I submitted the question to Esri Canada Technical Support, and here's their response. Thank you Chris!Hi Garry,Thank you for contacting Esri Canada Technical Support. The incident number XXXXXX has been assigned to your support request. My name is Chris and I will be assisting you with this matter.Basically, the licensing works as you mentioned...as long as the tool does not require an extension, the Engine Runtime license will cover it. The important thing to remember, however, is to set the appropriate license level of the application to match the license level of the tools being used in the application. The Engine Runtime is functionally equivalent to Desktop, thus the best way to see which license level is required is to look up the tool in the Desktop help. For example, the Desktop help link for the FeaturetoPolygon tool is here:http://resources.arcgis.com/en/help/main/10.1/index.html#//00170000003n000000At the bottom of each geoprocessing tool is the license level required. As you will see from the above link, this tool requires Advanced level licensing, thus you must check off Advanced in the License Control. Please see the following help links for more information:License Controlhttp://resources.arcgis.com/en/help/arcobjects-net/conceptualhelp/index.html#//0001000002z3000000 License Options (This is for Java, but its the same for .NET, this link just explains it better)http://resources.arcgis.com/en/help/arcobjects-java/concepts/engine/index.html#//000100000576000000Please let me know if you have any questions.Chris