How did Illinois tax media postproduction, film or videotape duplication, and electronic transmission services?

Plain-English summary

Media work performed as a pure service was not subject to the listed Illinois sales and service taxes when no tangible personal property was transferred. But duplication onto film, videotape, or another tangible medium could create Service Occupation Tax or Use Tax liability because property was transferred with the service.

For property transferred incident to service, the serviceman's liability could be calculated using the separately stated property price, 50% of the entire service bill, Service Occupation Tax on cost for a registered de minimis serviceman, or Use Tax on cost for an unregistered de minimis serviceman. The general de minimis threshold was annual transferred-property cost below 35% of service gross receipts, with a 75% threshold for pharmacists and graphic-arts producers.

Information or data transferred electronically was not tangible personal property. Canned software remained taxable property even when electronically transmitted, while custom software might not be taxable.

Transmission was a separate issue. Illinois Telecommunications Excise Tax applied to covered transmissions of messages or information. Qualifying value-added services using computer processing for purposes other than transmission were excluded, but their charges had to be disaggregated and separately stated from telecommunications charges; otherwise the entire charge was taxable as telecommunications.

What this means for you

Separate the creative or technical service from the medium and from transmission. A color-correction or effects service with no transferred property fit a different rule from delivering film or tape copies. Likewise, separately account for any value-added processing charge and the charge for transmitting the finished content.

Common questions

Q: Were postproduction services automatically taxable?
A: No. A service with no transfer of tangible personal property was outside the listed sales and service taxes.

Q: What about duplicated film or videotape copies?
A: Transferring tangible media with the service could create Service Occupation Tax or Use Tax liability.

Q: Did electronic transmission avoid all tax?
A: Not necessarily. Electronic data was not tangible property, but the transmission charge could fall under Telecommunications Excise Tax.

Subject

Service Occupation Tax

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2011.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2011/st-11-0023.pdf

Original ruling text

ST 11-0023-GIL 04/01/2011 SERVICE OCCUPATION TAX
The Service Occupation Tax is a tax imposed upon servicemen engaged in the business of
making sales of service in this State, based on the tangible personal property transferred
incident to sales of service. See 86 Ill. Adm. Code Part 140. (This is a GIL.)

April 1, 2011

Dear Xxxxx:
This letter is in response to your letter dated October 25, 2010, in which you request
information. The Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are
issued by the Department in response to specific taxpayer inquiries concerning the application of a
tax statute or rule to a particular fact situation. A PLR is binding on the Department, but only as to the
taxpayer who is the subject of the request for ruling and only to the extent the facts recited in the PLR
are correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in
the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information
Letter (“GIL”) is to direct taxpayers to Department regulations or other sources of information
regarding the topic about which they have inquired. A GIL is not a statement of Department policy
and is not binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website
at www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to
your inquiry.
The nature of your inquiry and the information you have provided require that we respond with
a GIL. In your letter you have stated and made inquiry as follows:
Our company is considering doing business in the state and as part of our planning
process we would like to request information on the taxability of several services.
Specifically, our services include performing post production services on media content,
duplication of videotape or film that contains media content, and transmission of medical
content. ‘Media content’ means motion pictures, television shows, commercials or
music videos.
Facts:
Post production services include but is not limited to the following services performed on
media content: color corrections, sound corrections, adding titles, compression, adding
visual effects, graphics, film to tape transfers, and telecine.
Duplication means making release prints or air/exhibition quality copies of movies,
television episodes, commercials or music videos from the master copy. In the industry,
the duplication copies are also known as ‘dubs’ and may be in the form of film or
videotape.
Subsequently, we may also provide the transmission services for media content
owners. Media content owners are usually movie studios, broadcasting networks,
production companies, or others who have authority to grant exhibition rights. Our

company never owns any content as we are merely the service provider and vehicle to
transmit the content.
In a typical transaction, COMPANY would receive the content (tape or satellite) from the
content owner in a state. Three scenarios could occur; (a) we uplink the signal to a
transponder in space then the owner is responsible for the downlink; (b) for clients, we
downlink a signal from the transponder or; (c) we uplink and downlink for the client.
These transactions could be interstate or intrastate.
We understand this service is not subject to sales taxes, but may be subject to
telecommunications excise taxes.
Issues:
1.

Are the post production services subject to Sales Taxes (ROT or SOT)?

2.

Is the duplication of release prints or air/exhibition quality tapes/film subject to tax

3.

Are the transmission services subject to telecommunications excise taxes?

A quick response in the form of an opinion and /or legal ruling would be appreciated. If
you have any questions, I can be reached at #.

DEPARTMENT’S RESPONSE:
Retailers’ Occupation Tax and Use Tax
The Illinois Retailers' Occupation Tax Act imposes a tax upon persons engaged in this State in
the business of selling tangible personal property to purchasers for use or consumption. 35 ILCS
120/2; 86 Ill. Adm. Code 130.101. In Illinois, Use Tax is imposed on the privilege of using, in this
State, any kind of tangible personal property that is purchased anywhere at retail from a retailer. 35
ILCS 105/3; 86 Ill. Adm. Code 150.101.
Illinois Retailers' Occupation and Use Taxes do not apply to sales of service that do not involve
the transfer of tangible personal property to customers. However, if tangible personal property is
transferred incident to sales of service, this will result in either Service Occupation Tax liability or Use
Tax liability for the servicemen depending upon his activities. For your general information see of 86
Ill. Adm. Code 140.101 through 140.109 regarding sales of service and Service Occupation Tax.
Please note that information or data that is electronically transferred or downloaded is not
considered the transfer of tangible personal property in this State. See 86 Ill. Adm. Code
130.2105(a)(3). However, canned computer software is considered taxable tangible personal property
regardless of the form in which it is transferred or transmitted, including tape, disc, card, electronic
means or other media. See 86 Ill. Adm. Code 130.1935. If the computer software consists of custom
computer programs, then the sales of such software may not be taxable retail sales. See Section
130.1935(c).
Service Occupation Tax
Under the Service Occupation Tax Act, businesses providing services (i.e. servicemen) are
taxed on tangible personal property transferred as an incident to sales of service. See 86 Ill. Adm.

Code 140.101. The purchase of tangible personal property that is transferred to the service customer
may result in either Service Occupation Tax liability or Use Tax liability for the servicemen depending
upon his activities. The serviceman’s liability may be calculated in one of four ways: (1) separately
stated selling price of tangible personal property transferred incident to service; (2) 50% of the
serviceman's entire bill; (3) Service Occupation Tax on the serviceman's cost price if the serviceman
is a registered de minimis serviceman; or (4) Use Tax on the serviceman's cost price if the
serviceman is a de minimis seviceman and is not otherwise required to be registered under
Section 2a of the Retailers' Occupation Tax Act.
Using the first method, servicemen may separately state the selling price of each item
transferred as a result of the sale of service. The tax is then calculated on the separately-stated
selling price of the tangible personal property transferred. If the servicemen do not separately state
the selling price of the tangible personal property transferred, they must use 50% of the entire bill to
the service customer as the tax base. Both of the above methods provide that in no event may the tax
base be less than the servicemen's cost price of the tangible personal property transferred. See 86 Ill.
Adm. Code 140.106.
The third way servicemen may account for their tax liability only applies to de minimis
servicemen who have either chosen to be registered or are required to be registered because they
incur Retailers' Occupation Tax liability with respect to a portion of their business. See 86 Ill. Adm.
Code 140.109. Servicemen may qualify as de minimis if they determine that the annual aggregate
cost price of tangible personal property transferred as an incident of the sale of service is less than
35% of the total annual gross receipts from service transactions (75% in the case of pharmacists and
persons engaged in graphics arts production). Servicemen no longer have the option of determining
whether they are de minimis using a transaction by transaction basis. Registered de minimis
servicemen are authorized to pay Service Occupation Tax (which includes local taxes) based upon
their cost price of tangible personal property transferred incident to the sale of service. Such
servicemen should give suppliers resale certificates and remit Service Occupation Tax using the
Service Occupation Tax rates for their locations. Such servicemen also collect a corresponding
amount of Service Use Tax from their customers, absent an exemption.
The final method of determining tax liability may be used by de minimis servicemen that are
not otherwise required to be registered under Section 2a of the Retailers' Occupation Tax Act. Such
de minimis servicemen handle their tax liability by paying Use Tax to their suppliers. If their suppliers
are not registered to collect and remit tax, the servicemen must register, self-assess and remit Use
Tax to the Department. The servicemen are considered to be the end-users of the tangible personal
property transferred incident to service. Consequently, they are not authorized to collect a "tax" from
the service customers. See 86 Ill. Adm. Code 140.108.
Telecommunications
The Illinois Telecommunications Excise Tax Act imposes a tax on the act or privilege of
originating or receiving intrastate or interstate telecommunications by persons in Illinois at the rate of
7% of the gross charges for such telecommunications purchased at retail from retailers by such
persons. 35 ILCS 630/3 and 4. The Simplified Municipal Telecommunications Tax Act allows
municipalities to impose a tax on the act or privilege of originating in such municipality or receiving in
such municipality intrastate or interstate telecommunications by persons in Illinois at a rate not to
exceed 6% for municipalities with a population of less than 500,000, and at a rate not to exceed 7%
for municipalities with a population of 500,000 or more, of the gross charges for such
telecommunications purchased at retail from retailers by such persons. 35 ILCS 636/5-10 and 5-15.

“Telecommunications,” in addition to the meaning ordinarily and popularly ascribed to it,
includes, without limitation, messages or information transmitted through use of local, toll and wide
area telephone service; private line services; channel services; telegraph services; teletypewriter;
computer exchange services; cellular mobile telecommunications service; specialized mobile radio;
stationary two way radio; paging service; or any other form of mobile and portable one-way or twoway communications; or any other transmission of messages or information by electronic or similar
means, between or among points by wire, cable, fiber-optics, laser, microwave, radio, satellite or
similar facilities. “Telecommunications” do not include “value added services in which computer
processing applications are used to act on the form, content, code and protocol of the information for
purposes other than transmission.” See 35 ILCS 630/2(a) and 2(c). If telecommunications retailers
provide these services, the charges for each service must be disaggregated and separately stated
from telecommunications charges in the books and records of the retailers. If these charges are not
thus disaggregated, the entire charge is taxable as a sale of telecommunications.
The Telecommunications Infrastructure Maintenance Fee Act imposes a State infrastructure
maintenance fee upon telecommunications retailers equal to 0.5% of all gross charges charged by
the telecommunications retailer to service addresses in this State for telecommunications, other than
wireless telecommunications, originating or received in this State. 35 ILCS 635/15(b). A
telecommunications retailer shall charge each customer an additional charge equal to the State
infrastructure maintenance fee attributable to that customer's service address. Such additional charge
shall be shown separately on the bill to each customer. 35 ILCS 635/25(a).
I hope this information is helpful. If you require additional information, please visit our website
at www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.
Very truly yours,

Debra M. Boggess
Associate Counsel
DMB:msk