Could Illinois municipalities tax satellite television, and did satellite programming trigger Illinois Telecommunications Excise Tax?

Plain-English summary

Illinois generally did not treat satellite television programming as taxable telecommunications. The GIL said providers of basic channels, premium channels, pay-per-view movies, sporting events, and similar satellite services were generally not subject to Illinois Telecommunications Excise Tax. If a company separately made a retail sale of software used to access those services, however, Retailers' Occupation Tax could apply.

The Department did not answer whether home-rule or non-home-rule municipalities could impose directly collected sales, use, or gross-receipts taxes on satellite video. It said it did not administer those local taxes and therefore could not opine on their legality. The response pointed to Section 602 of the federal Telecommunications Act of 1996, quoting its exemption of direct-to-home satellite providers from collecting or remitting a tax or fee imposed by a local taxing jurisdiction.

The letter also stated a 7% Illinois Telecommunications Excise Tax rate for retail telecommunications in 2010. That rate is historical and was not a tax imposed on the satellite programming described above.

What this means for you

Separate the programming service from any equipment or software sale, and distinguish state-administered taxes from locally administered charges. The GIL is not a municipal-law ruling and its 2010 rate discussion should not be used without current verification.

Common questions

Q: Was satellite television programming subject to Illinois Telecommunications Excise Tax?
A: Generally no, according to the GIL.

Q: Did the Department approve a local satellite-video tax?
A: No. It declined to opine because it did not administer directly collected municipal taxes.

Q: Could access software be taxed separately?
A: Yes. The GIL said retail software sold to access the service could incur Retailers' Occupation Tax.

Citations and references

• 65 ILCS 5/8-11-6a
• Section 602 of the federal Telecommunications Act of 1996
• 35 ILCS 630/3 and 630/4; 86 Ill. Adm. Code Part 495
• 35 ILCS 635/1; 35 ILCS 636/5-1 et seq.
• 86 Ill. Adm. Code 130.101, 150.101, and Part 140
• 2 Ill. Adm. Code 1200.110 and 1200.120

Subject

Telecommunications Excise Tax

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2010.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2010/st-10-0059.pdf

Original ruling text

ST 10-0059-GIL 08/03/2010 TELECOMMUNICATIONS EXCISE TAX
Persons who provide satellite television services, including basic network channels, premium
channels, pay per view movies, sporting events, etc., are generally not subject to the
Telecommunications Excise Tax liability. See 35 ILCS 630/1 et. seq. (This is a GIL.)

August 3, 2010

Dear Xxxxx:
This letter is in response to your letter dated June 8, 2010, 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:
ABC is writing the Illinois Department of Revenue under Illinois Administrative Code
TITLE 2: GOVERNMENTAL ORGANIZATION Section 1200.120 General Information
Letters.
ABC is seeking an answer to 4 questions concerning the levy of franchise fees on cable
services versus no levy of any franchise fee or equivalent on satellite-based services.
Background:
Basis of Inquiry: ABC’s inquiry is on behalf of our municipal clients who have lost
revenue due to businesses and residents switching from cable services to satellite
based services. ABC is examining options in an attempt to create parity between
franchise fees on cable and possible taxation on satellite services.
Who is ABC: ABC is a utility tax auditor. ABC reviews the collection of municipal utility
taxes, franchise fees or user fees collected by natural gas, electricity, cable and water
utilities on behalf of municipalities within Illinois.
Facts:

Cable Franchise Fee: Many municipalities charge a franchise fee on the gross
revenues earned by cable companies operating within their incorporated boundaries.
Typically a municipality will have an agreement with the cable company stating:
The grantee, shall pay to the village on a quarterly basis, an amount equal
to five percent (5%) per year of grantee’s annual gross revenue as
permitted by law..’Gross revenue’ shall be defined in detail in a separate
section of this article. Should the law permit an increase in the percentage
of gross revenues to be collected by the franchising authority as franchise
fees, the parties will meet and confer to discuss the ramifications of such
increase on subscriber bills. In accordance with applicable law increases
in franchise fees may be levied by the village by ordinance after ninety
(90) days’ advance written notice is given to grantee.
Gross Revenues: Gross revenues are typically defined as follows:
Gross revenues means and includes all revenue received by a grantee
derived from and in connection with the operation of the grantee’s cable
system to provide cable service within the village, including, but not limited
to, revenues, fees, receipts or charges from or for:
1.)
2.)
3.)
4.)
5.)
6.)
7.)
8.)

9.)
10.)

basic tier cable service;
any tier of video programming service other than basic service;
any optional, premium, per channel or per program service;
any installation, disconnection, reconnection, change-in-service or
other customer service;
rentals of converters, remotes or other customer premises
equipment;
provision of data services such as internet services carried over the
cable system which are cable services;
commercial leased channels or channel access;
advertising revenues (including infomercials); including a per
subscriber share of revenues for grantee’s subscribers within the
village which is received for advertising carried on one or more
cable systems in addition to the grantee’s cable system within the
village;
revenues from home shopping channels;
the sales of programming guides, and such other revenue sources
from the provision of cable service as may now exist or hereafter
develop, provided that such revenues, fees, receipts or charges
may lawfully be included in the gross revenue base on which the
village may calculate and collect franchise fees.

Gross revenues shall not include any amounts refunded to subscribers,
any unpaid subscriber or advertiser accounts and any sales tax,
telecommunications tax, utility message tax or other taxes imposed
directly upon any subscriber or user by the village, the state or other
governmental unit and collected by the grantee on behalf of and for
remittance to the village, the state or other governmental unit. As used
herein, annual gross revenues shall mean gross revenues attributable to a
twelve (12) month accounting period, or portion thereof. This definition of

gross revenues shall be the basis for computing the fee imposed pursuant
to various sections of this article.
Loss of Franchise Fees: Due to competition between land based cable video and
satellite-based video, some municipalities are experiencing a decrease in fees as
residents and businesses switch from BUSINESS to satellite based video services.
Use of Rights of Way: BUSINESS has buried cable along rights of way throughout the
municipality and must perform certain duties, including collection of a fee in accordance
with their franchise agreement with BUSINESS.
Satellite Equipment: Satellite based video operators do not make use of public rights
of way, thus they are not subject to paying a franchise fee.
QUESTIONS
Question 1: Can Home Rule municipalities impose a ‘use tax’ upon satellite-based
services as defined in item 2 above?
Question 2: Can Home Rule municipalities impose a ‘sales tax’ on gross revenue as
defined in 2 above on satellite based services?
Question 3: Can Non Home Rule municipalities impose a ‘sales tax’ on gross revenue
as defined in 2 above on satellite based services?
Question 4: Are there any restrictions on the percentage charged for a gross revenue
tax or on the fee charged for a use tax imposed upon satellite based services.

DEPARTMENT’S RESPONSE:
Except as otherwise provided in Article 8, Division 11, of the Illinois Municipal Code, no home
rule municipality has the authority to impose, pursuant to its home rule authority, a retailer's
occupation tax, service occupation tax, use tax, sales tax or other tax on the use, sale or purchase of
tangible personal property based on the gross receipts from such sales or the selling or purchase
price of said tangible personal property. 65 ILCS 5/8-11-6a. This Section also identifies certain types
of municipal taxes that are not preempted, notwithstanding the prohibition on occupation, sales or use
taxes on tangible personal property. Since the Department does not administer local taxes, however,
it cannot opine on whether a municipal tax imposed on satellite-based video services and collected
directly by that municipality is lawful.
I direct your attention to Section 602 of the federal
Telecommunications Act of 1996. (“A provider of direct-to-home satellite service shall be exempt
from the collection or remittance, or both, of any tax or fee imposed by any local taxing jurisdiction on
direct-to-home satellite service.”)
The Illinois Retailers’ Occupation Tax Act imposes a tax upon persons engaged in this State in
the business of selling tangible personal property to purchasers for use or consumption. The tax is
measured by the seller’s gross receipts from such sales made in the course of such business. See
86 Ill. Adm. Code 130.101. In Illinois, Use Tax is imposed on the privilege of using, in this State, any
kind of tangible personal property that is purchased anywhere at retail from a retailer. See 86 Ill.
Adm. Code 150.101.

Illinois Retailers' Occupation and Use Taxes do not apply to sales of service that do not involve
the transfer of tangible personal property to customers. However, if tangible personal property is
transferred incident to sales of service, this will result in either Service Occupation Tax liability or Use
Tax liability for the servicemen depending upon which tax base the servicemen choose to calculate
their tax liability. Television programming or other services in which no tangible personal property is
transferred are not subject to Illinois Retailers' Occupation Tax, Use Tax, Service Occupation Tax,
and Service Use Tax liability. For general information regarding sales of service and Service
Occupation Tax, see 86 Ill. Adm. Code 140.
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. For additional information regarding telecommunications tax liabilities,
please refer to 86 Ill. Adm. Code Part 495. In addition, please refer to the Telecommunications
Infrastructure Maintenance Fee Act, 35 ILCS 635/1 and the Simplified Municipal Telecommunications
Tax Act, 35 ILCS 636/5-1 et seq.
Persons who provide satellite television services, including basic network channels, premium
channels, pay per view movies, sporting events, etc., are generally not subject to the
Telecommunications Excise Tax liability. If a company engages in the retail sale of software to
access said services, Retailers' Occupation Tax liability may be incurred.
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
RSW:msk