Does Illinois's Telecommunications Excise Tax exemption for 'State governments' cover sales to OTHER states' governments (and their agencies), not just Illinois's own government -- and can a taxpayer get a binding ruling on that?

Plain-English summary

A telecommunications company sells telecommunication services to customers across the United States, including Illinois, and collects Illinois's Telecommunications Excise Tax from its Illinois customers except where a customer is exempt. Some of the company's Illinois customers are agencies and instrumentalities of OTHER states' governments (not Illinois's) that maintain local offices in Illinois.

What the company asked for. The company requested a Private Letter Ruling (PLR) -- a binding ruling -- that its sales of telecommunication services to these non-Illinois state governments (and their agencies and instrumentalities) are exempt from the Tax under 35 ILCS 630/2k. That statute exempts "State governments" from the Tax, but doesn't say whether "State governments" means only Illinois or all 50 states. The company pointed to a GIL the Department had already issued (on June 6, 2019, referenced as ST-19-0056-GIL) to another state's own Department of Revenue, as a purchaser, concluding that department qualified for the state-government exemption.

The Department declined to issue the requested PLR. Under 2 Ill. Adm. Code 1200.110(a)(4), whether to issue a PLR at all is within the Department's discretion, and the Department can instead respond with a letter explaining that it will not honor the ruling request. That's what happened here: the Department decided not to issue a binding PLR and answered with this non-binding GIL instead.

The substantive answer, even though non-binding. The Telecommunications Excise Tax Act imposes a 7% tax on the act or privilege of originating or receiving intrastate or interstate telecommunications by persons in Illinois, measured by the gross charges for telecommunications purchased at retail (35 ILCS 630/3 and 630/4). Retailers with a place of business in Illinois must collect the Tax and remit it to the Department (35 ILCS 630/5). The purchasers who can buy telecommunications tax-free are: the federal government and State governments, State universities created by statute, and wholly owned corporate subsidiaries purchasing from a parent or sibling wholly owned subsidiary (35 ILCS 630/2). The Department confirmed that the state-government exemption applies to Illinois AND the other 49 states, and extends to their agencies and instrumentalities, whether executive, legislative, or judicial in nature.

Limits on the answer. The Department said it cannot specifically identify every agency or instrumentality that qualifies for the exemption. It also cautioned that an entity being created by state statute, or receiving state funding, does not by itself qualify that entity for the exemption -- each entity's status still has to be evaluated.

What this means for you

Telecommunications retailers selling to out-of-state government customers

You may treat sales of telecommunication services to another state's government -- or to that state's executive, legislative, or judicial agencies and instrumentalities -- as exempt from Illinois's Telecommunications Excise Tax under 35 ILCS 630/2 and 630/2k, the same as sales to Illinois's own state government. This exemption is not limited to Illinois government purchasers.

Don't assume every government-adjacent entity qualifies

The Department expressly warned that merely being created by state statute, or being funded by a state government, doesn't automatically make an entity exempt. Before treating a customer as an exempt "agency or instrumentality" of a state government, confirm the entity's actual governmental character and function.

If you want a binding answer, be aware PLR requests can be declined

This taxpayer specifically asked for a Private Letter Ruling -- which would have been binding on the Department as to this taxpayer's facts -- and the Department exercised its discretion under 2 Ill. Adm. Code 1200.110(a)(4) to decline it, issuing a GIL instead. A GIL on the same question gives you the Department's reasoning but is not binding, so if you need certainty for a specific transaction, don't assume a favorable GIL protects you the way a PLR would.

Common questions

Q: Does the "State governments" exemption in 35 ILCS 630/2k cover only Illinois, or other states too?
A: Other states too. The Department concluded the exemption applies to Illinois and the other 49 states, not just Illinois.

Q: Does the exemption cover agencies of other states, or only the state government itself?
A: It extends to agencies and instrumentalities of state governments, whether executive, legislative, or judicial in nature -- not just the state government as a single entity.

Q: Did the Department issue a binding ruling on this question?
A: No. The taxpayer requested a Private Letter Ruling (which would be binding), but the Department declined to issue one, using its discretion under 2 Ill. Adm. Code 1200.110(a)(4), and issued this non-binding General Information Letter instead.

Q: Does creation by state statute or state funding automatically make an entity exempt?
A: No. The Department specifically said that an entity being created by state statute or receiving state funding does not necessarily qualify it for the state-government exemption.

Q: What's taxed under the Telecommunications Excise Tax Act in the first place?
A: The act or privilege of originating or receiving intrastate or interstate telecommunications by persons in Illinois, taxed at 7% of the gross charges for telecommunications purchased at retail (35 ILCS 630/3 and 630/4), collected and remitted by retailers with a place of business in Illinois (35 ILCS 630/5).

Citations and references

Statutes cited:

• 35 ILCS 630/2 (defines "sale at retail"; excludes sales to federal and State governments, State universities, and wholly owned subsidiaries)
• 35 ILCS 630/2k (defines "purchased at retail"; the basis for the state-government exemption)
• 35 ILCS 630/3 (imposes tax on originating telecommunications in Illinois)
• 35 ILCS 630/4 (imposes tax on receiving telecommunications in Illinois)
• 35 ILCS 630/5 (retailer collection and remittance obligation)
• 2 Ill. Adm. Code 1200.110(a)(4) (Department's discretion to decline a requested Private Letter Ruling)

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/st19-0027-gil.pdf

Original ruling text

ST 19-0027-GIL 12/04/2019 TELECOMMUNICATIONS:
The state government exemption in the Telecommunications Excise Tax Act applies to
the 50 states. 35 ILCS 630/2. (This is a GIL.)
December 4, 2019
Re:

Request for Illinois Telecommunications Excise Tax Private Letter Ruling

Dear XXX:
This letter is in response to your letter dated August 2, 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:
The purpose of this letter (“Letter”) is to request a private letter ruling under 86
Ill. Admin. Code § 1200.110 on behalf of COMPANY and its affiliates
AFFILIATES on which COMPANY may rely. Specifically, COMPANY
requests a private letter ruling that, for purposes of the Telecommunication Excise
Tax Act, 35 ILCS § 630, et seq. (the “Act”), sales of telecommunication services
to non-Illinois State governments, and agencies and instrumentalities of such
State governments, are exempt from the telecommunication excise tax (the
“Tax”).
No audit or litigation is pending with the Illinois Department of Revenue (the
“Department”) involving COMPANY regarding the issues presented below. We
note, however, that AFFILIATE is under a telecommunications excise tax and
infrastructure maintenance fund tax audit by the Department for the period of
January 20XX through May 20XX. In addition, AFFILIATE currently has a case
pending before the Illinois Tax Tribunal related to use tax. Neither COMPANY
nor any representatives of COMPANY have previously submitted a ruling request
related to the same or similar issues to those presented below to the Department
but withdrew them before a letter ruling was issued. We note, however, that, on
June 6, 2019, the Department issued a GIL to the STATE Department of Revenue

ST 19-0027-GIL
Page 2
December 4, 2019
on this issue with respect to its purchases of telecommunications services from
COMPANY, which GIL is attached hereto as Exhibit A and referenced herein.
FACTS
COMPANY provides telecommunication services to customers throughout the
United States, including Illinois. COMPANY collects the Tax from its customers
in Illinois except to the extent such customers are exempt from Tax under the Act.
Among COMPANY’s customers in Illinois are various non-Illinois state
governments, including agencies and instrumentalities of such state governments,
with local offices in Illinois.
RULINGS REQUESTED
Whether COMPANY’s sale of telecommunication services to non-Illinois State
governments, (and agencies and instrumentalities of such governments)
(collectively, “States other than Illinois”) are exempt from the Tax under 35 ILCS
§ 630/2k.
EXPLANATION OF GROUNDS TO SUPPORT REQUEST
Pursuant to Act, the Tax is imposed upon the act or privilege of originating or
receiving intrastate and interstate telecommunication in Illinois. 35 ILCS § 630/3
and 4. The Tax is measured by the gross charges for such telecommunications
purchased at retail. Id. Any retailer maintaining a place of business in Illinois is
required to collect the Tax from its customer and remit such Tax to the
Department. 35 ILCS § 630/5.
The term “purchased at retail” means the “acquisition, consumption or use of
telecommunications though a sale at retail.” 35 ILCS § 630/2k. The term “sale
at retail’ means:
“[t]he transmitting, supplying or furnishing of telecommunications
and all services and equipment provided in connection therewith
for 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 § 630/2k (emphasis supplied). Thus, the transmission, supply or
furnishing of telecommunications to “State governments” is not subject to Tax.
However, the Act does not provide clarity as to whether the term “State
governments” refers only the State of Illinois or to States other than Illinois as

ST 19-0027-GIL
Page 3
December 4, 2019
well. In addition, the Act does not provide clarity as to whether the exemption
extends to agencies and instrumentalities of such State governments.
Due to this lack of clarity, the Department of Revenue of STATE (the “STATE”)
recently requested a General Information Letter (“GIL”) from the Department as
to whether telecommunications services purchased by the STATE from
COMPANY, for the benefit of its personnel located in Illinois, is subject to the
Tax. The GIL described the law as follows:
“DEPARTMENT’S RESPONSE:
The Telecommunications Excise Tax Act imposes a tax on the act
or privilege of originating or receiving intrastate and 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 only
purchasers who can purchase telecommunications tax-free are
Federal and State governments, State Universities created by
statute, and wholly owned corporate subsidiaries purchasing from
the parent or wholly owned subsidiary. 35 ILCS 630/2. The
Department of Revenue, an agency of the STATE, falls within
exemption for state governments and is exempt from the tax
imposed by the Telecommunications Excise Tax.”
In light of the Department’s response above, COMPANY respectfully requests a
private letter ruling from the Department concluding that both Illinois and States
other than Illinois fall within the exemption from the Tax set forth in 35 ILCS §
630/2k for sales of telecommunications services to “State governments.”
COMPANY is not aware of any authorities contrary to the requested ruling.

Thank you for your consideration of this request. Please do not hesitate to contact
me if you have any questions, or would like any additional information. We
respectfully request a conference in the event you tentatively conclude that an
adverse ruling would be warranted. Powers of attorney, authorizing the
undersigned to represent COMPANY in this matter are attached as Exhibit B.
This ruling request pertains only to periods beginning after the date hereof.
DEPARTMENT’S RESPONSE:

ST 19-0027-GIL
Page 4
December 4, 2019
The Department’s regulation “Public Information, Rulemaking and Organization”
provides that “[w]hether to issue a private letter ruling in response to a letter ruling request is
within the discretion of the Department. The Department will respond to all requests for private
letter rulings either by issuance of a ruling or by a letter explaining that the request for ruling will
not be honored.” 2 Ill. Adm. Code 1200.110(a)(4). The Department recently met and
determined that it would decline to issue a Private Letter Ruling in response to your request. We
hope however, the following General Information Letter will be helpful in addressing your
questions.
The Telecommunications Excise Tax Act (“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. Purchasers who can purchase telecommunications tax-free
include the federal and State governments, State Universities created by statute, and wholly
owned corporate subsidiaries purchasing from the parent or other wholly owned subsidiary. 35
ILCS 630/2.
In ST-19-0056-GIL (June 6, 2019), the Department stated that a revenue department of a
state other than Illinois qualified for the state government exemption contained in the Act and
was exempt from the tax imposed by the Telecommunications Excise Tax.
The state government exemption contained in the Act applies to Illinois and the other 49
states and the agencies and instrumentalities of the states. The agencies and instrumentalities of
state government may be executive, legislative or judicial in nature. It is not possible for the
Department to specifically identify the agencies and instrumentalities that qualify for the
exemption. It should be noted however that the fact that an entity may be created by state statute
or receives funding from a state government does not necessarily qualify the entity for the
exemption.
I hope this information is helpful. If you have further questions related to the Illinois
sales tax laws, 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:rkn