Did Illinois's Telecommunications Excise Tax exempt all interstate calls?

Plain-English summary

A taxpayer asked what IDOR's website meant by an allowable deduction for telecommunications sales in interstate commerce.

The 2014 Act imposed a 7% tax on the privilege of originating or receiving intrastate or interstate telecommunications by persons in Illinois. The taxable amount was charged to the taxpayer's Illinois service address regardless of where it was billed or paid.

IDOR said the Act did not exempt all interstate-commerce sales. An interstate call originating or received in Illinois was taxable when charged to an Illinois service address.

The statute withheld tax only to the extent federal law or the U.S. Constitution prevented Illinois from taxing the activity. The U.S. Supreme Court had held in Goldberg v. Sweet that the Illinois Act was consistent with the Commerce Clause and did not discriminate against interstate commerce.

The letter also identified other nontaxable categories, including qualifying resale transactions, specified enterprise-zone business sales, certain government and state-university sales, and qualifying parent-subsidiary sales.

What this means for you

Calling a transaction interstate did not by itself remove it from Illinois Telecommunications Excise Tax. The Illinois service address and the statutory sourcing rule were central.

Common questions

Were all interstate calls exempt? No.

Did the billing location control? No. The charge to the Illinois service address controlled under the rule described.

Had the tax survived a Commerce Clause challenge? Yes, in Goldberg v. Sweet.

Citations and references

• 35 ILCS 630/2(a), 630/3, and 630/4.
• 86 Ill. Adm. Code 495.100 and 495.105.
• Goldberg v. Sweet, 488 U.S. 252 (1989).

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2014.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2014/st-14-0047.pdf

Original ruling text

ST 14-0047-GIL 09/09/14 TELECOMMUNICATIONS
This letter discusses allowable deductions and nontaxable sales under the Telecommunications
Excise Tax. See 35 ILCS 630. (This is a GIL.)

September 9, 2014
Dear Xxxx:
This letter is in response to your letter dated July 17, 2014, 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 have a question concerning an allowable deductable in computing the TET. The DOR
website lists allowable deductions and includes one that our Illinois auditor could not
explain to me: Sales in interstate commerce. Can you define this or give me
examples?
DEPARTMENT’S RESPONSE:
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 Act defines “gross charges” as the 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). "Amount paid" is the
amount charged to the taxpayer's service address in this State regardless of where such amount is
billed or paid. "Purchase at retail" means the acquisition, consumption or use of telecommunication
through a sale at retail.
The Department’s website identifies a number of “allowable deductions” or “nontaxable sales”:
sales for resale; sales in interstate commerce; sales to businesses certified by the Illinois Department
of Commerce and Economic Opportunity and located in enterprise zones; sales to federal and state
governments and to state universities for their use and not for resale; sales between a parent
corporation and its subsidiaries provided there is no markup and the parent paid the tax to the
telecommunications provider. These deductions or nontaxable sales cannot be found by reviewing
any one section of the Act but must be determined by reviewing a number of definitions of words and
phrases used in the Act. See also 86 Ill. Adm. Code 495.100 and 495.105.

“Telecommunications” does not include purchases of telecommunications for resale. “Gross
charges” does not include charges received from sales to businesses certified by the Illinois
Department of Commerce and Economic Opportunity and located in enterprise zones, and charges
received from sales between a parent corporation and its subsidiaries. “Sale at retail” does not
include the sale of telecommunications to federal and state governments and to state universities for
their use and not for resale.
The Act does not exempt all sales in interstate commerce. Section 4 of the Act imposes a tax
on the privilege of originating and receiving interstate telecommunications in this State. The call must
be charged to the taxpayer's service address in this State. Therefore, the Act imposes the tax on
charges for an interstate call originating or received in Illinois when the call is charged to a service
address in Illinois.
Section 4 of the Act contains language that states the tax “is not imposed on the act or
privilege to the extent such act or privilege may not, under the Constitution and statutes of the United
States, be made the subject of taxation by the State.” 35 ILCS 630/3 and 4. The United State
Supreme Court had occasion to review the constitutionality of the Telecommunications Excise Tax
Act in Goldberg v. Sweet, 488 U.S. 252 (1989). It determined that the Act “is consistent with the
Commerce Clause” and “does not discriminate against interstate commerce.” Goldberg at 268.
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

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