How did Illinois treat downloaded ringtones, media, music, videos, and software for sales tax and telecommunications excise tax?

Plain-English summary

Illinois treated downloaded content differently from canned software, and telecommunications tax depended heavily on separating content charges from transmission charges. The requester asked about ringtones, downloaded information, music or videos, and software supplied by a wireless provider.

For Retailers' Occupation and Use Tax:

• information or data transferred or downloaded electronically was not tangible personal property;
• canned software was taxable tangible personal property even when sent electronically; and
• custom software prepared to a customer's special order might not be a taxable retail sale.

For Telecommunications Excise Tax, the definition of telecommunications covered electronic transmission of messages or information, but excluded qualifying value-added services using computer processing to change information for purposes other than transmission. Gross charges excluded data storage for later retrieval and data processing intended to change form or content.

The letter also separated transmission charges for premium services from charges for the message content or information. Content or information charges were not included in gross charges when they were disaggregated and separately identified in the telecommunications retailer's books and records. If charges for excluded services were not disaggregated from telecommunications charges, the entire charge was taxable as telecommunications.

What this means for you

A wireless or digital-content seller needed to identify what each charge bought and keep the accounting separate. A downloaded article or recording could avoid sales tax as electronically transferred information, while downloaded canned software remained taxable. For telecom tax, a separately recorded content charge could receive different treatment from the charge for transmitting that content.

Common questions

Q: Were electronically downloaded books, music, or similar information tangible personal property?
A: No. The letter says electronically downloaded information or data was not tangible personal property.

Q: Was downloaded canned software treated the same way?
A: No. Canned software remained taxable tangible personal property regardless of how it was transmitted.

Q: Why did separate accounting matter for telecommunications tax?
A: Excluded content or processing charges had to be disaggregated and separately identified; otherwise the entire bundled charge could be taxable as telecommunications.

Subject

Miscellaneous

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-11-0045.pdf

Original ruling text

ST 11-0045-GIL 06/20/2011 MISCELLANEOUS
Information or data that is electronically downloaded is not considered the transfer of tangible
personal property in this State. See 86 Ill. Adm. Code 120.2105. (This is a GIL.)

June 20, 2011

Dear Xxxxx:
This letter is in response to your letter dated February 22, 2011, 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:
I’m trying to find out the correct application of the Telecom Excise Tax and the
Simplified Municipal Telecom Excise Tax on the following charges (identified below)
provided by telecom service providers that are provided to their subscribers via a
wireless/cell phone or an additional fee.
The charges are:
1.
Ring Tones [sic]: A charge for downloading a ringtone.
2.
Downloaded Media: a charge for downloading sports scores, newspapers,
articles, restaurant menus, etc.
3.
Downloaded Music/Videos: a charge for downloading music/videos.
4.
Downloaded Software: a charge for downloading software.
According to 86 Ill. Adm. Code 130.2105(a)(3) information or data that is downloaded
electronically, such as downloaded books, musical recordings, newspapers or
magazines, do not constitute the transfer of tangible personal property. These types of
transactions are considered to be ‘intangible’ and are thus not subject to ROT.
However, software is considered to be taxable tangible personal property regardless of
the form in which it is transferred or transmitted.

My question today pertains more to the Excise Taxes levied under 35 ILCS 630/1 et.
seq. and 35 ILCS 363/5-1 et seq. rather than the ROT. Should items #1-3 not be
subject to any tax in the state as they are considered to be a transfer of an ‘intangible?’
Similarly, item #4 would be subject to ROT but not the Excise Tax. Nowhere in the
Telecommunications Excise Tax statutes or regulations do they impose a tax on the
transfer of an intangible’.
I logged a request through the IDOR Support website and INDIVIDUAL responded that
he had searched through the GIL’s and PLR’s issued by the DOR’s Legal Division and
couldn’t find anything that specifically addressed my inquiry. However, he also felt that
these items did not fall within the definition of ‘telecommunications’ as defined in the
Telecommunications Excise Tax Act. He suggested that I contact the Legal Division for
a more definitive response. Hence, the reason for my letter.
Any help you could provide would be greatly appreciated. My contact information is
provided below.

DEPARTMENT’S RESPONSE:
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. These taxes comprise what is commonly known as "sales"
tax in Illinois. If the purchases occur in Illinois, the purchasers must pay the Use Tax to the retailer at
the time of purchase. The retailers are then allowed to retain the amount of Use Tax paid to
reimburse themselves for their Retailers' Occupation Tax liability incurred on those sales. If the
purchases occur outside Illinois, purchasers must self assess their Use Tax liability and remit it
directly to the Department.
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). Custom
computer programs or software must be prepared to the special order of the customer. Charges for
updates of canned software are fully taxable pursuant to Section 130.1935. If the updates qualify as
custom software under Section 130.1935(c), they may not be taxable.
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.
“Gross charges” means the amount paid for the act or privilege of originating or receiving
telecommunications in this State and for all services and equipment provided in connection therewith
by a retailer, valued in money whether paid in money or otherwise, including cash, credits, services
and property of every kind or nature, and shall be determined without any deduction on account of the
cost of such telecommunications, the cost of materials used, labor or service costs or any other
expense whatsoever. “Gross charges” do not include “charges for the storage of data or information
for subsequent retrieval or the processing of data or information intended to change its form or
content.” See 86 Ill. Adm. Code 495.100(c).
Section 495.100(i) states that, "[g]ross charges shall include the transmission charges for
premium services. Time/weather, gab line/party line and other public announcement services of
information and entertainment, and charges for the message content or information of such services,
are not included in gross charges." Please note that charges for such services are not subject to
Telecommunications Excise Tax provided that the charges for such services are disaggregated and
separately identified from other charges in the books and records of the telecommunications retailer.
See 86 Ill. Adm. Code 495.100.
Information or data that is electronically downloaded is not considered the transfer of tangible
personal property in this State. See 86 Ill. Adm. Code 130. 2105(a)(3). Please note that canned
computer software is considered tangible personal property regardless of the form in which it is
transferred or transmitted, including tape, disc, card, electronic means or other media and subject to
Retailers’ Occupation Tax. See 86 Ill. Adm. Code 130. 1935.
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,

Richard S. Wolters
Associate Counsel
RSW:msk