The Illinois Revenue Sharing Agreement (IRA) is a legal contract that outlines the terms and conditions related to the distribution of income generated from the licensing and custom modification of software. This agreement is designed to facilitate the sharing of revenue between the parties involved in the software development and customization process. Under the IRA, the revenue generated from the licensing and custom modification of software is divided among the parties based on a predetermined sharing ratio. This sharing ratio may vary depending on the specific agreement and can be negotiated between the software developer, licensee, and any other relevant stakeholders. The agreement typically includes provisions regarding the identification and allocation of revenue generated from different sources such as software licensing fees, maintenance and support charges, and revenue generated from the customization of the software to meet specific client requirements. The IRA also outlines the responsibilities and obligations of each party involved in the revenue sharing agreement. This includes provisions related to the reporting and accounting of revenue, tax obligations, intellectual property rights, and any other relevant legal and financial considerations. There can be various types of Illinois Revenue Sharing Agreements, depending on the specific context and nature of the software licensing and customization activities. Some common types include: 1. Software License Revenue Sharing Agreement: This type of agreement focuses solely on sharing revenue generated from licensing the software to third-party entities. The agreement may specify the terms and conditions related to upfront license fees, recurring license fees, and revenue generated from additional licenses or upgrades. 2. Customization Revenue Sharing Agreement: In cases where a software developer offers custom modification services to adapt the software to specific client needs, a customization revenue sharing agreement may be established. This agreement outlines the sharing ratio for revenue generated from customization services and any associated ongoing support or maintenance fees. 3. Hybrid Revenue Sharing Agreement: In some cases, a revenue sharing agreement may involve a combination of software licensing and custom modification services. This hybrid agreement allows for the sharing of revenue generated from both activities and provides clear guidelines on how the revenue is to be allocated among the parties involved. It is important for all parties entering into an Illinois Revenue Sharing Agreement to carefully review and understand the terms and conditions outlined in the contract. Seeking legal counsel to draft or review the agreement can help ensure that it aligns with the specific needs and requirements of all parties involved, while also protecting their rights and interests in the software licensing and custom modification business model.
Illinois Revenue Sharing Agreement to Income from the Licensing and Custom Modification of the Software
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The sale at retail, or transfer, of canned software intended for general or repeated use is taxable, including the transfer by a retailer of software which is subject to manufacturer licenses restricting the use or reproduction of the software.
Generally, sales of canned computer software are taxable retail sales in Illinois. Canned computer software is considered to be tangible personal property regardless of the form in which it is transferred or transmitted, including tape, disc, card, electronic means, or other media.
In addition, licenses for the use of software accessed electronically are not considered sales of tangible personal property, and therefore are not subject to state sales tax, as long as no transfer of tangible personal property occurs as a part of the transaction.
Illinois does not impose tax on SaaS delivered via a cloud-based system, provided the transaction does not include a transfer of tangible personal property.
The majority of states which have addressed the issue and have concluded that software (at least unbundled software) is not tangible personal property for ad valorem tax purposes and therefore is generally not taxable.
Sales of custom software - downloaded are exempt from the sales tax in Illinois. In the state of Illinois, any modified software which is held for general or repeated sale or lease is considered to be taxable. Sales of digital products are exempt from the sales tax 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.
Sales of canned computer software are taxable as retail sales in Illinois. Sales of custom software, which is prepared to the special order of the customer, are not taxable.
A131964 Appellate Court reversed lower court decision and holds that the right to replicate and install software is a property right, which is an intangible.
In the state of Illinois, any modified software which is held for general or repeated sale or lease is considered to be taxable. Sales of digital products are exempt from the sales tax in Illinois.