Did an Illinois E number exempt a customer from tax on wireline service billed monthly in advance, as though it were a prepaid calling arrangement?

Plain-English summary

A wireline carrier billed recurring monthly service in advance and asked whether customers with Illinois E numbers could treat those charges as exempt purchases of prepaid telephone calling arrangements.

IDOR said advance payment under an existing subscription plan did not make the service a prepaid calling arrangement. A prepaid calling arrangement required an advance-purchased right to make calls using an access number or authorization code until the prepaid amount was consumed. Ordinary plans outside that definition remained under Telecommunications Excise Tax.

That tax's purchaser exemptions were limited to the State and federal governments, state universities created by statute, and qualifying purchases among wholly owned corporate affiliates. An E number issued for Illinois sales and use taxes did not extend those telecommunications exemptions to every exempt organization or local government.

If a product truly met the prepaid calling arrangement definition, it was tangible personal property taxed under the Retailers' Occupation Tax Act, and that Act's E-number exemption could apply when properly documented and used for the organization's exempt purpose.

The response did not individually resolve every fee and surcharge listed by the carrier.

Common questions

Did advance monthly billing make wireline service prepaid property? No.

Did every E-number customer avoid Telecommunications Excise Tax? No.

Could an E number apply to a true prepaid calling card? Yes, under the Retailers' Occupation Tax rules when properly documented.

Citations and references

• 35 ILCS 630/2, 630/3, and 630/4
• 35 ILCS 120/2 and 120/2-27
• 86 Ill. Adm. Code 130.2007 and 130.810(b)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2012.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2012/st-12-0014.pdf

Original ruling text

ST 12-0014-GIL 03/14/2012 TELECOMMUNICATIONS EXCISE TAX
“Prepaid telephone calling arrangements” are taxable under the Retailers’ Occupation Tax Act.
See 35 ILCS 120/2-7. (This is a GIL.)

March 14, 2012

Dear Xxxxx:
This letter is in response to your letter dated February 10, 2012, 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:
ABC is a CITY based wireline telecommunications provider. We occasionally receive
inquiries from customers who have received tax exemption certificates from your office.
The exemption certificates usually indicate that these organizations are eligible for taxexempt treatment for the Retailers' Occupation Tax Act, Use Tax Act, Service
Occupation Tax Act, and Service Use Tax Act. Our usual response states that they are
not exempt because these statutes apply to situations when there is a purchase of
tangible personal property (for example, a refrigerator), and the tax exemption does not
apply for intangible services from telecommunications companies like ABC. Please
clarify the accuracy of this analysis especially given my subsequent inquiry below.
In the course of responding to a request for proposal from a unit of government...a
county in Illinois, there was a section in the proposal where we are asked to stipulate
that the county ‘is not subject to...state and local taxes per Ch 120 par 441.’ I believe
this is the first time that we have been asked about this. The statute reads as follows:
(35 ILCS 120/2) (from Ch. 120, par. 441)
Sec. 2. Tax imposed. A tax is imposed upon persons engaged in the
business of selling at retail tangible personal property, including computer
software, and including photographs, negatives, and positives that are the
product of photoprocessing, but not including products of photoprocessing

produced for use in motion pictures for public commercial exhibition.
Beginning January 1, 2001, prepaid telephone calling arrangements shall
be considered tangible personal property subject to the tax imposed under
this Act regardless of the form in which those arrangements may be
embodied, transmitted, or fixed by any method now known or hereafter
developed.
Our customers technically prepay for their telephone services as we bill their monthly
recurring charges in advance, but I need clarification if this ‘prepaid telephone
arrangement’ constitutes tangible personal property that makes them eligible for taxexempt treatment for the state and local taxes. Additionally your Publication 104 (Nov,
2011) states that E number organizations ‘qualify as tax-exempt purchasers of tangible
personal property and prepaid wireless services.’ (emphasis provided). Has the
Department made a distinction between wireline services and wireless services for taxexempt eligibility?
Do all of our E number customers qualify as tax-exempt purchasers for their prepaid
telecom services? If these E number customers qualify for tax-exempt treatment for
their state and local taxes, which of the following taxes should be tax-exempt:
IL Telecom Relay Service and Equipment
IL Universal Service Fund
Sate Telecommunications Excise Tax
State Telecommunications Infrastructure
911
Sales Tax
State and Local Telecom Tax
PUC
Simplified Telecommunications Tax
Municipal Telecom Taxes
Please give this matter your prompt attention. Thank you for your cooperation.

DEPARTMENT’S RESPONSE:
The Telecommunications Excise Tax Act (The 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. See 35 ILCS 630/3 & 4 and 86 Ill. Adm. Code 495. The Act defines gross charges as
including amounts 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 retailers. 35 ILCS
630/2(a).
The only purchasers who can purchase telecommunications tax-free are the State and Federal
governments, State Universities created by statute, and between a parent corporation and its wholly
owned subsidiaries or between wholly owned subsidiaries for their use or consumption and not for
resale. 35 ILCS 630/2.
Beginning January 1, 2001, prepaid telephone calling arrangements are considered tangible
personal property subject to the tax imposed under the Retailers’ Occupation Tax Act, regardless of
the form in which those arrangements may be embodied, transmitted, or fixed by any method now

known or hereafter developed. 35 ILCS 120/2. The 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 at a rate of 6.25%. Under the Use Tax Act, a tax is imposed upon
the privilege of using in this State tangible personal property purchased at retail from a retailer. The
Use Tax Act applies when tangible personal property is purchased anywhere at retail. In essence,
the retailer collects the Use Tax from the customer to reimburse it for the Retailers’ Occupation Tax
paid by it to the State.
"Prepaid telephone calling arrangements" mean the right to exclusively purchase telephone or
telecommunications services that must be paid for in advance and enable the origination of one or
more telephone calls or other telecommunications using an access number, an authorization code, or
both, whether manually or electronically dialed, for which payment to a retailer must be made in
advance, provided that, unless recharged, no further service is provided once that prepaid amount of
service has been consumed. Prepaid telephone calling arrangements include the recharge of a
prepaid calling arrangement. "Prepaid telephone calling arrangement" does not include an
arrangement whereby the service provider reflects the amount of the purchase as a credit on an
account for a customer under an existing subscription plan. 35 ILCS 120/2-27.
Prepaid telephone plans that do not meet the definition of a “prepaid telephone calling
arrangement” are taxed under the Telecommunications Excise Tax. Paying in advance recurring
monthly charges for telecommunications services obtained under a subscription plan does not
convert telecommunications services into a prepaid telephone calling arrangement.
If a service or plan meets the definition of a “prepaid telephone calling arrangement” it is
subject to the tax imposed under the Retailers’ Occupation Tax Act, and the exemptions available
under this Retailers’ Occupation Tax Act apply.
Organizations that are recognized as non-profit under Internal Revenue Code Section
501(c)(3), are not necessarily exempt organizations pursuant to Illinois tax law. Such organizations
must obtain an exemption identification number (an “E number”) to qualify. See 86 Ill. Adm. Code
130.2007. Organizations that make application to the Department of Revenue and are determined to
be exclusively religious, educational, or charitable, receive an E number. The E number evidences
that the Department recognizes the organizations as exempt from incurring Use Tax when purchasing
tangible personal property in furtherance of their organizational purposes. If an organization does not
have an E number, then its purchases are subject to tax. Please be aware that currently only sales to
organizations holding the E number are exempt, not sales to individual members of the organization.
All sales to an exempt entity holding an E number must be documented. See the Department’s
regulation at 86 Ill. Adm. Code 130.810(b).
Some of the Department’s regulations addressing sales to tax exempt organizations and
governmental bodies can be found at 86 Ill. Adm. Code 130.120 (Nontaxable Transactions), Section
130.2004 (Sales to Nonprofit Arts or Cultural Organizations), Section 130.2005 (Persons Engaged in
Nonprofit Service Enterprises and in Similar Enterprises Operated As Businesses, and Suppliers of
Such Persons), Section 130.2007 (Exemption Identification Numbers) and Section 130.2080 (Sales
to Governmental Bodies, Foreign Diplomats and Consular Personnel).
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