Were USAC Federal Lifeline Program disbursements to a telecom provider subject to Illinois Telecommunications Excise Tax?

Plain-English summary

A telecommunications provider discounted eligible customers' monthly rates under the Federal Lifeline Program and received disbursements from the Universal Service Administration Company (USAC). It asked whether those receipts were subject to Illinois excise or telecommunications tax.

IDOR did not give a specific answer. It said it would need to review billing invoices and lacked enough information about how USAC administered the disbursement transactions.

The letter explained that the Telecommunications Excise Tax applied at the time to gross charges for interstate or intrastate telecommunications purchased at retail by a person in Illinois and was collected by retailers maintaining a place of business in Illinois. It also noted that State and Federal governments were exempt.

The government-exemption statement did not resolve the provider's question. IDOR did not say that a payment associated with a federal program was itself a government purchase or exempt receipt.

What this means for you

The source and purpose of a subsidy were not enough to determine tax treatment. The billing relationship, customer charges, payment flow, and program administration had to be documented before applying the government exemption.

Common questions

Did IDOR exempt the USAC disbursements? No determination was made.

Why not? IDOR lacked invoices and details about the disbursement transactions.

Did the letter recognize a government exemption? Yes, but it did not decide that these receipts fell within it.

Citations and references

• 35 ILCS 630/1 et seq., 630/5, and 630/2(k).

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2015.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2015/st-15-0038-gil.pdf

Original ruling text

ST 15-0038 GIL 06/08/2015 TELECOMMUNICATIONS EXCISE TAX
State and Federal governments are exempt from the Telecommunications Excise Tax Act. See 35
ILCS/2(k).

June 8, 2015
Dear Mr. XXXX:
This letter is in response to your letter dated March 19, 2015, 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:
We receive revenues from the Universal Service Administration Company
(USAC) through the Federal Lifeline Program. Our company discounts eligible
customers’ monthly rate, and receives disbursements from USAC in return. Are the
funds received from USAC taxable via excise tax, via telecommunications tax? Please
advise.
DEPARTMENT’S RESPONSE:
The Telecommunications Excise Tax Act (35 ILCS 630/1 et seq.) (“Act”) imposes a tax upon
the act or privilege of originating or receiving interstate or intrastate telecommunications by a person
in Illinois at the rate of 7% of the gross charges for telecommunications purchased at retail from a
retailer. This tax must be collected from persons by “retailers maintaining a place of business in
Illinois.” 35 ILCS 630/5.
We cannot provide you with a specific answer without reviewing billing invoices. Please note,
however, that State and Federal governments are exempt from the Telecommunications Excise Tax
Act. See 35 ILCS/2(k). We do not have sufficient information regarding the manner in which the
Federal Lifeline Program is administered by USAC, specifically with respect to the disbursement
transactions, to provide a ruling.
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,

Cara Bishop
Associate Counsel
CB:kd