Illinois Sales Tax on Software and Digital Products

Illinois applies a clear, service-based framework to sales and use tax for software, digital products, and cloud-based platforms. Unlike states that broadly tax software based on delivery method, Illinois limits sales tax to tangible personal property and certain in-state services. This benefits software providers that operate through cloud-native delivery or customized service models.


This guide explains Illinois rules for software sales tax, SaaS sales tax, digital goods, maintenance agreements, and related services. It is designed to help finance teams, compliance leads, and software vendors understand how to reduce risk and improve tax efficiency.

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Illinois classifies software based on how it is delivered and whether it is customized. Tax treatment depends on these distinctions.


Prewritten Software

Prewritten software is not subject taxable when it is delivered on physical media or downloaded in full for permanent use. This includes standard software products sold off the shelf or through digital downloads that are not customized for the buyer. When software is bundled with hardware or provided with limited configuration, it remains taxable regardless of the delivery method.


Custom Software

Custom software that is designed, developed, or significantly modified to meet the specific needs of a client is not taxable in Illinois. The exemption also applies to charges for consulting, setup, or integration services when these charges are itemized separately on the invoice. Limited customizations—such as user setup, branding, or cosmetic changes—do not qualify unless they involve substantial code modification.

Cloud-Based Services in Illinois

Illinois does not impose sales tax on software that is accessed remotely. The Department of Revenue considers cloud-based software outside the scope of taxable tangible personal property when users do not download or control the software.


Software as a Service (SaaS)


SaaS is not taxable in Illinois when it is accessed through a cloud platform and not downloaded.


Platform as a Service (PaaS)


PaaS follows the same treatment as SaaS. If the user accesses the platform through a browser and no software is installed locally, the transaction is not subject to Illinois sales tax.

Hardware & Tangible Items

Sales of physical hardware such as servers, laptops, and other devices are subject to Illinois sales tax. These items are considered tangible personal property and are taxable at the point of sale.

Implementation & Installation Services

Installation, implementation, and consulting services are not taxable in Illinois if they are itemized separately from taxable software.


  • Non-taxable: When installation, implementation, or consulting services are clearly itemized and billed separately from software.


  • Taxable: When these services are bundled with prewritten software and not separately stated.


Contract language counts: Avoid suggesting that services are inseparable from the software.

Training Services

Illinois exempts training services when charges are listed separately on the invoice. This applies to all training formats.

Onsite

Onsite training provided at a customer’s location is not subject to Illinois sales or use tax, as long as the charge is separately stated on the invoice. This applies to instructor-led sessions delivered in person.

Remote - Live

Live, instructor-led remote training (e.g., via Zoom or Microsoft Teams) is not taxable when separately invoiced. Illinois treats live virtual training the same as in-person instruction.

Remote - Pre-recorded

Pre-recorded training content, including videos, downloadable modules, or self-paced online courses, is not subject to Illinois sales or use tax when billed separately. Illinois does not classify these types of training as taxable digital products or services.




Maintenance Agreements

Illinois exempts maintenance agreements when they support custom software or include only non-tangible support functions. The tax treatment depends on how the agreement is structured and which type of software it supports.

Optional

Optional maintenance agreements are not taxable when related to custom software or when they include services such as technical support, troubleshooting, or helpdesk assistance.


Mandatory

Mandatory maintenance agreements are also not taxable if they are bundled with non-taxable custom software and provide non-tangible services like updates or technical support. Clear contract language and invoice detail are essential to support exemption claims.

Quick Glance - Illinois Sales & Use Tax Treatment for Software and Digital Products

Get the Illinois taxability table download here, for free.


Item Service Taxability Notes & Legal Reference
Digital Products - Business, Permanent Use Non-Taxable Permanent downloads of digital products remain exempt, not classified as tangible personal property. [Ill. Gen. Info. Ltr. No. ST 07-0068-GIL]
Software as a Service (SaaS) Non-Taxable SaaS accessed through the cloud without downloading is not considered a taxable transfer of property. [IL Dept. of Rev. GIL ST 17-0006-GIL, March 2, 2017]
Platform as a Service (PaaS) Non-Taxable PaaS follows the same position as SaaS?non-taxable if the software is not delivered or controlled by the user. [IL Dept. of Rev. GIL ST 17-0006-GIL]
Installation/Implementation (separately stated) Non-Taxable Services such as training, telephone assistance, and setup are not taxable when itemized separately. [Ill. Admin. Code 130.1935(b)]
Hardware Taxable Sales of physical equipment including computers and networking devices are taxable retail sales. [35 Ill. Comp. Stat. sec. 110/2]
Onsite Training Non-Taxable Training charges related to software are not taxable ifTraining charges related to software are not taxable if separately stated. [Ill. Admin. Code tit. 86, pt. 130.450(b)]
Remote Live Training Non-Taxable Live, instructor-led remote training is exempt under the same treatment as onsite training. [Ill. Admin. Code tit. 86, pt. 130.450(b)]
Pre-recorded Webinars Non-Taxable Pre-recorded, self-paced software training is not taxable when separately invoiced. [Ill. Admin. Code tit. 86, pt. 130.450(b)]
Optional Maintenance Non-Taxable Agreements tied to custom software or limited to support services are not subject to tax. [Ill. Admin. Code tit. 86, pt. 130.1935]
Mandatory Maintenance Non-Taxable Similar to optional agreements, these are not taxed when involving custom software or exempt maintenance services. [Ill. Admin. Code tit. 86, pt. 130.1935]

Exemptions and Special Considerations in Illinois

Illinois offers several targeted exemptions that benefit software and digital product sellers:


  • Resale exemptions for software intended for resale with proper documentation
  • Exemption for customized software services tailored to a client’s specific needs
  • Exemption for electronically delivered software and digital goods, provided no physical media is transferred


Invoices and supporting documentation should clearly describe the nature of the transaction to support these exemptions.

Compliance Tips for Businesses

Illinois software tax compliance starts with accurate classification and continues through proper invoicing and documentation. Businesses should:



  • Distinguish between prewritten and custom software based on scope and delivery
  • Itemize installation, configuration, and support charges on all invoices
  • Confirm cloud access models for SaaS and PaaS offerings
  • Maintain current resale and exemption certificates
  • Monitor Department of Revenue bulletins for rule clarifications or updates


Key Takeaways

Illinois does not tax most cloud-based software, including SaaS and PaaS, as long as the software is not downloaded or physically delivered.


Prewritten software is taxable when it is delivered on physical media or downloaded in full.

Custom software and related services such as training, implementation, and maintenance are not taxable when properly invoiced.

Digital products including e-books, audio files, and videos are exempt from sales tax, regardless of permanent or subscription-based access.


Hardware and other physical items are taxable and should be invoiced separately from exempt services to preserve compliance.


Need Help Navigating Illinois Software and SaaS Sales Tax?

Agile Consulting Group helps businesses simplify software sales tax and SaaS sales tax compliance in Illinois. From cloud-based delivery to exemption handling and invoicing strategy, our team helps you align with state rules and reduce audit risk.