What does Illinois General Information Letter ST 20-0018-GIL conclude about Miscellaneous?

Plain-English summary

This letter is not a typical taxpayer ruling. It is the Illinois Department of Revenue's response to an annual nationwide survey run jointly by a university and a commercial publisher, which compiles state sales-tax and corporate-income-tax answers for a widely used tax reference book. The requester asked Illinois to fill out a detailed questionnaire covering nexus triggers, taxation of "information services," inventory withdrawals, a COVID-19 medical-supply exemption, and common corporate filing mistakes.

The Department declined to complete the survey form as submitted, saying it was "unable to respond to your survey in the format provided." Instead, it gave general, informal answers to each topic area, citing existing Illinois regulations rather than creating any new rule or policy. Because this is a GIL rather than a Private Letter Ruling, none of it binds the Department for any specific taxpayer's facts -- it simply restates and points to existing law.

On substance, the letter explains that Illinois taxes canned (pre-written) computer software as tangible personal property even when transferred electronically, but does not tax software-as-a-service delivered purely through the cloud, custom-written software, or free downloads of software from an out-of-state server. It also says Illinois does not treat "information services" (like electronically transferred data, records, or news feeds) as taxable transfers of tangible personal property, unless the service is bundled with delivery of physical property (e.g., mailing hard-copy medical records). On inventory withdrawals, the letter confirms that pulling stock out of resale inventory to give away, demonstrate, or use for R&D generally triggers Use Tax on the donor's cost, unless a specific exemption (such as interim demonstration use under 35 ILCS 105/2) applies. The letter also confirms Illinois had not, as of September 2020, enacted any sales-tax exemption for COVID-19-related medical supplies, and it lists common ST-1 return errors the Department sees.

What this means for you

Businesses selling software or data services into Illinois

If you sell software, this letter reinforces existing Illinois rules: canned/pre-written software is taxable tangible personal property no matter how it's delivered (download, disc, or otherwise), but true cloud-based SaaS with no local download, and custom-built software written to a specific customer's order, generally are not. Watch out if your "free" app or service actually pushes an API, applet, or remote-access agent onto the customer's device -- the Department treats that as a transfer of taxable computer software even without a separate software charge.

Retailers and manufacturers who pull items out of inventory

If you take resale inventory and use it yourself -- for samples, floor demonstrations, R&D, or as a gift -- expect Illinois to treat that as a taxable "use" that triggers Use Tax on your cost (or, for manufacturers, the cost of materials), unless an exemption like the interim/demonstration-use exemption in 35 ILCS 105/2 applies. Donating property you already own to someone else also creates Use Tax liability for you as the donor, not the recipient.

Anyone filing Form ST-1

The letter lists the errors the Department most often sees on the Sales and Use Tax and E911 Surcharge Return (Form ST-1): entering taxable receipts instead of total receipts on Line 1, skipping Schedule A deductions (including tax already collected), taxable-receipts totals on Line 3 that don't match the sum of Lines 4a/5a/6a/7a/8a, paying the wrong period or wrong payment type through MyTax Illinois, and selecting an ST-1-X payment instead of a regular ST-1 payment. Double-checking these line items before filing can avoid notices later.

Common questions

Q: Is this letter binding guidance I can rely on?
A: No. It is a General Information Letter (GIL), which by definition only points to existing regulations and is not a statement of Department policy or binding on the Department for anyone's specific facts. It's also not even a normal taxpayer inquiry -- it's Illinois's answer to a multistate publisher's survey.

Q: Does Illinois tax cloud-based software (SaaS)?
A: Generally no -- software delivered purely through a cloud-based system, where the customer never downloads it, is not taxed. But if the provider also gives the subscriber an API, applet, desktop agent, or remote-access agent to reach the provider's network, that is treated as a transfer of taxable computer software, even without a separate line-item charge for it.

Q: Does Illinois tax "information services" like data feeds or record retrieval?
A: The letter says Illinois does not treat information or data that is electronically transferred or downloaded (news feeds, customer lists, streaming quotes, etc.) as a transfer of tangible personal property, so it isn't taxed that way. However, if the service comes bundled with actual physical property (for example, medical records delivered to the customer in hard-copy form instead of electronically), that transaction can become taxable.

Q: Did Illinois have a sales-tax exemption for COVID-19 supplies like masks or test kits as of this letter?
A: No. The letter states plainly: "The State has not enacted an exemption for Covid-19 related supplies," as of September 28, 2020.

Q: If I withdraw inventory for a demo or R&D, do I owe tax?
A: Usually yes, unless an exemption applies. The letter explains that inventory withdrawals for use (including demonstration or R&D use) are generally subject to Use Tax unless the Use Tax Act's demonstration/interim-use exemption at 35 ILCS 105/2 covers the specific use, or another exemption applies.

Citations and references

• 2 Ill. Adm. Code 1200.110 (private letter ruling procedure)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedure)
• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax Act imposition)
• 86 Ill. Adm. Code 130.1935 (canned computer software as taxable tangible personal property)
• 86 Ill. Adm. Code 130.1935(a)(1) (non-taxable license of computer software)
• 86 Ill. Adm. Code 130.1935(c) (custom computer programs)
• 86 Ill. Adm. Code 130.2105(a)(3) (electronic transfer of information/data not tangible personal property)
• 86 Ill. Adm. Code 140.101 through 140.109 (sales of service and Service Occupation Tax)
• 86 Ill. Adm. Code 150.101 (Use Tax imposition)
• 86 Ill. Adm. Code 150.305(c) (donor's taxable use of gifted property)
• 35 ILCS 105/2 (Use Tax Act - demonstration/interim use exemption)

Subject

Miscellaneous

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/st20-0018-gil.pdf

Original ruling text

ST 20-0018-GIL 09/28/2020

MISCELLANEOUS

This letter responds to an annual survey. (This is a GIL.)

September 28, 2020

Dear Xxxx:
This letter is in response to your email dated June 15, 2020, 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:
Each year, The UNIVERSITY, in conjunction with COMPANY, Collects and
disseminates information regarding the tax taws of each state. The results of the
annual survey are published in the PUBLICATION, which has been one of the
premier state tax reference books for nearly 40 years. Your assistance in the
preparation of the 2021 edition is essential. Please complete the attached
corporate income tax and sales tax questionnaires by July 31, 2020 and email me.
If your responses to last year’s questionnaire would be helpful, please let us know
and we will send you a copy.
All new questions are highlighted in red font. Due to time constraints, please
respond only to the new questions and to the prior year questions that require a
change. All unanswered questions will be considered to have the same response
as last year, unless otherwise noted.
Please acknowledge receipt of this email and send us your response the following
questions:

1. Who is the state respondent for the corporate income tax questionnaire?
2. Who is the state respondent for the sales tax questionnaire?
3. Do you prefer a complimentary hardcopy of the PUBLICATION 2021 or should
   we send you an access code for an eBook?

ST 20-0018-GIL
Page 2

Please contact us if you have any questions and thank you for your continued
support of this important tax reference book.

A. SALES AND USE TAX: COMPLIANCE AND ADMINISTRATION
[16] NEXUS. If a corporation’s sole activity in your state is the activity identified below,
does the activity create an obligation to collect and remit sales/use tax (check each
activity that would, by itself, create sales/use tax nexus)?
NEXUS: COOKIES AND APPS
• Is nexus triggered by electronic “cookies” stored on in-state users’ devices
by
out-of-state
sellers?
 Yes  No
• Is nexus triggered by an in-state user loading an out-of-state seller’s “app”
on
the
user’s
device?
 Yes  No
• Does the answer change if the app is provided free of charge?
 Yes  No
• Does the answer change if the app is provided for a fee?
 Yes  No

B. SALES AND USE TAX BASE
[1] TAXABLE ITEMS

INFORMATION SERVICES
•

Does your state impose sales/use tax on “information services”?
 Yes  No
• If YES, which of the following items are taxable as information services (check all that apply)?
 Press Clipping services
 News feeds
 Medical records
 Customer lists
 Real estate listings
 Criminal background check
 Streaming stock quotes
 Insurance claim processing
 Real estate property tax re
 Credit score information
 Legal research databases

• Are any of these items taxable as something other than an information service?
 Yes  No
• If YES, indicate which items and reason taxed:

ST 20-0018-GIL
Page 3

[30] INVENTORY WITHDRAWLS
•

Is the inventory that is withdrawn and used for the following purposes subject to
sales/use tax (check all that apply)?
 Samples
 Display/demonstration
 R&D
 Other:
 No
withdrawals are taxed
• If the inventory withdrawals are taxed, at what trade level is the tax imposed?
 Selling price  Full inventory cost
 Material co  Other:
•

If inventory withdrawals are taxed, in which state is tax due?
 State in which item is removed from inventory
is shipped

 State to which item

[71] MEDICAL EQUIPMENT, SUPPLIES, AND OTHER TRANSACTIONS BY DOCTORS AND
CLINICS
COVID19 EMERGENCY
▪ Has your state enacted an exemption for COVID-19 related medical supplies?
 Yes  No
If NO, is your state considering an exemption for COVID-19 related medical supplies?
 Yes  No
• If your state has enacted or is considering an exemption, what items would be exempt
(check all that apply)?
 Masks
 Face shields
 Protective clothing for workers
 Gloves
 Anti-bacterial wipes
 Other, explain:
 Test kits
 Anti-bacterial soap or cleaner

[74] COMMON MISTAKES CORPORATIONS MAKE IN FILING RETURNS AND REMITTING
TAXES
▪ What are the most common mistakes that corporations make in filing sales and use tax
returns and remitting sales and use taxes? For the ease of presentation in a chart, please
organize your response as a bullet point list, as follows:
1.

and so on

ST 20-0018-GIL
Page 4

DEPARTMENT’S RESPONSE:
We are unable to respond to your survey in the format provided. However, we hope you
find the following information helpful.
Nexus: Cookies and Apps
Computer software is defined broadly in the Retailers’ Occupation Tax Act. However,
software-as-a-service or 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. Please note, however, that if a provider of such a service
provides to the subscriber an API, applet, desktop agent, or a remote access agent to enable
the subscriber to access the provider’s network and services, the subscriber is receiving
computer software. Although there may not be a separate charge to the subscriber for the
computer software, the serviceman transferring the computer software is nonetheless subject to
tax, unless the transfer qualifies as a non-taxable license of computer software (see 86 Ill. Adm.
Code 130.1935(a)(1).
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.
Information Services
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 retain the amount of Use Tax paid to
reimburse themselves for their Retailers' Occupation Tax liability incurred on those sales. If the
purchases occur outside Illinois, purchasers must self-assess their Use Tax liability and remit it
directly to the Department.
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. However, if tangible personal
property is transferred incident to sales of service, this will result in either Service Occupation
Tax liability or Use Tax liability for the servicemen depending upon his activities. For your
general information see of 86 Ill. Adm. Code 140.101 through 140.109 regarding sales of
service and Service Occupation Tax.
In Illinois, information or data that is electronically transferred or downloaded is not
considered the transfer of tangible personal property in this State. See 86 Ill. Adm. Code

ST 20-0018-GIL
Page 5

130.2105(a)(3). However, canned computer software is considered taxable tangible personal
property regardless of the form in which it is transferred or transmitted, including tape, disc,
card, electronic means or other media. See 86 Ill. Adm. Code 130. 1935. If the computer
software consists of custom computer programs, then the sales of such software may not be
taxable retail sales. See Section 130.1935(c). Custom computer programs or software must be
prepared to the special order of the customer.
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 (e.g., medical records delivered to a customer in a hardcopy version, rather
than sent electronically), such service transactions are generally subject to tax liability.
Inventory Withdrawals
Inventory withdrawals of tangible personal property on which the person has paid Use
Tax generally will not be subject to additional tax. Generally, the withdrawal of inventory
purchased for resale and put to use will be subject to Use Tax unless an exemption is available.
The Use Tax contains an exemption for demonstration use or interim use of tangible personal
property by a retailer before he sells that tangible personal property. 35 ILCS 105/2.
A donor who purchases tangible personal property and gives the tangible personal
property to a donee makes a taxable use of the property when making the gift. 86 Ill. Adm.
Code 150.305(c). A donor owes Use Tax on the donor's cost price of the tangible personal
property that is transferred. If the donor is the manufacturer of the item, the tax liability is based
on his cost price of the materials purchased to fabricate the item.
Covid-19 Emergency
The State has not enacted an exemption for Covid-19 related supplies.
Common Mistakes Corporations Make in Filing Returns and Remitting Taxes
Retailers and servicemen file the ST-1, Sales and Use Tax and E911 Surcharge Return,
to report occupation and use taxes. The most common mistakes are:
1.
2.
3.
4.
5.

Taxpayers use Step 1 Line 1 to enter their taxable receipts instead of their total receipts.
Taxpayers not completing the deductions on Schedule A, including any tax collected.
Taxpayers taxable receipts entered on Line 3 do not equal the sum of the amounts
reported in Step 3 Lines 4a, 5a, 6a, 7a, and 8a.
Taxpayers making electronic payments via MyTax Illinois make the payment for the
incorrect period.
Taxpayers making payments using MyTax Illinois, select the incorrect payment type.
Taxpayers select ST-1-X payment instead of ST-1 payment.

ST 20-0018-GIL
Page 6

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 S. Wolters
Associate Counsel
Sales and Excise Tax
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