Is software as a service (SaaS) taxable in Illinois?

by TaxJar November 25, 2023

Please note: This blog was originally published in 2020. It’s since been updated for accuracy and comprehensiveness.

If you sell a software as a service (SaaS) product, chances are you’re selling to customers all over the country or even all around the world. One thing that can get a little tricky when selling SaaS products is sales tax. Sales tax is governed at the state level in the US. That means states get to set their own rules and laws about what is subject to sales tax. Some states consider SaaS taxable, and some do not.

This post will go over what you need to know about SaaS taxability if you are selling SaaS products to customers in Illinois.

Should your business charge sales tax on SaaS in Illinois?

Despite the Illinois Department of Revenue’s historically complex stance on the taxation of computer software, the Department has now stated that SaaS is not subject to sales tax in Illinois. In other words, cloud-based software is not subject to tax in Illinois.

How can I learn more about SaaS taxability in Illinois?

Illinois has historically been one of the more complicated and inconsistent states when it comes to the taxation of software in general. For that reason, we recommend consulting a few sources when learning about SaaS sales tax in Illinois.

Illinois Revenue website page on software taxability (this links to Illinois law code and other FAQs)
Illinois’ 2017 letter ruling on software taxability
This HMB Legal Counsel blog post on Illinois SaaS taxability

Also keep in mind that Illinois calls sales tax “Retailers Occupation Tax.”

How to automate sales tax when selling a SaaS product

It can be tricky to know when and how to collect sales tax on SaaS products, and that’s exactly why we built TaxJar.

With TaxJar’s Sales Tax API, all you need to do is let us know that you are selling a SaaS product by entering the product tax code that corresponds to your particular product. From there, we ensure that you collect the right amount of sales tax from every customer in every state where you are required to collect sales tax. If SaaS is non-taxable in a state, then your customer will not be charged.

Not only does TaxJar make sure you collect the right amount of sales tax, we automatically help you stay compliant in states where your business has economic sales tax nexus. On your behalf, we’ll track when your revenue or your number of transactions in a state exceeds that state’s threshold for economic nexus. No more guessing or digging into your books and each state’s individual nexus laws to determine when it’s time to start collecting sales tax.

Get started with TaxJar today with a free, 30-day trial.