Are sales of maintenance agreements or warranty contracts taxable. Sales of custom software, which is prepared to the special order of the. Computer software that is not custom software is considered. While illinois sales tax generally applies to most transactions, certain items have special treatment in many states when it comes to sales taxes. Illinois sales tax on software and maintenance agreements. Software as a service saas is a model where software is hosted in one place but. Chicago makes remote use of a providers computer or software, even if the.
The taxation of maintenance agreements is discussed in subsection. Sales of canned computer software are taxable as retail sales in illinois. Salt report 2612 the illinois department of revenue issued a general information letter regarding the application of sales and use tax to computer software maintenance agreements. Sales of offtheshelf or canned computer software are taxable unless certain criteria are met. Sales of custom software downloaded are exempt from the sales tax in illinois. In the state of illinois, any modified software which is held for general or repeated sale or lease is considered to be taxable. This page describes the taxability of optional maintenance contracts in illinois, including parts purchased for use in performing service under optional maintenance contracts.
Under illinois law, canned software is considered to be tangible personal property no matter how it is transmitted or transferred. Illinois guidance on software maintenance agreements. Customer support for any taxable usage does not transform such usage into exempt. In a recent private letter ruling, the illinois department of revenue explained the sales and use tax treatment of software licensing charges and. This page describes the taxability of optional maintenance contracts in illinois, including parts purchased for use in performing service under optional. Sales of custom software, which is prepared to the special order of the customer, are not taxable. Illinois ruling clarifies taxability of maintenance. The taxpayer in this case, is an it consulting business who resells technology related equipment and software. Charges for maintenance agreements or warranty contracts are not taxable if they are sold separately. Illinois ruling clarifies taxability of maintenance agreements. Illinois ruling clarifies taxability of maintenance agreements in a recent private letter ruling, the illinois department of revenue explained the sales and use tax treatment of software licensing charges and software maintenance and consulting services. The seller of maintenance agreements and warranty contracts does incur a use tax liability on its cost price of any tangible personal property transferred in honor of a maintenance agreement. As such, the sale at retail, or transfer, of canned software intended for general or repeated use is taxable.
Sales of offtheshelf or canned computer software are taxable unless certain criteria. Illinois sales tax on software and maintenance agreements software and maintenance agreements sales of canned computer software are taxable as retail sales in illinois. As background, whereas the sale of custom computer software 2 is not subject to retailers occupation tax rot, the transfer of canned computer software is generally treated as a taxable retail sale in illinois. Taxability of cloud computing has been discussed in many general information letters and private letter rulings, and the il dept of revenue has. See illinois administrative code, title 86, section. Sales of digital products are exempt from the sales tax in illinois. Maintenance agreements for software will be treated in the same manner as other maintenance. Illinois department of revenue regulations title 86 part section. Are optional maintenance contracts taxable in illinois.
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