Is a bundled IVF specimen-storage offering -- combining a leased robotic system, a nominally-sold storage tank, and subscription database software -- taxable in Illinois?

Plain-English summary

A life-sciences company that helps fertility clinics store and track frozen eggs and embryos asked the Department to confirm that its whole bundled offering is tax-exempt. The bundle includes: a storage vault tank and initial consumables nominally sold to the clinic for $1 (to establish legal ownership); a robotic system that raises, lowers, and retrieves specimen racks, leased for $1/month; and a proprietary cloud database (billed per patient, per month) that tracks each specimen via RFID and integrates with the clinic's medical records. The company's own submitted letter argued at length -- citing the "true object test" -- that the whole arrangement should be nontaxable because clinics are really buying a specimen-management SERVICE, with the tank and robot merely incidental to it.

Worth flagging: that detailed "true object" argument, and its conclusion that the transaction "should be considered nontaxable," appears in the PORTION OF THE LETTER THE DEPARTMENT QUOTES BACK FROM THE TAXPAYER'S OWN SUBMISSION (it even contains an apparent copy-paste slip referencing "Massachusetts... law" partway through) -- it is the taxpayer's argument, not the Department's conclusion. The Department's actual "DEPARTMENT'S RESPONSE" section, which follows, doesn't adopt or reject that specific conclusion. Instead it lays out the general legal framework a taxpayer would need to apply:

• Software-as-a-service is generally a service, not a taxable sale of property, and its provider is a "serviceperson" under the Service Occupation Tax Act rather than a retailer under the Retailers' Occupation Tax Act.
• Cloud-based software that's only accessed remotely, never downloaded, is generally not taxed -- but if the provider gives the subscriber an API, applet, desktop agent, or remote-access agent, the subscriber IS considered to be receiving computer software, which can be taxable unless it meets the strict written-signed-license exemption criteria (a click-through "I agree" box does NOT qualify; an actual signed agreement or a verifiable, authenticatable electronic signature is required).
• Servicepersons who transfer tangible personal property (like equipment) incident to a service owe Service Occupation Tax on that property, calculated under one of four methods (separately-stated price, 50%-of-bill, or a cost-based method for qualifying "de minimis" servicepersons).
• Mixed/bundled transactions (a service plus transferred property) are analyzed under the "true object test" -- what the buyer really came to purchase, service or property -- but the Department didn't apply that test to this taxpayer's specific tank/robot/software bundle in its response.
• Property tax: real property is taxable, but personal property -- including computer equipment, hardware, and software -- is NOT subject to Illinois property tax.

What this means for you

SaaS and healthcare-technology companies with bundled hardware

Don't assume a detailed "true object" argument in your ruling request gets adopted just because the Department quotes it back in its "In your letter you have stated..." recap. Read the actual "DEPARTMENT'S RESPONSE" section separately -- here, the Department gave the general legal test rather than a specific determination, leaving this taxpayer (and similarly situated businesses) to apply the framework themselves, potentially by requesting a binding Private Letter Ruling if they want a definitive answer.

Businesses licensing cloud software with an API or remote-access agent

If your SaaS product includes an API, applet, desktop agent, or remote-access agent for the subscriber, the Department treats the subscriber as receiving computer software -- not just accessing a pure service -- which can trigger tax unless your license meets the strict written/signed-agreement exemption criteria. A standard click-through acceptance does not satisfy that requirement.

Businesses bundling nominal-fee equipment ($1 sales, $1 leases) with a subscription service

A token $1 sale or lease doesn't by itself resolve the tax question -- the Department's framework still requires working through whether the equipment transfer is "incidental" to a dominant service (the true object test) or whether it's itself taxable tangible personal property being transferred incident to a taxable service.

Common questions

Q: Did the Department rule that this company's IVF storage/software bundle is tax-exempt?
A: No. The "nontaxable" conclusion in the letter is the TAXPAYER'S OWN argument, quoted back by the Department as part of summarizing the inquiry. The Department's actual response section sets out the general legal framework without adopting a specific conclusion for this bundle.

Q: Is software-as-a-service generally taxable in Illinois?
A: Generally no, if it's accessed purely remotely without a download. But if the subscriber receives an API, applet, desktop agent, or remote-access agent, the subscriber is treated as receiving computer software, which can be taxable unless a strict written-license exemption is met.

Q: Does a customer's click-through "I agree" to license terms qualify for the exempt-software-license test?
A: No. The exemption requires an agreement signed by both the licensor and customer (including a verifiable, authenticatable electronic signature) -- a standard online checkbox acceptance does not meet that requirement.

Q: How is tax calculated when a service provider transfers equipment as part of a service?
A: Under one of four Service Occupation Tax methods: tax on the separately-stated selling price of the property transferred, tax on 50% of the entire bill, or a cost-based method for a registered "de minimis" serviceperson (or Use Tax on cost for certain non-registered de minimis providers).

Q: Is business computer equipment and software subject to Illinois property tax?
A: No. Illinois taxes real property, but personal property -- including manufacturing/computer equipment, hardware, software, and business inventory -- is not subject to property tax.

Citations and references

Statutes:

• 35 ILCS 120/2 (Retailers' Occupation Tax Act imposition)
• 35 ILCS 105/3 (Use Tax Act imposition)
• 35 ILCS 115/2, 115/3 (Service Occupation Tax Act -- imposition; leases treated as transfers as of January 1, 2025)
• 35 ILCS 120/2-25 (definition of "computer software")
• 35 ILCS 200/9-95, 200/24-5 (property tax -- real property taxable, personal property not)

Regulations:

• 86 Ill. Adm. Code 130.1935 (canned computer software; exempt written-license criteria)
• 86 Ill. Adm. Code 130.2105(a)(3) (electronically transferred data not tangible personal property)
• 86 Ill. Adm. Code 140.101, 140.105, 140.106, 140.108, 140.109 (Service Occupation Tax Act imposition and tax-base calculation methods)

Source

• Landing page: Illinois 2025 Sales Tax Letter Rulings
• Original PDF: ST25-0070-GIL.pdf

Original ruling text

ST 25-0070-GIL

12/24/2025

COMPUTER SOFTWARE

A provider of software as a service is acting as a serviceman. If a serviceman
transfers tangible personal property incident to that service, they must calculate
their tax liability using one of the four applicable Service Occupation tax methods.
(This is a GIL).
December 24, 2025
NAME
TITLE
COMPANY
ADDRESS
Email: EMAIL
Dear NAME:
This letter is in response to your letter dated October 2, 2025, 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
https://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:
On behalf of our client, hereby referred to as “the Company” we are
submitting a petition for a legal opinion on tax and fee matters including sales
and use tax and property tax guidance on all offerings currently provided by
the Company.
BACKGROUND – COMPANY INFORMATION
The Company is a life sciences technology company in the field of IVF
(“In Vitro Fertilization”) who assists with reproductive specimen storage by
partnering with fertility clinics. The Company’s Digital Specimen Management
links specimens, software, and storage. The management service provides
cryo-management of frozen eggs and embryos that are digitally identified,

COMPANY
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December 24, 2025
safely managed with automated robotics, and remotely tracked and
monitored 24/7 using proprietary RFID (“Radio Frequency Identification”)
enabled labware and an integrated software management solution. The
patient specimens are tracked and logged in a proprietary digital database
software that integrates with clinics EMR (“Electronic Medical Record”)
software.
The Company’s services help clinics reduce risk, improve accuracy,
and streamline operations while offering patients the highest levels of
security, transparency, and peace of mind for their specimen storage. To
ensure a complete digital chain of custody, each cryo-device is uniquely
identified with a barcoded label and then linked to an RFID chip embedded or
BEACON that is redundantly labeled with a linear barcode and alphanumeric
eye-readable code. Without these solutions provided by the Company,
specimen labels are hand-written, typed, and then typically tracked manually
with spreadsheets and paper records. The Company generally partners with
Clinics for the Clinic’s patients to store frozen eggs and embryos. However, if
patients do not have a Clinic nearby that is partnered with the Company, then
patients can arrange directly with the Company to have their eggs and
embryos transferred to one of the Company’s Biorepository sites for storage.
The Company offers a variety of solutions to meet clinics and patients’
needs. Thees include:
•
•

•

In-Clinic – The on-site storage solution which consists of a vault
tank, robot tower, and platform usage can hold ~1,100 – 3,200
patient specimen per storage unit.
Offsite – The Company offers the highest standard of care in
offsite storage in a biorepository in the U.S. with all of the
benefits of Digital Specimen Management services, seamless
and trusted transport, and patient billing.
Hybrid – This is offered to clinics where the clinic chooses to
mix and match the storage solutions that work for them
between In-Clinic and Offsite solutions.

Below is a summary in detail of the service offering descriptions and
details into the billing methods.
As part of the Company’s service agreements with the Clinics, the
Clinics purchase and lease equipment and license the Company’s digital
database software from the Company. The Clinic is granted a limited, nonexclusive, non-transferable, non-sublicensable, worldwide right and license

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during the term of the service agreement to access the specimen
management software (the “The Company’s digital database”). The
overarching goal is to provide storage and preservation of specimens that is
delivered through providing the software, equipment, and support services to
the customer. Specifically, the following goods/services are provided:
•

•

•

Equipment (tank and initial consumables)
o The customer receives a set of hardware products
including a vault tank, barcode labels, and other
required materials and hardware designed to go along
with the software and Robot Arm “Robotic automation
system” which houses the patient specimen. Title and
risk of loss of the tank transfers to the customer upon
delivery.
Robot Tower and Radio Frequency Identification (“RFID”)
workstation (i.e., herein after referred to as the “Robotic
automation system”)
o The Robot Tower and radio frequency identification
(“RFID”) workstation includes the Robot as well as the
specimen software management system used to track
specimen within the vault tank.
o The automation system raises and lowers the racks of
specimen within the tank and retrieves the specimens as
directed by the proprietary digital database software.
o BEACONS (“Beacons”) – hold DEVICES such as the vials
that clinics put embryos/oocytes in storage for cryogenic
conditions and provide identification via embedded
RFID tab. BEACONS are put into the robots for use.
The Company’s digital database software (SaaS)
o The proprietary digital database software is an operating
system which integrates with all the robots and clinic’s
basic electronic medical record software (“EMRs”). The
database software allows clinics to track and trace
where patient’s specimen is within the robot or outside
the robot via the RFID tag on each beacon. When a clinic
wants to retrieve a patient’s beacon from the robot, or
store a patient’s beacon in the robot, they do so by
creating a transaction (or ticket) with the database
software. The Robot’s software interface with the
database software so that when the robot executes the
tickets it can identify where the patient is located in the
vault tank for retrieval, or where the specimen is to be

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December 24, 2025
stored within the tank. Clinics use the database software
to create a digital record of the patient’s beacon which
allows them to know exactly where the patient’s beacon
is located.
The below services listed are included as part of the Company’s digital
database software fees.
•

•

•

•

•

•

•

Emergency Response Service
o Should any incidents occur with any aspect of the
robot’s functionality, the Company will send personnel
to fix the issues (either send someone onsite or assist via
phone where possible).
24/7 Overwatch monitoring service
o The Company continually monitors all robots in the field
to ensure no malfunctions of the equipment and will
notify the clinic if anything were out of acceptable range.
Basic electronic medical record (“EMR”) integration
o The Company integrates the database software with the
clinics Electronic Medical Records (“EMR”)
Bi-annual preventative maintenance
o The Company’s third-party service provider performs
annual maintenance of the robots on the anniversary of
installation and field service engineers perform annual
maintenance on the 6-month anniversary of installation.
This includes checking for ice buildup and removal,
monitoring battery life, appropriate greasing of parts,
LN2 monitoring system is working appropriately. This
service is included in the contract. The maintenance
cannot be performed by anyone other than this service
provider.
On-site repair
o Similar to the emergency response services but for lower
risk issues. Should any incidents occur with any aspect
of the platform, the Company will send personnel to fix
the issues (either send someone onsite or assist via
phone where possible).
Access to 24/7 client support
o The Company Network Operations serves as a call
center with 24/7 assistance for client support.
Installation / construction services

COMPANY
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December 24, 2025

•

•

•

o The Company will install the robot and if necessary,
performs construction at the clinic site so that site can
fit the robot. The contract period generally starts from
date of signing and has a term of 5 years. However, billing
does not commence until specimens are in the robots.
Not all contracts require construction services. They
would all require installation of the robots.
Specimen inventory preparation and analysis
o Prior to moving specimen from clinic tanks into the
robots, the Company will audit the clinic’s patient
inventory list and match against physical specimen to
ensure the only specimen being moved in the robots
have patient IDs and records.
Specimen reformatting
o The Company’s embryologists will assist clinic in moving
specimen from clinic tanks into the robots.
Training
o The Company’s embryologist train clinic embryologists
on how to use the robot and the database software.

The Company purchases the equipment from an offshore vendor who
ships the equipment including the Robot, the vault tank, and other
hardware/consumable needed to the US for the Company to store until resold
to a clinic. The purchased equipment is sold for $1 up front including the vault
tank and initial consumables. The intent of this is to ensure safe keeping of all
patient specimen within the tank. If the contract were to be terminated by the
clinic or the Company, the clinic has the right to retain the tank, and all
specimen stored within. While the customer has the right to keep the tank,
there have been instances historically where a robot, including the tank, have
been removed from the clinic location and returned to the Company’s
warehouse. While the customer owns the tank, there is no economic benefit
of the tank standalone without the robot and Company’s database software.
Separately, the Robotic Automation System is leased for $$$/month
with the Company’s database software subscription billed on a per patient
per month basis for all additional services. The company bills and generates
revenue/cash flow on a per patient per month basis based on the database
software fee. The robot automation system raises and lowers racks of
specimens within the tanks and the database software. It is specifically
designed to interact with the tanks via the database software and cannot do
anything without being installed with the tanks and database software. The
clinic does not obtain an economic benefit from the robot arm. The clinic does

COMPANY
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December 24, 2025
not have the right to direct how and for what purpose the asset is used
throughout the period of use. The clinic can only use the robot to store IVF
specimens. The clinics can choose when to use the robot including how many
patients and what patients the system suits best.
ISSUE
The Company is looking to determine if the service offerings and
charges to their customer listed above are deemed nontaxable in the state of
Illinois for sales and use tax purposes. If any of the above is deemed taxable,
the Company would need to understand the appropriate taxable base.
Additionally, the Company is looking to understand if there are any
specific property tax implications imposed specifically on the Company for
any of the above.
APPLICABLE LAW
The Illinois Retailers’ Occupation Tax Act imposes a tax upon persons
engaged in this State in the business of selling tangible personal property at
retail to purchasers for use or consumption. i Gross receipts from sales or
leases of tangible personal property at retail means the total selling price of
the tangible personal property. ii The provision of a service in Illinois that is not
accompanied by the transfer of tangible personal property is generally not
subject to Retailers’ Occupation Tax or Service Occupation Tax liability. The
sale of service that is accompanied by a transfer of tangible personal property
would be subject to liability under the Service Occupation Tax Act. iii
Specimen Storage and Monitoring Services
Illinois does not tax sales of service. Illinois does impose service
occupation tax on items of tangible personal property transferred as an
incident to sales of service. iv Room rentals, locker rentals, and storage facility
rentals are not taxed. v
Software and Information/Data Related Services

Ill. Adm. Code 130.101.
35 ILCS 120/1.
iii
5 ILCS 115/3.
iv
86 Ill. Adm. Code Part 140.
v
Article 75 of Public Act 103-592.
i

ii

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December 24, 2025
Software-as-a-service or software provided through a cloud-based
delivery system in which computer software is never downloaded onto a
client’s computer and is only accessed remotely is not subject to tax. vi
However, 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. vii 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. viii
Information or data that is electronically transferred or downloaded is
not considered the transfer of tangible personal property. ix 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. x
Installation, phone support, training, and seminars that do not require
the transfer of tangible personal property to the recipients of those services
are exempt if they are separately stated from the selling price of any taxable
canned software. xi If computer software training or other support services are
provided in conjunction with a sale of nontaxable computer software or a
license of computer software, the charges for that training are not subject to
tax. xii
Bundled/Mixed Transaction
A mixed transaction is when you have a service being performed that
includes property being transferred to the purchaser. It is implied that the title
or ownership of the transferred property goes to the recipient of the service. In
mixed transactions the taxing authority typically looks at the true object test.
The true object test is a subjective test to determine what it is the customer is
really wanting to purchase, either service or property. It is an all or nothing
test. This test looks at the reason or purpose the buyer entered into the
transaction and what it is the buyer wanted to purchase. The taxing authority
needs to determine whether the buyer wanted the service or the property. If
the service is determined to be what the buyer wanted, then the taxation or
Illinois General Information Letter ST 20-0018-GIL.
86 Ill. Adm. Code 130.1935(a)(1).
viii
86 Ill. Adm. Cod 130.1935.
ix
86 Ill. Adm. Code 130.2105(a)(3).
x
Illinois General Information Letter ST 20-0018-GIL
xi
Section 130.1935(b).
xii
ST-22-0023-GIL
vi

vii

COMPANY
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December 24, 2025
non-taxation of the service must be followed. If the property is determined to
be what the buyer wanted, then the transaction is taxable in total. Taxing
authorities also refer to the true object test as the ‘real object test,’ ‘most
important factor test,’ ‘basic purpose of the buyer test,’ ‘crucial element test’
or ‘essence of the transaction test.’ xiii
Equipment
The Illinois Retailers’ Occupation Tax Act imposes a tax upon persons
engaged in this State in the business of selling tangible personal property at
retail to purchasers for use or consumption. xiv To the extent that property is
installed as fixtures permanently attached to the realty on which they are
located, it is not considered tangible personal property and not be subject to
the tax. xv
A sale or transfer of machinery and equipment used primarily in the
process of manufacturing or assembling, either in an existing, an expanded or
a new manufacturing facility, of tangible personal property for wholesale or
retail sale or lease, whether such sale or lease is made directly by the
manufacturer or by some other person, whether the materials used in the
process are owned by the manufacturer or some other person, or whether
such sale or lease is made apart from or as an incident to the seller’s engaging
in a service occupation is exempt from tax. xvi The manufacturing process is the
production of articles of tangible personal property or assembling different
articles of tangible personal property by procedures commonly regarded as
manufacturing, processing, fabricating, or refining which changes some
existing material or materials into a material with a different form, use or
name. These changes must result from the process in question and be
substantial and significant. xvii Production related tangible personal property
that is primarily used or consumed in activities such as research and
development, preproduction material handling, receiving, quality control,
inventory control, storage, staging, and packaging for shipping and
transportation purposes is exempt. xviii

Illinois General Information Letter ST 01-0091-GIL
86 Ill. Adm. Code 130.101.
xv
Illinois General Information Letter ST 09-0145-GIL
xvi
35ILCS 110/2.
xvii
86 Ill. Adm. Code 130.330.
xviii
Illinois Informational Bulletin FY 2019-28
xiii
xiv

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Illinois has provided guidance that a taxpayer’s machinery and
equipment, including refrigeration equipment, qualified as a manufacturing
process exempt from Retailer’s Occupation Tax. xix
Stand-alone tangible personal property installation services and
tangible personal property repair services are not subject to Illinois’ retailers’
occupation, service occupation, use, or service use taxes. xx
Leases
On and after January 1, 2025, for purposes of State and local retailers’
occupation taxes, the term “sale” includes a lease. xxi For purposes of State
and local service occupation taxes, the term “transfer” includes a lease. xxii
Effective January 1, 2025, in accordance with the provisions of Article 75 of
Public Act 103-592, persons engaged in the business of leasing tangible
personal property at retail (“lessors”) in Illinois are subject to State and local
retailers’ occupation tax on the gross receipts from leases of tangible
personal property made in the course of business. xxiii A “lease” is defined as a
transfer of the possession or control of, the right to possess or control, or a
license to use, but not title to, tangible personal property for a fixed or
indeterminate term for consideration, regardless of the name by which the
transaction is called, but does not include a lease entered into merely as a
security agreement that does not involve a transfer of possession or control
from the lessor to the lessee. The tax applies to lease receipts received on or
after January 1, 2025, for leases in effect, entered into, or renewed on or after
that date. For sales of service, the tax applies to tangible personal property
transferred by lease by persons engaged in the business of making sales of
service in which leases are in effect, entered into, or renewed on or after
January 1, 2025 xxiv and. xxv For retail leases and tangible personal property
transferred by lease by persons engaged in the business of making sales of
service, tax is due to the lessor’s State and local retailers’ occupation tax or
service occupation tax rate based on where the lease is sourced. xxvi Gross
receipts from sales or leases of tangible personal property at retail means the
total selling price of the tangible personal property. xxvii
Private Letter Ruling, ST 23-0003-PLR (June 2, 2023).
Ill. Admin. Code tit. 86, § 130.2015(c)(1).
xxi
35 ILCS 120/1.
xxii
35 ILCS 115/2.
xxiii
35 ILCS 120/2.
xxiv
35 ILCS 120/2.
xxv
35 ILCS l 15/3.
xxvi
35 ILCS 120/2-12(5.5).
xxvii
35 ILCS 120/1.
xix
xx

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The tax on leases and rentals of tangible personal property does not
extend to real property. To the extent that property is installed as fixtures
permanently attached to the realty on which they are located, it is not
considered tangible personal property, and the lease or rental of that property
would not be subject to the tax on leases and rentals of tangible personal
property Article 75 of Public Act 103-592.
When the provision of tangible personal property includes an operator
for the tangible personal property for a fixed or indeterminate period, the
arrangement may constitute a lease taxable under the Retailers’ Occupation
Tax Act. If the operator is necessary for the equipment to perform as designed
and is responsible for more than maintaining, inspecting, or setting up the
tangible personal property, the arrangement is not a lease. When a purchaser
enters into such an agreement to use tangible personal property for a
predetermined period, but an owner operator retains possession and control
of the tangible personal property, such agreement does not constitute a
lease. The customer may gain access to the benefit of the tangible personal
property, but an owner operator remains in possession and control of the
property throughout its use under the agreement. In this situation, the
customer does not have the unfettered right to possess or control the tangible
personal property, and the transaction does not include any taxable transfer
of tangible personal property Article 75 of Public Act 103-592.
Property Tax
All real property is subject to property tax in Illinois. xxviii Personal
property is not taxed in Illinois. This includes, manufacturing and industrial
equipment, materials and employee-owned tools, computer equipment,
hardware, and software, and business inventory is not taxed in Illinois. xxix
DISCUSSION
It is our understanding that the primary purpose of the Company’s
transactions with fertility clinics is to provide a secure and technologically
advanced service for the management and storage of human reproductive
specimens. Although certain tangible personal property – such as vault tanks
and robotic automation systems – is transferred or leased as part of the
arrangement, these items are ancillary to the core service offering. The
Company’s value lies in its integrated platform, which includes secure vault
35 ILCS 200/9-95.
35 ILCS 200/24-5.

xxviii
xxix

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infrastructure, digital tracking and traceability via beacon technology and
proprietary database software, and comprehensive customer support
including emergency response capabilities.
The Company generates revenue on a per-patient, per-month basis
through fees associated with access to its cloud-based database software,
which is essential to the platform’s operation. This software directs the
robotic automation system to retrieve and place specimens within the vault
tanks and is one of several components included in the database software
fee. Separately, the robotic arm is leased for a nominal fee of $1 per month,
and the vault tank is sold for $1 upfront to establish legal ownership by the
clinic. These components are designed to function exclusively within the
integrated system and have no independent utility or economic value outside
of the provision of a specialized specimen management and retrieval service.
Taken together, the vault tank, robotic arm, and database software
form a unified solution that enables clinics to store, preserve, and retrieve
specimens efficiently and securely. Accordingly, the true object of the
transaction is the provision of a specialized specimen management service,
and the transfer of tangible personal property is incidental. Based on this
characterization, the sales to clinics should be considered nontaxable under
Massachusetts [sic] law.
The Company’s customers are fertility clinics that engage its services
for the secure management and storage of human reproductive specimens.
The nominal $1 upfront charge for the vault tank and related consumables is
intended to establish legal ownership of the tank by the clinic, ensuring that,
in the event of contract termination, the clinic retains both the tank, and the
specimens stored within. While there have been instances where the robotic
system and tank were returned to the Company’s warehouse, such actions
underscore the limited standalone economic value of the vault tank outside
the provision of a specialized specimen management and retrieval service.
The robotic automation system, leased to clinics for $1 per month, is
designed to raise and lower specimen racks within the vault tank and facilitate
specimen retrieval, as directed by the Company’s proprietary database
software. This robotic arm has no independent utility and is engineered
specifically to operate in conjunction with the vault tank and database
software. Its functionality is entirely dependent on the broader service
offerings, and it cannot be repurposed or used outside of this context.

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Accordingly, both the vault tank and robotic system serve as integral
components of the Company’s service offering but are incidental to the
primary objective of providing secure specimen management. Their inclusion
in the transaction supports the delivery of the service rather than constituting
a separate table sale of tangible personal property. The real or true object of
the transaction remains the provision of a specialized specimen management
and retrieval service.
The Company offers multiple solution models – Offsite, In-Clinic, and
Hybrid storage – demonstrating that the provision of tangible property is not a
required element of the service. For example, offsite storage does not involve
the transfer or lease of physical equipment, yet clinics still receive full access
to the database software and specimen management services. This
reinforces the position that the true object of the transaction is the provision
of a nontaxable service related to the safekeeping and management of
reproductive specimens. The inclusion of tangible property is merely
supportive of the service and does not alter is fundamental nature.
CONCLUSION
We respectfully request that you confirm the implications surrounding
the issues noted above for the Company’s services offering regarding both
sales and use taxes and property taxes. Pursuant to the Illinois Department of
Revenues Voluntary Disclosure Program and with respect to the subject of the
legal opinion request, the petitioner elects to reserve the right to apply for the
Voluntary Disclosure Program.
DEPARTMENT’S RESPONSE:
Retailers’ Occupation 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. 35 ILCS 120/2; 86 Ill. Adm. Code 130.101. In Illinois, Use Tax is imposed on
the privilege of using, in this State, any kind of tangible personal property that is purchased
anywhere at retail from a retailer. 35 ILCS 105/3; 86 Ill. Adm. Code 150.101. These taxes
comprise what is commonly known as “sales” tax in Illinois.
Effective January 1, 2025, persons engaged in the business of leasing tangible
personal property at retail (“lessors”) in Illinois are subject to State and local retailers’
occupation tax on the gross receipts from leases of tangible personal property made in the
course of business. See 35 ILCS 120/2. A “lease” is defined as a transfer of the possession

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or control of, the right to possess or control, or a license to use, but not title to, tangible
personal property for a fixed or indeterminate term for consideration, regardless of the name
by which the transaction is called, but does not include a lease entered into merely as a
security agreement that does not involve a transfer of possession or control from the lessor
to the lessee. On and after January 1, 2025, for purposes of State and local retailers’
occupation taxes, the term “sale” includes a lease. See 35 ILCS 120/1. This includes the
extension of all exemptions from retailers’ occupation tax and use tax to leases. See 35 ILCS
120/2-5. The tax applies to lease receipts received on or after January 1, 2025 for leases in
effect, entered into, or renewed on or after that date. The lessor must remit for each tax
return period the tax applicable to lease receipts received during that tax return period. See
35 ILCS 120/2.
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.
Effective January 1, 2025, persons engaged in the business of making sales of service
are subject to State and local service occupation tax on all tangible personal property
transferred by lease as an incident of a sale of service. See 35 ILCS 115/3. A “lease” is
defined as a transfer of the possession or control of, the right to possess or control, or a
license to use, but not title to, tangible personal property for a fixed or indeterminate term
for consideration, regardless of the name by which the transaction is called, but does not
include a lease entered into merely as a security agreement that does not involve a transfer
of possession or control from the lessor to the lessee. On and after January 1, 2025, for
purposes of State and local service occupation taxes, the term “transfer” includes a lease.
See 35 ILCS 115/2. The tax applies to tangible personal property transferred by lease by
persons engaged in the business of making sales of service in which leases are in effect,
entered into, or renewed on or after January 1, 2025. The serviceman who is a lessor must
remit for each tax return period only the tax applicable to that part of the selling price
actually received during such tax return period. See 35 ILCS 115/3.
Servicemen may calculate their tax base in one of four ways: (1) Service Occupation
Tax on separately-stated selling price of tangible personal property transferred incident to
service; (2) Service Occupation Tax on 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

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and is not otherwise required to be registered under Section 2a of the Retailers’ Occupation
Tax Act. See 86 Ill. Adm. Code Sections 140.106; 140.108; and 140.109.
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. See 86 Ill.
Adm. Code 140.106.
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). This class of registered de minimis servicemen
is 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. See 86 Ill. Adm. Code 140.109.
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 for the
tangible personal property subsequently transferred to their customers. 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.

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If an entity 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.
Cost Ratio
The cost ratio is a measure of the amount of tangible personal property transferred
with a service. It is calculated by comparing the serviceman’s product cost to total income
from services. The cost of materials that are not transferred to customers incident to a
service, such as those sold at retail, removed from inventory for use, or incorporated into
repairs of real estate, must be excluded when determining the cost ratio. See 86 Ill. Adm.
Code 140.105(c).
To calculate the cost price of the tangible personal property transferred by lease, a
serviceman must first determine the useful life of the tangible personal property. The useful
life is the useful life or recovery period allowed under federal law for like kind of property.
See 86 Ill. Adm. Code 150.110. The serviceman must then divide the price initially paid to its
supplier for the item by its useful life. Next, the serviceman must convert the cost price into
whatever time period is used for the lease (e.g. years or months). The result is the cost price
for each lease payment. Finally, the serviceman must multiply the cost price for each lease
payment by the duration of the lease during the year to determine the annual product cost
used to determine cost ratio.
This method to determine cost price for each rental payment must also be used in
calculating Service Occupation Tax liability using the first three methods, as described
above. This cost price is used as long as the serviceman transfers such tangible personal
property by lease as an incident of a sale of service and is not limited to the useful life of the
item. If the serviceman uses the fourth method, as stated above, however, they would pay
Use Tax to the supplier of the leased tangible personal property.
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. Computer software includes all types of

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software including operational, applicational, utilities, compliers, templates, shells and all
other forms. 86 Ill. Adm. Code 130.1935(a).
Generally, sales or transfers of “canned” computer software intended for general or
repeated use are taxable retail sales in Illinois. 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. The sale or transfer by a retailer of
computer software which is subject to manufacturer licenses restricting the use or
reproduction of the software is also taxable. 86 Ill. Adm. Code 130.1935(a). However, if all
of the criteria provided in subsection (a)(1) of Section 130.1935 are met, then neither the
sale or transfer of the software nor the subsequent software updates are subject to
Retailers’ Occupation Tax. Specifically, 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.

86 Ill. Adm. Code 130.1935(a)(1). If a license of canned computer software does not meet
all the criteria, the software is taxable.
Please note that it is very common for software to be licensed over the internet and
the customer to accept the license terms by checking a box or clicking “I agree”. Acceptance
in this manner does not constitute a written agreement signed by the licensor and the
customer for purposes of subsection (a)(1)(A) of Section 130.1935. 86 Ill. Adm. Code
130.1935(a)(1)(A)(ii). To meet the signature requirement for an exempt software license, the
agreement must contain the written signature of the licensor and customer. An electronic
agreement in which the customer accepts the license by means of an electronic signature

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that is verifiable and can be authenticated and is attached to or made part of the license will
comply with this requirement. 86 Ill. Adm. Code 130.1935(a)(1)(A)(i).
Software as a Service
A provider of software as a service is acting as a serviceman. As a serviceman, the
seller does not incur Retailers’ Occupation Tax. Service Occupation Tax is imposed upon all
persons engaged in the business of making sales of service on all tangible personal property
transferred incident to a sale of service, including computer software, and is calculated as
explained above.
Computer software is defined broadly in the Retailers’ Occupation Tax Act. See 86 Ill.
Adm. Code 130.1935(a); 35 ILCS 120/2-25. However, computer software provided through
a cloud-based delivery system is not subject to tax. A cloud-based delivery system is one in
which computer software is never downloaded onto a client’s computer and only accessed
remotely. 86 Ill. Adm. Code 130.1935(a)(3). 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. 86 Ill. Adm. Code 130.1935(a)(4). 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. Tax owed would be calculated
using one of the four Service Occupation Tax methods detailed above.
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 generally does not tax subscriptions of
software-as-a-service
I hope this information is helpful. If you require additional information, please visit
our website at https://tax.illinois.gov/ or contact the Department’s Taxpayer Information
Division at 800-732-8866.
Very truly yours,

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George L. Encarnacion, Jr.
Associate Counsel
GLE:sce