Software Development Company Chicago: Should You Own the Software or Keep Renting It?

Updated November 2026 · Written and maintained by the Progression Agency strategy team

Chicago taxes rented software: as of January 1, 2026, the city’s lease tax is 15 percent of charges for hosted software used in the city, and that one line changes the sum behind every build or rent decision. If you are looking for a software development company Chicago operations and finance leaders can brief, begin with that question, then work down this decision tree: whether to own a system or keep renting it, what biometric and hiring rules add, and what each path costs. Ask your CPA about your own facts. Progression is a New York City firm that works with Chicago clients remotely, opening with a free proposal and a written scope.

Picking a software company: Chicago’s lease tax comes first

Before comparing firms, compare the two ways of holding software. Rent it, and the city’s lease tax may apply to every month’s charge. Own it, and the build fee and the hosting bill become two separate questions. A software company Chicago finance teams talk to about a build should be able to explain that difference, and so should the Chicago software company that sells you a subscription.

On its Personal Property Lease Transaction Tax page, the City of Chicago’s Department of Finance says the tax applies to businesses or individuals that are a lessor or lessee of personal property used in Chicago. As of 1-1-2026, it lists 15 percent of receipts or charges for all leases, including the non-possessory lease of a computer to input, modify or retrieve data supplied by the customer. Older documents quote older rates, so use the city’s page for the rate in force.

Here is illustrative arithmetic, not a quote and not a prediction for any company: if hosted subscriptions cost $100,000 a year and all of the use is in Chicago, 15 percent of that is $15,000. Your CPA decides how this applies to you.

What the city’s page and Ruling 12 say about hosted software

Ruling 12, dated June 9, 2015, says the incidence of the tax and the obligation to pay it are upon the lessee. Its paragraph 6(d) lists charges to use functions such as word processing, calculations, data processing, tax preparation and spreadsheet preparation through a provider’s computer and software, sometimes called cloud computing, cloud services, hosted environment, software as a service, platform as a service or infrastructure as a service, among transactions subject to the tax. Under paragraph 15, the location of the device the user accesses the computer from is the place of use. The city’s November 2015 bulletin adds that if a provider does not collect the tax, the customer is still liable to pay it. Ask your CPA what this means for each product you rent.

Why owning the code does not erase the hosting bill

The bulletin says the tax does not apply to services, and gives custom software made for hire as an example. It also lists, among the digital uses the tax covers, remote computing or software including SaaS, IaaS and PaaS, such as automated deployment of servers, remotely accessed software like office suites, project management and CRM, and web hosting. Put together, the development fee and the hosting bill are two different questions. A firm that builds you software is paid for a service. The cloud account that runs it may be a taxable lease, and what that means for you is a question for your CPA. This page states what the documents say, not what any company owes.

Exemptions and routes to raise with your CPA

The documents describe several routes, and each one has conditions that only a tax adviser can apply. The bulletin’s small new business exemption asks for a valid business license, gross receipts under $25 million in the most recent full calendar year and fewer than 60 months in operation, with a certificate to document it. Ruling 12 says charges solely for storing a customer’s data on a provider’s computer outside the city are not subject to the tax. The city’s page lists exempt uses for computers that execute or clear trades on designated exchanges and for computers used to deposit, withdraw, transfer or lend money or securities. A charge that covers Chicago and non-Chicago users should be apportioned, with each user presumed to be at that person’s principal office, and under paragraph 19(b) a provider need not collect from a customer with 10 or more users that has the Department’s written confirmation that it is registered to pay the tax, in which case the customer files and pays directly. A bundled charge is taxable in full unless at least 50 percent is clearly proven to be for something else. Bring these to your CPA as questions.

The decision tree: own the software or keep renting it

The tree below has six questions, and each has a yes and a no. It is a way to organize the choice, with no payback figure attached, because the numbers belong to your own books. For the general case beyond Chicago, our custom software versus off the shelf page compares the two paths.

1. Is this process how you make money? Yes points toward owning it, and no points toward renting a product.
2. How much of the rented bill lands on Chicago users? A large share belongs in the rent column with the tax added.
3. Can a product do it with configuration alone? If so, rent it.
4. Do you need the data model when you leave? If so, own the code and the data.
5. Does it scan staff or score applicants? If so, read the Illinois section before design starts.
6. Who keeps it running in year three? Name the support plan or the in-house team before you build.

Question 1: is this process how you make money?

If the process is what customers pay you for, the software that runs it is part of what you sell, and a product everyone else can buy cannot make you different. If it is back-office routine, a product is usually the better answer.

Question 2: how much of your rented bill lands on Chicago users?

Count the seats by where each person’s principal office is, since Ruling 12 presumes an individual’s use to be at that location. A bill that is mostly Chicago use carries more of the tax than one spread across several cities. Hand the seat list to your CPA.

Question 3: can a product do it with configuration alone?

Try the product with your real process before you decide it falls short. If configuration gets you most of the way, rent it and spend the build budget somewhere else.

Question 4: do you need the data model when you leave?

A rented product keeps its data model, and you export what it lets you export. When the shape of your data is the asset, own it. As our software development company page says, with custom work you own the code and the data model.

Question 5: does it scan staff or score applicants?

A time clock that reads fingerprints, a door that reads faces or a tool that ranks applicants brings Illinois law into the design. Read the Illinois section below before anything is built.

Question 6: who keeps it running in year three?

Software needs hosting, monitoring and fixes after launch. Ask who does that and what it costs before you sign, whether you build or rent. A support plan with agreed response times is the usual answer on an owned system.

What a software development company Chicago teams hire delivers on the own path

If the tree says build, the Chicago software development company you hire should hand over a written scope first, then work in stages. On our own software development company page, that means discovery, architecture, design, sprint development, testing, deployment and support. Each two-week sprint produces working software, with code review and tests inside it.

• Discovery that maps the real process and ends in a written scope.
• Architecture decided early and written down.
• Two-week sprints that each produce working software.
• Code review and tests as part of every sprint.
• Hosting in your own cloud account, and a defined support plan after launch.

A software development agency Chicago executives shortlist will describe its process in its own words, so ask for it in writing and compare. If you are not ready to build, software consulting firms Chicago companies use can assess the options first, and software consulting Chicago leaders ask for is described on our software consulting services page.

Software development companies in Chicago: reading a proposal against the tree

Chicago software development companies write proposals in different formats, so read each one against the same questions. The table ties each question to the tree. None of it needs a Chicago address: you need answers in writing.

Whether a firm is local or remote matters less than these answers. We are a New York City firm that works with Chicago clients remotely, and we say so plainly. We claim no Chicago office.

Two Illinois branches: time clocks and hiring software

Two Illinois laws touch software that handles people at work. Each is a branch of the tree, not a reason to avoid building, and each is a question for counsel. They matter most for operations and HR systems.

Fingerprints and face scans in staff systems

Under the Biometric Information Privacy Act, a private entity may not collect a person’s biometric identifier or information unless it first informs the person in writing, states the purpose and length of term in writing and receives a written release (740 ILCS 14/15(b)). In employment, the Act defines a written release as one executed by an employee as a condition of employment. An entity that holds this data must develop a written, publicly available retention policy under section 15(a). A single violation rule in section 20(b), added in 2024, says repeated collection of the same identifier by the same method from the same person counts as one violation for that subsection. For a build, that means notice screens, a release step and a retention schedule are requirements to design in, not extras. Ask counsel how the Act applies to your case.

• Design the written notice and the release step into the enrollment flow.
• Build the retention and destruction schedule into the data model.
• Keep a record of each release, tied to the person who gave it.

AI that screens or ranks people

Illinois now has a rule for hiring software. Public Act 103-0804 took effect on January 1, 2026, and adds a civil rights violation for an employer to use artificial intelligence that has the effect of subjecting employees to discrimination on the basis of protected classes in recruitment, hiring, promotion, discipline, discharge and other terms of employment, or to use zip codes as a proxy for protected classes. It also makes it a violation to fail to give an employee notice that the employer is using artificial intelligence for those purposes. The Department of Human Rights is directed to adopt rules on notice, and those rules were not read for this page. Check them, and ask counsel. Our AI integration services page covers how we build AI features.

Custom software Chicago firms keep: code, data and contract terms

Owning software is a contract matter before it is a technical one. Chicago custom software development is only owned software if the agreement says the code and data are yours, so put the terms in writing.

• An assignment clause that makes your company the owner of the code.
• Access to the repository and the cloud accounts from the first day.
• A data export that you can run yourself.
• A clause covering work done by any subcontractor.
• Documentation handed over with each release.

A custom software development company Chicago buyers approach will say yes to all of these, so ask where each is written. A custom software development company in Chicago, or one in another city, should give the same answers, and the Chicago custom software development companies on your list should be asked the same questions in the same order. Contract language goes to your own counsel. This page quotes no clause, and nothing here is legal advice.

What to put in front of your CPA

Every tax line on this page ends in the same place: a conversation with your accountant. Bring a short list, and the conversation can start from your facts instead of from the documents.

• The annual amount of each hosted product, and which of them the process depends on.
• The seat list, with each person’s principal office.
• Which charges are bundled with support or storage, and whether they are separated and optional.
• Whether your business might meet the small new business tests.
• Whether any product is resold or built into something you sell.
• The cloud account that would run an owned system, and who would pay for it.

System notes: what the tree tends to say

The tree gives a different answer for different kinds of system. These notes are short, and each points to a page that covers the build.

Note on internal operations tools

A tool that replaces a spreadsheet for one workflow is the easiest case for owning, because the process is yours and no product fits it closely. Where a plant is meant, see our manufacturing software development page.

Note on customer and partner portals

A portal is custom by nature, and our web portal development page covers it. If you charge customers for access to a portal, you may become a provider yourself, and that raises the other side of the tax. Ask your CPA.

Note on CRM, ERP and the integration layer

Many companies rent the core system and own the layer between systems. Our CRM development, ERP development and API development pages cover the pieces.

Note on products you sell to others

If you build software that customers use through your hosting, the bulletin says the lease for re-lease exemption may apply to an IaaS product you incorporate. Whether you must collect the tax from your own customers is a separate question for counsel, and Ruling 12 says it does not address it. Our SaaS development company page covers the build.

Note on trading and banking functions

The city’s page lists exemptions for computers used to execute or clear trades and for computers used to deposit, withdraw, transfer or lend money or securities. World Business Chicago describes the region’s financial and insurance ecosystem as one of the most diverse and sophisticated in the world, and says Chicago has the third largest workforce in the United States. That is why these exemptions matter to some buyers here. Whether one applies to a given system is a question for your CPA. Our fintech software development page covers the build.

What owning costs against what renting costs

Neither path wins on cost alone. Owning shifts money into the build and the care of the system, and renting shifts it into subscriptions that may carry the city’s tax. The table is a worksheet for your own numbers.

The own column: market ranges for custom builds

The figures below come from other providers’ published pages and run from the typical low to the published high. None of them is a Progression quote, and none is specific to Chicago. How much does custom software cost in Chicago? The national bands are the best published answer, and a written scope sets the real figure. Progression quotes after a written scope.

The rent column: what to add up

For a rented product, add every cost over the period you care about, then set the two columns side by side.

Hosting and support on an owned system

An owned system still runs somewhere, and the bulletin lists web hosting and infrastructure as a service among the taxable digital uses. If support is bundled with hosting in one charge, the bulletin says the whole charge is taxable unless you can prove that at least half is for non-taxable items, and a separate charge counts as separate only if it is optional in form and in substance. Ask for hosting and support as separate lines, and ask your CPA what each means. A support plan with agreed response times is on our software page.

Software development in Chicago: from the tree to a written scope

Software development Chicago buyers commission starts with a short bundle of papers. Bring the rented bill, the seat list and the process, and the first conversation can be about the tree instead of a sales deck.

What comes back is a written scope, as on our software development company page. It lists the process, the systems, the stages and the support plan, and it gives your CPA the numbers to check. If the thing you need is a phone app, our app development company in Chicago page is the right place to start.

Related services and guides

More pages on the services around this work:

• Software development company
• App development company in Chicago
• Custom software versus off the shelf
• Web portal development
• ERP development
• Software consulting services

Frequently asked questions