In a private letter ruling, the Illinois Department of Revenue ruled that an out-of-state taxpayer that provided software subscriptions and related hardware for one bundled price was subject to the Service Occupation Tax, not the Retailers’ Occupation Tax, Use Tax, or Service Use Tax. The customer owns the hardware, but the taxpayer retains ownership of the embedded firmware. The Department concluded that the taxpayer is acting as a “serviceman” offering cloud-based services. The taxpayer’s charges for software and firmware are transferred to the customer incident to the cloud-based service and are taxable. As a serviceman, the taxpayer may choose one of four ways to calculate tax—in this case, the taxpayer did not wish to separately state tangible personal property, and therefore was required to collect the service occupation tax based on 50% of the entire bill.
