Sales, Use and International Tax Activity Update - June 2009

Illinois Iterates the Conditions of Taxable Services

The Illinois Department of Revenue (DOR) has issued a general information letter to explain the taxation of tangible personal property transferred incident to sales of service. But the letter also addresses information transferred electronically and states that it is not subject to sales tax because it is not tangible personal property.

The letter also states that general canned computer software is considered tangible personal property and is subject to tax if it does not meet certain requirements. A long list of products and services were submitted to be ruled on but we will only discuss a select few dealing with electronically transferred material and canned software.

Background

The Taxpayer is a leading publisher and provider of innovative products and services for professionals focused on meeting individual and organizational development needs. The company's hundreds of unique offerings have been used by millions of individuals in more than 50 countries to help people and organizations grow and develop by improving performance and increasing understanding. The Taxpayer is in the process of evaluating the taxability of various products and services it offers to make certain that their taxability interpretation is in compliance with Illinois laws.

The following is a partial list of goods and services that were discussed in the ruling:

• Electronic assessments taken via Internet - personality tools online where the customer can either print their results or view them online.
• Software license fees from customer subscription to the Taxpayer’s Website
• Professional consulting services - training held within Illinois
• Data Extraction - create a file of scored assessment responses for analysis and interpretation by the customer. ( Presumption is this is electronically transferred)
• Data Management Service - modify, filter, select, or clean extracted data to identify the specific participants desired. ( Presumption is this is electronically transferred)

Illinois DOR Response

The Illinois Retailers' Occupation Tax Act imposes a tax upon persons engaged in this State in the business of selling tangible personal property to purchasers for use or consumption. See 86 Ill. Adm. Code 130.101. The 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.

The provision of professional or consulting services that do not include the transfer of tangible personal property with the provision of such services does not result in Service Occupation Tax or Use Tax liability. The transfer of any tangible personal property such as, for example, written reports, tangible media (CDs) and training manuals incident to a sale of service would result in Service Occupation Tax liability or Use Tax liability. See 86 Ill. Adm. Code 140.01 et seq.

In regards to workshops or training classes when tangible personal property may be transferred to participants, please see the Department's regulations on the taxation of seminar materials at 86 Ill. Adm. Code 140.129.

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 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). If transactions for the licensing of computer software meet all of the criteria provided in Section 130.1935(a)(1), neither the transfer of the software or the subsequent software updates will be subject to Retailers' Occupation Tax. Please note that acceptance of a software license agreement by clicking "accept" while online is not considered "acceptance" sufficient enough to constitute a written agreement signed by the licensor and the customer for purposes of subsection (a)(1)(A) of Section 130.1935.

This General Information Letter may be viewed at the Illinois Revenue Website

(Illinois Department of Revenue, ST 09-0051-GIL 04/01/2009)

---

Subscribe to CyberTax News and receive the latest indirect tax news, including rate changes, rule updates, compliance issues, and more, delivered directly to your email.

Email Address

e.