IDOC's inmates fund 'offender debit accounts' by paying money at prison commissaries, and IDOC forwards that money to its telecom vendor to pay for phone service. Does that arrangement make IDOC a 'reseller' of telecommunications services -- entitled to give the vendor a certificate of resale -- and does a separate statute capping per-minute inmate calling charges relieve the vendor of its own Telecommunications Excise Tax liability?

Plain-English summary

The Illinois Department of Corrections (IDOC) asked the Department about the tax treatment of an "offender debit account" system used to pay for inmate phone service. A telecom company (referred to as PROVIDER) provides phone service to IDOC inmates. Inmates fund "offender debit accounts" by paying money at IDOC facility commissaries, and IDOC forwards that money to PROVIDER to apply to the accounts.

Why IDOC asked. A separate statute, 730 ILCS 5/3-4-1(a-5) (added by P.A. 99-0878), requires the state's contracted inmate-calling vendor to charge no more than 7 cents per minute for debit, prepaid, and collect calls, and it prohibits billing the inmate or any other party any tax, service charge, or additional fee above that per-minute rate. Because of that statute, PROVIDER stopped collecting tax and fees from inmates and asked IDOC to sign a certificate of resale (backdated to when PROVIDER stopped collecting the tax), on the theory that IDOC's commissary collection-and-forwarding process makes IDOC a "reseller" of the phone service. IDOC asked the Department four questions: (1) does the debit-account system create a resale arrangement; (2) can IDOC complete a certificate of resale; (3) can that certificate be backdated; and (4) if IDOC can complete a resale certificate, does a different law, 35 ILCS 120, make the sale of phone services to inmates untaxable as sales to a government entity?

The Department's answer: IDOC is not a reseller. The Telecommunications Excise Tax (35 ILCS 630) taxes the act of originating or receiving telecommunications in Illinois at 7% of gross charges (35 ILCS 630/3 and 630/4). The definition of "sale at retail" in 35 ILCS 630/2 excludes sales to the Federal and State governments and State universities, but 86 Ill. Adm. Code 495.105 clarifies that this exemption covers only telecommunications a government entity buys for its own use -- not telecommunications the entity resells to others. (The rule gives the example of a university: exempt on phone service for its own faculty and staff, but still required to collect and remit tax on phone service it sells to dormitory students.)

Applying that framework, the Department concluded that IDOC, by merely collecting money from offenders at commissaries and forwarding it to PROVIDER, is not acting as a retailer or reseller of telecommunications services -- PROVIDER remains the actual provider of the telecom service to the inmates. Because IDOC is not a retailer or reseller, IDOC cannot complete a certificate of resale to PROVIDER. That answer made the backdating question and the 35 ILCS 120 question moot, since both depended on IDOC being able to complete a resale certificate in the first place.

The rate cap doesn't erase the provider's own tax liability. Separately, while 730 ILCS 5/3-4-1(a-5) bars PROVIDER from billing the tax or fees to the inmate on top of the 7-cent-per-minute rate, the Department explained that this statute does not relieve PROVIDER of its own underlying obligation to pay the Telecommunications Excise Tax to the Department. Under 35 ILCS 630/5, a retailer maintaining a place of business in Illinois must collect and remit the tax, and is liable for the tax whether or not it was actually collected from the customer. So PROVIDER remains a telecommunications carrier liable for the Telecommunications Excise Tax on its gross receipts from serving inmates, even though state law prevents it from passing that cost through to the inmates as a separate charge.

What this means for you

State agencies and government entities that collect and forward payments for services

Simply collecting money from individuals and passing it along to a vendor does not make a government entity a "retailer" or "reseller" for Telecommunications Excise Tax purposes, and does not let the entity issue a certificate of resale. The government-use exemption under 86 Ill. Adm. Code 495.105 only protects telecommunications the entity buys for its own use -- not telecommunications it channels through to someone else's benefit.

Telecommunications providers serving inmate populations (or other rate-capped customer groups)

If a separate statute or regulation caps what you can bill a customer and bars you from adding tax or fees on top of that rate, that cap does not eliminate your own liability to remit the Telecommunications Excise Tax to the Department under 35 ILCS 630/5. You remain liable for the tax on your gross receipts even if you cannot collect a matching amount from the customer.

Accountants and tax professionals advising government or institutional clients

Before advising a government client to accept a certificate-of-resale request from a vendor, confirm the client is actually functioning as a retailer of the service to a third party (as in the university-dormitory example in 86 Ill. Adm. Code 495.105), rather than merely acting as a payment conduit or collection agent.

Common questions

Q: Does IDOC's commissary system for collecting and forwarding inmate phone payments make IDOC a "reseller" of telecommunications services?
A: No. The Department concluded that IDOC, by collecting money from offenders and forwarding it to PROVIDER, is not acting as a retailer or reseller of telecommunications services. PROVIDER remains the actual provider of the service to the inmates.

Q: Can IDOC complete a certificate of resale for PROVIDER?
A: No. Because IDOC is not acting as a retailer or reseller of telecommunications services, it cannot provide a certificate of resale to PROVIDER.

Q: Since IDOC can't issue a resale certificate, does it matter whether the certificate could be backdated, or whether 35 ILCS 120 would make the sale untaxable?
A: No -- both of those follow-up questions were conditioned on IDOC being able to complete a certificate of resale, and since the answer to that threshold question was no, the Department did not need to reach them.

Q: Does the 7-cents-per-minute inmate calling rate cap in 730 ILCS 5/3-4-1(a-5) mean PROVIDER doesn't owe Telecommunications Excise Tax on these calls?
A: No. That statute stops PROVIDER from billing the tax or any other fee to the inmate above the per-minute rate, but it does not relieve PROVIDER of its own liability to pay the Telecommunications Excise Tax to the Department. Under 35 ILCS 630/5, the retailer is liable for the tax whether or not it was collected from the customer.

Q: Who ultimately bears the cost of the Telecommunications Excise Tax in this situation?
A: PROVIDER does. It is a telecommunications carrier liable for the tax on its gross receipts from serving the offenders, but state law prevents it from passing that cost on to the inmates as a separate charge.

Citations and references

Statutes cited:

• 35 ILCS 630/2 (defines "sale at retail"; excludes sales to Federal/State governments and State universities from the definition)
• 35 ILCS 630/3 and 630/4 (impose the Telecommunications Excise Tax at 7% of gross charges for telecommunications purchased at retail)
• 35 ILCS 630/5 (retailer maintaining a place of business in Illinois must collect and remit the tax; liable for the tax whether or not it was collected from the customer)
• 86 Ill. Adm. Code 495.105 (the government exemption extends only to telecommunications purchased for the entity's own use, not telecommunications it sells to others)
• 730 ILCS 5/3-4-1(a-5), added by P.A. 99-0878 (caps contracted inmate calling rates at 7 cents/minute and bars billing any party any tax, service charge, or additional fee above that rate)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2019.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2019/st19-0017-gil.pdf

Original ruling text

ST 19-0017-GIL 08/27/2019 TELECOMMUNICATIONS EXCISE TAX
This letter discusses the taxability of telecommunications services provided to inmates. 35
ILCS 630/5. (This is a GIL.)

August 27, 2019
Dear Xxxx:
This letter is in response to your letter dated July 16, 2019, 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:
Facts:
A telecom company that provides telephone service to IDOC offenders has
an option for "offender debit accounts'' where IDOC facility commissaries collect
money from offenders and the money collected is forwarded to the telecom
company to be applied to the offender debit accounts. IDOC acknowledges that the
telecom company is required to pay certain taxes for offender phone services.
However, 730 Ill. Comp. Stat. 5/3-4-1 (a-5) and Public Act 099-0878 govern how
taxes and fees may be collected from IDOC offenders, and states:
Beginning January 1, 2018, the Department of Central Management
Services shall contract with the qualified vendor who proposes the
lowest per minute rate not exceeding 7 cents per minute for debit,
prepaid, collect calls and who does not bill to any party any tax,
service charge, or additional fee exceeding the per minute rate,
including, but not limited to, any per call surcharge, account set up fee,
bill statement fee, monthly account maintenance charge, or refund
fee... (Emphasis added).
Based on the statute and Public Act quoted above, which prohibits the
telecom company from collecting any taxes and fees above the agreed per minute
rate for phone calls, the telecom company has stopped collecting taxes and fees
from IDOC offenders and has asked IDOC to complete a certificate of resale, which

ST 19-0017 GIL
Page 2
should be backdated to the date when the telecom company stopped collecting
taxes from IDOC offenders. The telecom company asserts that the way in which
IDOC commissaries collect money from offenders for phone services and forwards
the money to the telecom company to apply to offender debit accounts, constitutes
a “resale arrangement.” Additionally, the telecom company asserts that 35 Ill.
Comp. Stat. 120 is applicable to IDOC. IDOC requests guidance with respect to the
questions below.
Issues & Questions:

1. Does the offender debit account system, which requires IDOC to
   collect money from offenders for phone services through facility
   commissaries and forward the money paid by offenders to the
   telecom company, create a resale an arrangement?
2. Can IDOC complete a certificate of resale in this situation?
3. Can the certificate of resale be backdated?
4. If IDOC can complete a certificate of resale, does 35 Ill. Comp. Stat. 120
   render the sale of phone services to offenders untaxable (in other
   words, does 35 Ill. Comp. Stat. 120 state that government entities such
   as IDOC are not required to collect or pay any taxes from offender
   purchases of phone services due to the state tax exemption status)?
   Thank you for your review and we look forward to receiving a Technical
   Advice Memorandum from IDOR.
   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. 35 ILCS 630/3 and 630/4.
   “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 materials used, labor or service costs or any other
   expense whatsoever. In case credit is extended, the amount thereof shall be included only as and
   when paid.
   "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 two-

ST 19-0017 GIL
Page 3
way 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.
"Sale at retail" means the transmitting, supplying or furnishing of telecommunications and all
services and equipment provided in connection therewith for a consideration to persons other than
the Federal and State governments, and State universities created by statute and other than 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.
Section 495.105 of the Department’s rules states:
“The exemption for State Governments and State universities created by statute
extends only to telecommunications purchased by such entities for their own use. Such
entities are not exempt from the obligation to collect and remit tax on sales of
telecommunications to others when they act as retailers of telecommunications. For
example, a university would be exempt from Telecommunications Excise Tax on
purchases, by the university, of telecommunications services for use by its faculty and
staff in the course of their duties. However, the same university would have an
obligation to collect and remit tax on sales of telecommunications services to students in
university dormitories.”
86 Ill. Adm. Code 495.105. Based on the Act and this rule, if IDOC sells at retail telecommunication
services to inmates, those services would be subject to Telecommunications Excise Tax.
It is the Department’s understanding that the Department of Central Management Services
(CMS) has contracted with PROVIDER to provide telephone service to offenders housed in IDOC
facilities. The offenders may not receive calls but can make collect calls to persons on their approved
list of persons permitted to receive calls. Offenders may set up an offender debit account and make
payments at IDOC facility commissaries. The payments are forwarded by IDOC to PROVIDER.
Based on the facts presented, it is the Department’s position that PROVIDER is the provider of the
telecommunications services to the offenders. It is also the Department’s position that IDOC, by
collecting moneys from offenders and forwarding the moneys to PROVIDER, is not acting as a
retailer or reseller of telecommunications service. Because IDOC is not acting as a retailer of
telecommunications services, IDOC cannot provide a certificate of resale to PROVIDER.
In your letter, you point out that the General Assembly amended the Unified Code of
Corrections by adding a new subsection (a-5) to Section 3-4-1.
“(a-5) Beginning January 1, 2018, the Department of Central Management Services
shall contract with the qualified vendor who proposes the lowest per minute rate not
exceeding 7 cents per minute for debit, prepaid, collect calls and who does not bill to
any party any tax, service charge, or additional fee exceeding the per minute rate,
including, but not limited to, any per call surcharge, account set up fee, bill statement
fee, monthly account maintenance charge, or refund fee as established by the Federal
Communications Commission Order for state prisons in the Matter of Rates for
Interstate Inmate Calling Services, Second Report and Order, WC Docket 12-375, FCC
15-136 (adopted Oct. 22, 2015). Telephone services made available through a prepaid

ST 19-0017 GIL
Page 4
or collect call system shall include international calls; those calls shall be made
available at reasonable rates subject to Federal Communications Commission rules and
regulations, but not to exceed 23 cents per minute. This amendatory Act of the 99th
General Assembly applies to any new or renewal contract for inmate calling services.”
P.A. 99-0878 is codified at 730 ILCS 5/3-4-1(a-5). The plain language of subsection (a-5) states that
CMS shall contract with a vendor that proposes the lowest rate per minute, not exceeding $0.07 per
minute, for debit, prepaid and collect calls. However, it clearly provides the selected vendor is
prohibited from billing any party, including the offender, for any tax, service charge or additional fee
exceeding the $0.07 per minute rate.
The Federal Communications Commission in its Second Report and Order did not prohibit
telecommunications carriers from adding certain ancillary charges to the rates charged offenders
purchasing telecommunications services, including mandatory applicable pass-through taxes and
regulatory fees, as long the carriers did not add any additional mark-up or fees. Rates for Interstate
Inmate Calling Services, Second Report and Order, WC Docket No. 12-375, FCC 15-136 (Oct. 22,
2015), at paras. 191-192.
Section 5 of the Telecommunications Excise Tax Act states that any retailer maintaining a
place of business in the State shall collect and remit to the Department the tax imposed by the
Telecommunication Excise Tax Act. The retailer is liable for the tax whether or not the tax has been
collected by the retailer. 35 ILCS 630/5. While subsection (a-5) prohibits PROVIDER from adding
the tax on the offender’s bill, it does not relieve PROVIDER from liability for paying the tax to the
Department.
The Department concludes that PROVIDER is a telecommunications carrier, is providing
telecommunications services to offenders, and is liable for Telecommunications Excise Tax on the
sale of telecommunications services to offenders based on the gross receipts received from such
sales.
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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