If I separately state equipment rental or lease charges from VoIP service charges on the bill, do I still owe Illinois Telecommunications Excise Tax on the equipment charges?

Plain-English summary

A telecommunications retailer that also planned to rent or lease equipment (in addition to selling VoIP service) asked the Illinois Department of Revenue whether it had to charge the state's Telecommunications Excise Tax on the equipment rental or lease charges if those charges were billed separately from the VoIP service charges.

The Department's answer: equipment rental or lease charges are excluded from the Telecommunications Excise Tax's "gross charge" base, but only if they are disaggregated and separately identified from the telecommunications service charges in the retailer's books and records. This tracks the statute itself — 35 ILCS 630/2(a)(4) already carves out "charges for the customer equipment ... wherein such charges are disaggregated and separately identified from other charges" — and the Department's regulation, 86 Ill. Adm. Code 495.100(b), which requires that separation to appear in the retailer's own records, not just on the customer invoice.

The Department added an important catch, though: getting the equipment out of the Telecommunications Excise Tax doesn't mean it escapes tax altogether. Because the retailer is now the one using tangible personal property (the rented/leased equipment) rather than reselling it in the ordinary retail sense, the retailer will generally owe Use Tax on the cost price of that equipment when it buys the equipment to rent or lease to customers, citing 86 Ill. Adm. Code 150.305(e). If the retailer's supplier is registered to collect Illinois Use Tax, the supplier collects and remits it; if not, the retailer must self-assess and remit the Use Tax directly to the Department.

This is a General Information Letter (GIL), so it is not a Private Letter Ruling and is not binding Department policy — it simply points the taxpayer to the governing statute and regulations and explains how they apply in general terms.

What this means for you

VoIP and telecommunications retailers who also rent or lease equipment

If you sell telecommunications service (like VoIP) and also rent or lease equipment (routers, phones, adapters, etc.) to the same customers, you can keep the equipment charges out of the 7% Telecommunications Excise Tax base — but only if you disaggregate and separately identify those equipment charges from the service charges in your own books and records, not merely on the customer's bill. Sloppy or combined billing/recordkeeping can cause the whole charge to be treated as taxable "gross charge."

Anyone billing bundled service-plus-equipment charges

The lesson generalizes beyond VoIP: any telecommunications retailer combining service and equipment charges on one invoice should keep clean, itemized internal records showing the equipment charge as a distinct line, because the exclusion depends on that separation existing in the retailer's records, not just as a label on an invoice.

Accountants and tax professionals

Remember that excluding a charge from the Telecommunications Excise Tax doesn't mean it's tax-free — it likely shifts the transaction into the Use Tax regime instead. Under 86 Ill. Adm. Code 150.305(e), a retailer that buys equipment to rent or lease out (rather than to resell) owes Use Tax on the cost price of that equipment, either paid to a registered supplier or self-assessed and remitted directly if the supplier doesn't collect it.

Anyone relying on this letter

Because this is a GIL rather than a Private Letter Ruling, it is not a statement of Department policy and is not binding on the Department (2 Ill. Adm. Code 1200.120). It directs the taxpayer to the relevant statute and regulations rather than making a binding determination on specific facts. A taxpayer wanting a binding answer on its own specific facts would need to request a Private Letter Ruling under 2 Ill. Adm. Code 1200.110.

Common questions

Q: Do I have to charge Telecommunications Excise Tax on equipment I rent or lease along with VoIP service?
A: Not on the equipment charges, as long as those charges are disaggregated and separately identified from the service charges in your books and records. See 35 ILCS 630/2(a)(4) and 86 Ill. Adm. Code 495.100(b).

Q: Is it enough to just show the equipment charge as a separate line on the customer's invoice?
A: The Department's rule requires the charges to be disaggregated and separately identified from other charges in the retailer's books and records — so your internal recordkeeping needs to reflect the separation, not just the customer-facing bill.

Q: If equipment charges are excluded from the Telecommunications Excise Tax, are they tax-free?
A: No. The letter explains the retailer will generally incur Use Tax liability on the cost price of the equipment purchased for rental or lease to customers, per 86 Ill. Adm. Code 150.305(e) — paid to the supplier if the supplier collects it, or self-assessed and remitted to the Department if not.

Q: Is this letter binding on the Department?
A: No. It is a General Information Letter, which directs the taxpayer to relevant regulations and sources of information but is not a statement of Department policy and is not binding on the Department. See 2 Ill. Adm. Code 1200.120.

Q: What tax rate applies to telecommunications gross charges in Illinois?
A: Per the letter, the Telecommunications Excise Tax is imposed at 7% of the gross charges for originating or receiving intrastate or interstate telecommunications purchased at retail from retailers in Illinois. See 86 Ill. Adm. Code 495.

Citations and references

• 35 ILCS 630/2(a) (Telecommunications Excise Tax Act, definition of "gross charge")
• 35 ILCS 630/2(a)(4) (exclusion from gross charge for separately identified customer equipment charges)
• 86 Ill. Adm. Code 495.100(a) (definition of "gross charge")
• 86 Ill. Adm. Code 495.100(b) (requirement that equipment charges be disaggregated and separately identified to be excluded)
• 86 Ill. Adm. Code 150.305(e) (Use Tax on cost price of property purchased for rental or lease to customers)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedures)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedures)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2017.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2017/st-17-0025-gil.pdf

Original ruling text

ST 17-0025-GIL 06/28/2017 TELECOMMUCATIONS EXCISE TAX
Equipment rental charges are excludable from the telecommunication excise tax if they are
disaggregated and separately stated from other charges in the books and records of the
retailer. See 86 Ill. Adm. Code 495.100(b). (This is a GIL.)

June 28, 2017

Dear Xxxxx:
This letter is in response to your letter dated May 31, 2017, in which you requested
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 writing to ask you to provide clarification of a definition of Gross Charges given in
the Telecommunication Excise Tax Act (35ILCS 630/) pertinent to the treatment of
telecommunication equipment.
Sec. 2 (a) states, “ ‘Gross charge’ 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”.
Then on the page 2 – in the same Sec. 2 (a) the act states “‘However’ “gross charges”
shall not include any of the following:
(4) Charges for the customer equipment, including such equipment that is leased or
rented by the customer from any source, wherein such charges are disaggregated and
separately identified from other charges”.
We are going to provide our customers – in addition to VoIP service – with
telecommunications equipment that we will rent or lease to them. Does this section
mean that if we separate the charges for the rent or lease from the charges for the VOIP

ST 17-0025-GIL
Page 2

service, then we do not have to charge our customers Illinois telecommunication tax for
equipment rental or lease?
Please provide clarification and guidance in interpreting these seemingly contradictory
statements regarding treatment of equipment.

DEPARTMENT’S RESPONSE:
The Telecommunications Excise Tax is imposed upon the act or privilege of originating or
receiving intrastate or interstate telecommunications in Illinois at the rate of 7% of the gross charges
for such telecommunications purchased at retail from retailers. See 86 Ill. Adm. Code 495.
Pursuant to Section 495.100(a), "gross charge" 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 material used, labor or
service cost or any other expense whatsoever.
Gross charges, however, do not include charges for customer equipment, including such
equipment that is leased or rented by the customer from any source, wherein such charges are
disaggregated and separately identified from other charges (Section 2(a)(4) of the Act). To be
exempt from Telecommunications Excise Tax, the charges for customer equipment must be
disaggregated and separately identified from other charges in the books and records of the retailer.
See Section 495.100(b). The Company will incur Use Tax liability (paid to suppliers, or if suppliers
are not registered to collect and remit the tax, then the Company must self-assess and remit the tax
to the Department) based on the cost price of the tangible personal property purchased for rental or
lease to its customers. See 86 Ill. Adm. Code 150.305(e).
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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