Illinois Use Tax Versus Chicago Municipal Taxes: Digital Products and Services

Illinois Use Tax

Illinois Use Tax applies to the privilege of using in Illinois tangible personal property purchased at retail, only if the Illinois sales tax wasn’t collected by the seller. In the guidelines of the Department of Revenue(DOR), it is explained that the Use tax applies to consumers, legal persons, and other types of customers, and is triggered in cases where an Illinois buyer purchases tangible personal property from an unregistered out-of-state vendor who hasn’t collected sales tax.

Following the DOR booklet, Illinois doesn’t tax SaaS subscriptions where software is accessed remotely and never downloaded, and electronically transferred information or data, such as video, text, digital content, and downloaded digital media; this is, in general, described as an intangible transfer and not subject to Illinois sales tax 

Illinois Use Tax is not limited to B2C. It applies to individuals, businesses, and organizations purchasing taxable tangible personal property for use in Illinois where the sales tax wasn’t collected.

Chicago Municipal Taxes

City of Chicago has different “types” of local taxes that can be levied even in cases where Illinois state sales tax does not apply. The two most notable types of taxes, when it comes to taxation of digital transactions, are: 

1. Chicago Personal Property Lease Transaction Tax (PPLTT), which can apply to SaaS, cloud computing, hosted software, databases, and other “nonpossessory computer leases” used in Chicago
2. Chicago Amusement Tax, which can apply to electronically delivered amusements such as video streaming, audio streaming, paid television, and online games.

Under this framework, the supply of a digital product or service could be outside the reach of the Illinois sales tax, but still taxable in Chicago under a municipal tax. 

Illinois Use Tax on Digital Products

What Is Taxable at State Level?

At the fundamental level, Illinois taxes sales and use of tangible personal property. The framework treats canned computer software as tangible personal property, including electronically delivered canned software, unless a specific software license exemption applies.

What is often taxable at the state level:

• Downloadable standard software package sold for repeated use
• Paid downloaded app that qualifies as canned software

What is, in most of the cases, not taxable at the state level:

• SaaS accessed only through the cloud, where software is not downloaded
• Digital media or information, such as downloadable video clips, digital text, or data files, where no taxable software is transferred
• Pure information services delivered electronically

Who Collects Illinois Use Tax?

If the seller is registered or required to collect Illinois sales tax, the seller generally collects tax from the purchaser and remits it to the Department of Revenue.

For remote retailers, Illinois applies a threshold. A remote retailer with no physical presence in Illinois is required to collect and remit tax if it has either USD 100,000 or more in cumulative gross receipts from sales of tangible personal property to Illinois purchasers fo sales of tangible personal property to Illinois purchasers, calculated quarterly over the preceding 12 months.

Starting from January 1, 2025, new tax rules came into the picture for retailers. Retailers’ Occupation Tax (ROT) requires retailers to collect and remit sales taxes based on the buyer’s delivery location rather than the origin of the sale. In Illinois, for example, remote and out-of-state retailers meeting the economic nexus threshold should use this destination sourcing. 

If the seller does not collect Illinois tax, the Illinois purchaser should self-assess and pay use tax

This applies to both individuals and businesses if the purchase is taxable and used in Illinois.

Chicago Personal Property Lease Transaction Tax(PPLTT)

Framework

Chicago’s PPLTT is a local tax for SaaS and cloud services used in Chicago. The Municipal Code imposes the tax on the lease or rental in the city of personal property, or on the privilege of using in the city personal property that is leased or rented outside the city. 

The tax is imposed on the lessee, and the current rate in the Code is 15% of the lease or rental price.

Chicago’s definition of “lease” includes a nonpossessory lease. The Code states that a nonpossessory lease includes leased time on or use of computers, computer software, data processing equipment, and specifically a nonpossessory computer lease.

A nonpossessory computer lease exists where the customer obtains access to the provider’s computer and uses the computer and its software to input, modify, or retrieve data or information without more than de minimis intervention by provider personnel.

The location of the user’s terminal or device is treated as the place of lease and use for PPLTT purposes.

The scope of PPLTT could cover:

• SaaS subscriptions
• Cloud computing platforms
• Hosted software
• Online databases

Responsibility for PPLTT collection

The legal incidence of PPLTT is on the lessee, meaning the customer using the leased property in Chicago. The lessor has the duty to collect the tax from the lessee and remit it to the Chicago Department of Finance. If the lessor fails to collect or remit, the lessor can be liable to the City.

If the lessor does not collect, the lessee should file and pay the tax directly. The Code states that if a lessor fails to collect the tax from the lessee, the lessee should file a return and pay the tax directly to the Department.

Chicago PPLTT is not limited to B2C. It applies to any lessee using taxable leased personal property in Chicago, including business customers using SaaS or cloud tools.

Chicago Amusement Tax on Digital Services

Coverage

The Chicago Amusement Tax is a local tax levied on regular customers viewing, streaming or participating in “amusement activities” within the city. Some of the notable rates often levied are: 9% for in-person events and 10.25% for streaming or electronically supplied amusement services. 

In most of the cases, the operators, venue organizers, and marketplace facilitators should collect and remit the Chicago Amusement Tax to the Chicago Department of Finance.

Chicago Amusement Tax is most probably levied on the following:

• Video streaming subscription used by a Chicago customer
• Music streaming subscription used by a Chicago customer
• Online gaming subscription or paid online game access

The Amusement Tax is imposed on the customer, but the operator or provider is generally responsible for collection. The Code defines “operator” broadly to include persons who sell or resell licenses to amusements, including online facilitators.

The City’s Amusement Tax Ruling 5 states that providers receiving charges for electronically delivered amusements are owners or operators and are required to collect Chicago amusement tax from their customers.

Chicago Amusement Tax is usually charged on B2C supplies. However, the ordinance is not framed only as a B2C tax. It is imposed on patrons of taxable amusements within the City.

From January 1, 2026, Chicago has also put in place a Social Media Amusement Tax (SMAT), a USD 0.50 monthly excise tax per Chicago user on platforms collecting data from over 100,000 local users. 

Frequently Asked Questions