Sales of iPhone apps to Apple treated as sales for resale in Illinois

Dec 20th, 2012

In a recent general information letter, the Illinois Department of Revenue (DOR) addressed the taxability of applications ("apps") for smartphones. Ill. Gen. Info. Ltr. ST 12-0055-GIL (Dept. of Revenue Oct. 3, 2012).

A college developed apps for Apple's iPhone, which the college sold to Apple. In turn, Apple then re-sold the apps through its iPhone App store website. In return, the college received a percentage of these sales. The college wanted to know how to treat the sales to Apple.

The DOR determined that the sale of the apps to Apple was (1) a sale of tangible personal property and (2) a sale for resale. Illinois treats canned computer software as taxable tangible personal property. Computer software is "canned" if it is not prepared to the special order of the customer. Here, there was no evidence that the college prepared the apps to the special order of the customer. The apps, therefore, were tangible personal property. Also, Illinois does not tax purchases for resale. Because Apple purchased the apps with the intent of reselling them to purchasers for use or consumption, this was a purchase for resale. The college, therefore, needed to obtain a certificate of resale from Apple for the sale of the apps.