Question 1

Is SaaS taxable in Illinois?

Accepted Answer

At the state level, no. Illinois doesn't tax SaaS under Retailers' Occupation Tax. But here's the catch—Chicago has its own 9% 'Amusement Tax' that hits some cloud services. If you're selling to Chicago customers, it's worth checking whether your service falls under that.

Question 2

What is the Chicago Amusement Tax and does it apply to my SaaS?

Accepted Answer

Chicago expanded its Amusement Tax in 2015 to cover 'electronically delivered amusements'—think Netflix, Spotify, online games. It's sometimes called the 'Netflix Tax.' For B2B enterprise software? Probably not. The tax is aimed at consumer entertainment, not business productivity tools. But if your SaaS has gaming or entertainment elements, you might want to look into it.

Question 3

Do I need to register in Illinois if I only sell SaaS?

Accepted Answer

For state sales tax, probably not since SaaS is exempt. But you might still cross the $100K/200 transaction economic nexus threshold, which matters if you sell any taxable goods. And if you have Chicago customers in entertainment categories, that's a separate registration with the city.

Question 4

Why is Illinois considered complicated for SaaS?

Accepted Answer

Because you have to track two different things: state-level rules (where SaaS is exempt) and Chicago's local rules (where some cloud services are taxed). Most states, the local jurisdictions just follow state rules. Chicago does its own thing.

Is SaaS Taxable in Illinois? 2025 Guide

Quick Reference

The Chicago Complication

State-Level Rules

Chicago Amusement Tax

When Does Illinois Matter?

Economic Nexus

Check Your Illinois Exposure

Sources

Other State Guides