Is a Managed Services Provider's resale of subscription software licenses (like Microsoft Office 365) and remote tech support to Illinois customers subject to Illinois sales or use tax?

Plain-English summary

A Managed Services Provider (referred to here as COMPANY), based outside Illinois, wrote to the Illinois Department of Revenue asking whether its resale of subscription software licenses (such as Microsoft Office 365) and remote support (troubleshooting, technical assistance, software updates by phone, email, or online chat) to Illinois customers is subject to Illinois sales or use tax. COMPANY said it has no physical presence, employees, agents, property, or inventory in Illinois, does no installation, maintenance, or repair work there, and does not specifically solicit or advertise there except through a generally accessible website. COMPANY said an Illinois Department of Revenue tax expert had told it these activities are non-taxable and pointed it to 86 Ill. Adm. Code 130.120 (Nontaxable Transactions) and 86 Ill. Adm. Code 130.1935 (Computer Software), and COMPANY asked for a written response citing the relevant authority.

The Department treated this as a request calling for a GIL rather than a binding Private Letter Ruling, and its response lays out the general framework rather than a yes/no answer for COMPANY's specific facts. The response explains that Retailers' Occupation Tax (Illinois's sales tax) applies to sales of tangible personal property, and Use Tax applies to the use of tangible personal property purchased at retail; together these make up what's commonly called Illinois "sales tax." Viewing, downloading, or transmitting data over the internet is not, by itself, a transfer of tangible personal property, but if a service is bundled with a transfer of tangible personal property (including computer software), that transaction is generally taxed under one of several Service Occupation Tax methods.

On computer software specifically: "computer software" is defined broadly under 35 ILCS 120/2-25 to include prewritten or "canned" software, and canned software is generally taxable tangible personal property regardless of the medium (tape, disc, card, electronic transmission, etc.) under 86 Ill. Adm. Code 130.1935. Custom software prepared to a customer's special order, by contrast, may not be a taxable sale — merely selecting and assembling prewritten/canned components doesn't make software "custom" unless real, substantial changes or interfacing logic are added (86 Ill. Adm. Code 130.1935(c)(3)).

The Department then sets out the key exemption: a license of canned computer software is NOT a taxable retail sale if it meets all five criteria in 86 Ill. Adm. Code 130.1935(a)(1) -- (A) a written agreement signed by both licensor and customer; (B) the agreement restricts the customer's duplication and use of the software; (C) it bars the customer from licensing, sublicensing, or transferring the software to a third party (except a related party) without the licensor's permission and continued control; (D) the licensor has a policy (stated in the agreement, in its books/records, or in a notarized statement) of providing a replacement copy at minimal/no charge if the software is lost or damaged, or of letting the licensee keep an archival copy; and (E) the customer must destroy or return all copies at the end of the license period (deemed satisfied automatically for a perpetual license). A license that fails any one of these criteria is fully taxable. The Department specifically flags that a click-through "I agree" acceptance does not satisfy the written-and-signed requirement.

The response also addresses delivery method and updates. Cloud-based software -- delivered through a system where the software is never downloaded and is only accessed remotely -- is not taxable, even though a subscriber receiving an API, applet, desktop agent, or remote access agent to reach the provider's network and services is still "receiving computer software" in the Department's view; that receipt is nonetheless untaxed unless the transfer independently qualifies (or fails to qualify) as a licensed transfer, and Illinois generally does not tax subscriptions. A donation of free software downloaded by an Illinois customer from an out-of-state server creates no Illinois Use Tax liability for either the donor or the customer, because the donor exercised no power or control over the property in Illinois.

On maintenance and updates: ordinary maintenance/repair agreements for tangible personal property (including software) follow the general Service Occupation Tax rules in 86 Ill. Adm. Code 140.301(b)(3) — taxable if bundled into the original selling price, not separately taxable if sold separately (though the servicer's own materials/parts used may trigger Use Tax on the servicer). But canned-software updates (new releases/versions with enhancements, as opposed to a mere bug-fix patch) are treated differently: charges for updates of canned software are fully taxable as sales of software under 130.1935(b), and if those update charges aren't separately stated from other maintenance-agreement charges (training, phone assistance, installation, consultation, etc.), the whole bundled agreement becomes taxable. However, if all five criteria of 130.1935(a)(1) are met for the underlying license, neither the license transaction NOR the subsequent software updates under that qualifying license are taxable — including support/maintenance/update charges billed either under the license agreement itself or under a separate agreement, as long as the updates remain subject to the qualifying license. A subscription fee for support, software access, security updates, fixes, enhancements, upgrades, a support knowledge base, documentation, and account-management tools is not subject to Retailers' Occupation Tax or Service Occupation Tax so long as any additional software provided under the subscription is open-source and provided at no charge (though Service Occupation Tax could still apply to other tangible property transferred as part of the service).

The Department never states whether COMPANY's own subscription-license/remote-support model actually satisfies the 130.1935(a)(1) five-part test or otherwise qualifies as nontaxable -- consistent with a GIL, it lays out the framework and leaves the fact-specific application to the taxpayer (or to a future PLR request).

What this means for you

Software resellers, Managed Services Providers, and SaaS vendors

Whether your Illinois sales are taxable turns heavily on delivery method and license terms, not on whether you're an in-state or out-of-state seller. If your product is delivered purely as cloud-based, remotely-accessed software that customers never download, the Department treats that as non-taxable. If instead you're licensing downloadable/installed canned software, you need a written agreement signed by both parties that satisfies all five criteria in 86 Ill. Adm. Code 130.1935(a)(1) to avoid tax on both the license and later updates issued under it -- a click-wrap "I agree" checkbox does not count as a signed written agreement. Audit your license agreements against all five criteria (signed writing; use/copying restrictions; no unauthorized sublicense; replacement/archival-copy policy; return-or-destroy at term end) before assuming a software license is exempt.

Businesses offering software maintenance, updates, or support bundles

How you bill matters. If you bundle canned-software update charges together with other maintenance items (training, phone support, installation, consultation) without separately stating the update charge, the Department will treat the whole bundle as a taxable sale of canned software. Separately stating charges, or structuring support/maintenance so it flows under a qualifying 130.1935(a)(1) license, can avoid that result. A true bug-fix "patch" to an existing version is treated differently from an "update" that is a new release/version with enhancements -- the latter is what triggers full taxability if not separately stated.

Accountants and tax professionals advising software clients

This GIL is a useful roadmap of the current framework (definitions in 35 ILCS 120/2-25, the taxability default in 86 Ill. Adm. Code 130.1935, the license exemption test in 130.1935(a)(1), custom software in 130.1935(c)(3), and maintenance-agreement treatment in 130.1935(b) and 140.301(b)(3)), but it does not resolve whether this specific taxpayer's subscription/remote-support model is taxable. Clients who need a binding, fact-specific answer should be advised to request a Private Letter Ruling under 2 Ill. Adm. Code 1200.110 rather than rely on this GIL.

Common questions

Q: Is cloud-based software (SaaS) subject to Illinois Retailers' Occupation Tax?
A: No. The Department states that computer software delivered through a cloud-based system, where the software is never downloaded and is only accessed remotely, is not subject to tax, and that Illinois generally does not tax subscriptions.

Q: What five things does a software license agreement need to avoid Illinois sales tax?
A: Under 86 Ill. Adm. Code 130.1935(a)(1), the license must (A) be evidenced by a written agreement signed by both the licensor and the customer; (B) restrict the customer's duplication and use of the software; (C) prohibit the customer from licensing, sublicensing, or transferring the software to a third party (except a related party) without the licensor's permission and continued control; (D) come with a policy of providing a replacement copy at minimal/no cost if lost or damaged, or of allowing an archival copy; and (E) require the customer to destroy or return all copies at the end of the license period (automatically satisfied for a perpetual license). Missing any one criterion makes the license taxable.

Q: Does a customer clicking "I agree" to online license terms satisfy the written-agreement requirement?
A: No. The Department states explicitly that a license agreement where the customer electronically accepts by clicking "I agree" does not comply with the requirement of a written agreement signed by the licensor and customer.

Q: Are charges for software updates taxable?
A: It depends. Updates (new releases/versions with enhancements) to canned software are generally taxable as sales of software under 86 Ill. Adm. Code 130.1935(b), and if update charges aren't separately stated from other maintenance-agreement charges, the whole agreement becomes taxable. But if the underlying license meets all five criteria of 130.1935(a)(1), neither the license nor its subsequent updates are taxable. Custom-software updates may not be taxable at all if they qualify as custom software under 130.1935(c).

Q: Does this GIL confirm that COMPANY's specific subscription/remote-support business is tax-exempt in Illinois?
A: No. The Department lays out the general legal framework but does not state whether COMPANY's particular subscription-license and remote-support model satisfies the license exemption or the cloud-based-software rule. That is consistent with how a GIL works -- it directs the taxpayer to the relevant law but is not a binding determination on the taxpayer's own facts. A binding answer would require a Private Letter Ruling.

Q: Can COMPANY (or anyone else) rely on this GIL for legal protection?
A: No. A GIL is not a statement of Department policy and is not binding on the Department, even as to the taxpayer who requested it.

Citations and references

Statutes:

• 35 ILCS 120/2 (imposition of Retailers' Occupation Tax)
• 35 ILCS 120/2-25 (definition of "computer software")
• 35 ILCS 105/3 (imposition of Use Tax)

Regulations:

• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax -- nature of the tax)
• 86 Ill. Adm. Code 130.1935 (computer software)
• 86 Ill. Adm. Code 130.1935(a)(1) (five-part test for a nontaxable software license)
• 86 Ill. Adm. Code 130.1935(b) (taxation of software maintenance agreements/updates)
• 86 Ill. Adm. Code 130.1935(c)(3) (custom computer software)
• 86 Ill. Adm. Code 140.101 (Service Occupation Tax -- nature of the tax)
• 86 Ill. Adm. Code 140.108 (de minimis servicemen)
• 86 Ill. Adm. Code 140.301(b)(3) (taxation of maintenance/repair agreements)
• 86 Ill. Adm. Code 150.101 (Use Tax -- nature of the tax)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedure)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2024.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2024/ST24-0017-GIL.pdf

Original ruling text

ST 24-0017-GIL 04/04/2024 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. See 86 Ill. Adm. Code 130.1935. (This is a GIL.)

April 4, 2024
COMPANY
NAME
ADDRESS
Dear NAME:
This letter is in response to your letter dated February 23, 2024, 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:
I am writing to you on behalf of COMPANY, a company based in
STATE that re-sells software products and services to customers
across the United States. We are seeking clarification on whether our
sales of subscription licenses and remote support to customers in
Illinois are subject to sales or use tax in your State.
Background
COMPANY is a Managed Services Provider that resells various
software products that are publicly available under a subscription, such
as Microsoft Office 365. We offer this software as subscription
licenses, which allow customers to access and use the software
online for a fixed period of time. We also provide remote support to our
customers, such as troubleshooting, technical assistance, and
software updates, through phone, email, or online chat.

COMPANY/NAME
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April 4, 2024
COMPANY does not have any physical presence, employees, or
agents in Illinois. We do not own, lease, or rent any property,
equipment, or inventory in Illinois. We do not perform any installation,
maintenance, or repair services in Illinois. We do not solicit or
advertise our products or services in Illinois, except through our
website, which is accessible to anyone with an internet connection.
We do not have any affiliates, subsidiaries, or partners in Illinois.
I spoke with an Illinois DOR tax expert and they stated that these
activities are non-taxable in Illinois and referenced: TITLE 86: REVENUE,
PART 130 RETAILERS' OCCUPATION TAX, SECTION 130.120
NONTAXABLE TRANSACTIONS and TITLE 86: REVENUE, PART 130
RETAILERS' OCCUPATION TAX, SECTION 130.1935 COMPUTER
SOFTWARE.
Question
Based on the above information, we would like to know if our sales of
subscription licenses and remote support to customers in Illinois are
subject to sales or use tax in your state. We understand that Illinois
imposes sales tax on the sale of tangible personal property and
certain enumerated services, and use tax on the use, consumption, or
storage of tangible personal property or services in Illinois. However,
we are not sure if our products and services qualify as tangible
personal property or services for the purposes of sales and use tax in
Illinois.
We would appreciate it if you could provide COMPANY a written
response to our question, citing the relevant statutes, regulations,
rulings, or cases that support your position. We would also appreciate
it if you could inform us of any exemptions, exclusions, or credits that
may apply to our sales of subscription licenses and remote support in
Illinois.
Conclusion
Thank you for your time and attention to this matter. We look forward
to hearing from you soon. Please contact me at EMAIL or PHONE if
you have any questions or need any additional information.
DEPARTMENT’S RESPONSE:
Retailers’ Occupation Tax and Use 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

COMPANY/NAME
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April 4, 2024
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 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.
Service Occupation Tax
Retailers’ Occupation Tax and Use Tax do not apply to sales of service. Under
the Service Occupation Tax Act, businesses providing services (i.e., servicemen) are
taxed on tangible personal property transferred as an incident to sales of service. See
86 Ill. Adm. Code 140.101. The transfer of tangible personal property to service
customers may result in either Service Occupation Tax liability or Use Tax liability for
servicemen, depending upon which tax base they choose to calculate their liability.
Servicemen may calculate their tax base in one of four ways: (1) separatelystated 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.
Using the first method, servicemen may separately state the selling price of each
item transferred as a result of sales of service. The tax is based on the separately
stated selling price of the tangible personal property transferred. If servicemen do not
wish to separately state the selling price of the tangible personal property transferred,
those servicemen must use the second method where they will use 50% of the entire
bill to their service customers as the tax base. Both of the above methods provide that
in no event may the tax base be less than the cost price of the tangible personal
property transferred. Under these methods, servicemen may provide their suppliers
with Certificates of Resale when purchasing the tangible personal property to be
transferred as a part of sales of service. They are required to collect the corresponding
Service Use Tax from their customers.
The third way servicemen may account for their tax liability only applies to de
minimis servicemen who have either chosen to be registered or are required to be
registered because they incur Retailers’ Occupation Tax liability with respect to a
portion of their business. Servicemen may qualify as de minimis if they determine that
their annual aggregate cost price of tangible personal property transferred incident to
sales of service is less than 35% of their annual gross receipts from service transactions
(75% in the case of pharmacists and persons engaged in graphic arts production). See
86 Ill. Adm. Code 140.101(f). This class of registered de minimis servicemen is

COMPANY/NAME
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April 4, 2024
authorized to pay Service Occupation Tax (which includes local taxes) based upon the
cost price of tangible personal property transferred incident to sales of service.
Servicemen that incur Service Occupation Tax collect the Service Use Tax from their
customers. They remit tax to the Department by filing returns and do not pay tax to their
suppliers. They provide suppliers with Certificates of Resale for the tangible personal
property transferred to service customers.
The final method of determining tax liability may be used by de minimis
servicemen that are not otherwise required to be registered under Section 2a of the
Retailers’ Occupation Tax Act. Servicemen may qualify as de minimis if they determine
that the annual aggregate cost price of tangible personal property transferred as an
incident of sales of service is less than 35% of the servicemen’s annual gross receipts
from service transactions (75% in the case of pharmacists and persons engaged in
graphic arts production). Such de minimis servicemen handle their tax liability by
paying Use Tax to their suppliers. If their suppliers are not registered to collect and
remit tax, the servicemen must register, self-assess, and remit Use Tax to the
Department. The servicemen are considered to be the end-users of the tangible
personal property transferred incident to service. Consequently, they are not authorized
to collect a “tax” from the service customers. See 86 Ill. Adm. Code 140.108.
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.
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

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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.
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.
Computer software is defined broadly in the Retailers’ Occupation Tax Act.
However, 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. If a provider of a service provides to the
subscriber an API, applet, desktop agent, or a remote access agent to enable the

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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. Illinois generally does not tax subscriptions.
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.
Maintenance Agreements
In general, maintenance agreements that cover computer software are treated
the same as maintenance agreements for other types of tangible personal property.
See 86 Ill. Adm. Code 130.1935(b). The taxation of maintenance agreements is
discussed in subsection (b)(3) of Section 140.301 of the Department’s administrative
rules under the Service Occupation Tax Act. See 86 Ill. Adm. Code Sec. 140.301(b)(3).
The taxability of agreements for the repair or maintenance of tangible personal property
depends upon whether charges for the agreements are included in the selling price of
the tangible personal property. If the charges for the agreements are included in the
selling price of the tangible personal property, those charges are part of the gross
receipts of the retail transaction and are subject to tax. In those instances, no tax is
incurred on the maintenance services or parts when the repair or servicing is performed.
A manufacturer’s warranty that is provided without additional cost to a purchaser of a
new item is an example of an agreement that is included in the selling price of the
tangible personal property.
If agreements for the repair or maintenance of tangible personal property are
sold separately from tangible personal property, sales of those agreements are not
taxable transactions. However, when maintenance or repair services or parts are
provided under those agreements, the service or repair companies will be acting as
service providers under provisions of the Service Occupation Tax Act that provide that
when service providers enter into agreements to provide maintenance services for
particular pieces of equipment for stated periods of time at predetermined fees, the
service providers incur Use Tax based on their cost price of tangible personal property
transferred to customers incident to the completion of the maintenance service. See 86
Ill. Adm. Code 140.301(b)(3). The sale of an optional maintenance agreement or
extended warranty is an example of an agreement that is not generally a taxable
transaction.
If, under the terms of a maintenance agreement involving computer software, a
software provider provides a piece of object code (“patch” or “bug fix”) to be inserted
into an executable program that is a current or prior release or version of its software

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product to correct an error or defect in software or hardware that causes the program to
malfunction, the tangible personal property transferred incident to providing the patch or
bug fix is taxed in accordance with the provisions discussed above.
In contrast to a patch or bug fix, if the sale of a maintenance agreement by a
software provider includes charges for updates of canned software, which consist of
new releases or new versions of the computer software designed to replace an older
version of the same product and which include product enhancements and
improvements, the general rules governing taxability of maintenance agreements do not
apply. This is because charges for updates of canned software are fully taxable as
sales of software under Section 130.1935(b). (Please note that if the updates qualify as
custom software under Section 130.1935(c), they may not be taxable). Therefore, if a
maintenance agreement provides for updates of canned software, and the charges for
those updates are not separately stated and taxed from the charges for training,
telephone assistance, installation, consultation, or other maintenance agreement
charges, then the whole agreement is taxable as a sale of canned software.
If all the criteria listed in subsection (a)(1) of Section 130.1935 are met, then
neither a transaction involving the licensing of that computer software nor the
subsequent software updates for that software will be considered a taxable retail sale
subject to Retailers’ Occupation and Use Tax.
See 86 Ill. Adm. Code
130.1935(a)(1)(A)-(E).
Assuming a license of software meets the requirements of subsection (a)(1) of 86
Ill. Adm. Code 1935, any charges for support, maintenance or updates of the licensed
software provided pursuant to the qualified license agreement would not be subject to
Retailer’s Occupation Tax, whether or not the charges for support, maintenance or
updates of the licensed software are billed pursuant to the terms of the license
agreement or the terms of a separate agreement as long as the software updates are
subject to the provisions of the qualified license agreement.
A fee charged by a company for the services in the form of a subscription that
provides customers with support, access to the software, software maintenance in the
form of security updates, fixes, functionality enhancements, upgrades to the software,
access to services such as its support knowledge base, product usage documentation,
and account management tools is not subject to Retailers’ Occupation Tax or Service
Occupation Tax, as long as any additional software provided pursuant to the
subscription is distributed under open source license provisions and is provided at no
charge. Service Occupation Tax may be due on any other tangible property transferred
as part of the service.
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.

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Very truly yours,
Kimberly Rossini
Associate Counsel
KAR:slc