935(a)(1)(A) that the license be evidenced by a written agreement
signed by the licensor and the customer. ST 06-0005-PLR (December 16, 2006). In ST 18-0003-PLR
(February 8, 2018), the Department decided that an electronic license agreement in which the customer
accepts the license by means of a signature in electronic form that is attached to or is part of the license,
is verifiable, and can be authenticated will comply with the requirement of a written agreement signed
by the licensor and customer. See ST 18-0010-PLR (September 26, 2018) for examples of acceptable
written signatures. A license agreement in which the customer electronically accepts the terms by
clicking “I agree” remains unacceptable.
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.
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.
If an Illinois customer downloads computer software for free from an out-of-state retailer’s
web site or server that is also located out-of-state, the retailer, even though it is donating tangible
personal property to the customer, has exercised no power or control over the property in Illinois. In
this instance, the donor would not have made any taxable use of the property in Illinois. The customer,
the donee, would incur no Use Tax liability for the retailer to collect and remit to Illinois. Illinois does not
tax subscriptions.
Based on the facts provided in your letter, the Department concludes that revenues received
from subscriptions of the COMPANY1 web-based fleet management service are not subject to tax. The
Department also concludes that the application downloaded for free by its subscribers from a server
located in another state are not subject to tax. The Department expresses no opinion whether the
license of the mobile application meets the five-part test.
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

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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 concerning this Private Letter
Ruling, you may contact me at (217) 782-2844. 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:ter