Were charges for resold wireless broadband Internet access exempt from Illinois telecommunications tax under the Internet Tax Freedom Act?

Plain-English summary

The Department did not conclusively exempt the wireless broadband service because the request did not identify every way customers could use it. The provider bought mobile broadband data plans from wireless carriers and resold the connection to business customers for point-of-sale authorizations, file transfers, email, and other Internet access.

Under the federal Internet Tax Freedom Act as described in the 2011 letter, telecommunications purchased, used, or sold by a provider to enable users to connect to the Internet or access online content and services were covered by the then-current tax moratorium. But not all telecommunications were covered. Charged voice, audio or video programming and other services outside the statutory Internet-access definition could remain taxable.

The Department noted that the service could be used for telecommunications outside the moratorium. It therefore did not classify all of the provider's wireless charges as exempt.

Bundling also mattered. Nontaxable Internet-access charges had to be disaggregated and separately identified from taxable telecommunications charges in the retailer's books and records. If aggregated charges were not separable, the Internet-access portion could be taxed with the telecommunications charge.

What this means for you

A wireless-access reseller needed to document what customers actually received and how each charge was recorded. The product name "data plan" did not settle the issue. Separate qualifying Internet-access charges from taxable voice, programming, or other telecommunications charges in the regular books and records.

Common questions

Q: Did every wireless broadband charge qualify for the moratorium?
A: No. The Department said some customer uses could be taxable telecommunications outside the moratorium.

Q: What happened when Internet-access and taxable telecom charges were bundled?
A: The nontaxable portion had to be reasonably identified in the provider's books and records, or the aggregated charge could be taxed.

Q: Are the moratorium date and rates in this 2011 letter current?
A: No. Treat those historical details as part of the law addressed by this GIL, not current guidance.

Subject

Telecommunications Excise Tax

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2011.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2011/st-11-0028.pdf

Original ruling text

ST 11-0028-GIL 04/06/2011 TELECOMMUNICATIONS EXCISE TAX
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 35 ILCS 630/1 et
seq. (This is a GIL.)

April 6, 2011

Dear Xxxxx:
This letter is in response to your letter dated November 1, 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:
We request clarification of the law on the taxability of charges related to the provision of
a wireless service that enables users to connect to the Internet over wireless carrier
networks provided by wireless communications providers (Cellular and PCS Carriers).
We have organized this request by first stating what we believe to be the relevant facts.
We then outline the tax question we are attempting to address in the ‘Issues’ section.
Following the ‘Issues’ section is a discussion of the relevant law and our conclusions for
your confirmation or clarification. We understand that your conclusions will be based on
the facts presented and that a change in the facts as we have described them may
change the conclusion.
Facts
Company A is a commercial wireless broadband data service provider. Company A
provides wireless Internet access connectivity primarily for retailers in the US, Canada
and Puerto Rico. Retailers and other customers typically use the provided wireless
broadband Internet access service to complete point-of-sale authorizations, maintain
network continuity, perform file transfers, provide corporate email, and control employee
Internet access content and other services from remote locations that are often
underserved by Digital Subscriber Line (DSL) or cable Internet access service

providers. Company A provides these wireless broadband Internet access services to
its customers by purchasing and reselling mobile broadband ‘data plans’ from cellular
and PCS wireless carriers like Verizon, AT&T and Sprint. To the extent Company A
aggregates the Internet access service from other products or services, Company A can
reasonably identify the charges for Internet access service from its books and records
kept in the regular course of business.
Company A does not purchase mobile telecommunications services as a separate or
bundled service from the cellular and PCS wireless carriers, only a wireless broadband
Internet access service (‘data plan’). Nor does Company A provide voice, audio or
video programming, or other products and services using Internet protocol for which
there is a charge. The customers of Company A utilize this ‘always on’ wireless
broadband connection over these wireless networks to conduct their business, including
the services mentioned above to access the Internet and to access corporate data via
the Internet.
Issues
1.

Under the Regulations and Statutes of {STATE}, are the charges to Company A’s
customers for wireless (3G) broadband connection services taxable as a
communications service?

2.

Are these charges taxable if they are bundled with other taxable items or
services?

Discussion of Applicable Law
The federal Internet Tax Freedom Act (ITFA) (P.L. 105-277, 112 Stat. 2681, 47 U.S.C.
Sec. 151 note, amended by P.L. 107-75, P.L. 108-435, and P.L. 110-108) bars state
and local governments from imposing multiple or discriminatory taxes on electronic
commerce and taxes on Internet access. This moratorium expires on November 1,
2014.
Internet access definition – ‘Internet access’ means a service that enables users to
connect to the Internet to access content, information, or other services. The definition
includes the purchase, use, or sale of telecommunications by an Internet service
provider to provide the service or otherwise enable users to access content, information,
or other services offered over the Internet. It also includes incidental services such as
home pages, electronic mail, instant messaging, video clips, and personal electronic
storage capacity, whether or not packaged with service to access the Internet.
However, ‘Internet access’ does not include voice, audio or video programming, or other
products and services using Internet protocol for which there is a charge, regardless of
whether the charge is bundled with charges for ‘Internet access.’
Bundled services – The Act allows the taxation of otherwise exempt Internet access
service charges that are aggregated (i.e. bundled) with and not separately stated from
charges for telecommunications or other taxable services, unless the Internet access
provider can reasonably identify the charges for Internet access from its books and
records kept in the regular course of business.
Conclusion

We believe the wireless broadband connection services purchased and resold by
Company A meet the definition of Internet access service. Pursuant to the federal ITFA,
and the moratorium that’s in place on the taxation of Internet access services, we
believe Company A’s sales of wireless broadband connection services to its customers
are not taxable. Additionally, we believe these services would not be taxable when
bundled with other taxable items or services if they can be reasonably identified from
Company A’s books and records kept in the regular course of business. Company A
would invoice and collect sales taxes for these other taxable services when or if it is
required.
We appreciate your consideration of this matter. Your timely response is respectfully
requested in order that our client can confirm its compliance with the state law as soon
as possible. If you have any questions please feel free to call me.

DEPARTMENT’S RESPONSE:
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. The Simplified Municipal Telecommunications Tax Act allows
municipalities to impose a tax on the act or privilege of originating in such municipality or receiving in such municipality intrastate or interstate telecommunications by persons in Illinois at a rate not to
exceed 6% for municipalities with a population of less than 500,000, and at a rate not to exceed 7%
for municipalities with a population of 500,000 or more, of the gross charges for such
telecommunications purchased at retail from retailers by such persons. 35 ILCS 636/5-10 and 5-15.
“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 twoway 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. “Telecommunications” do not include “value added services in which computer
processing applications are used to act on the form, content, code and protocol of the information for
purposes other than transmission.” See 35 ILCS 630/2(a) and 2(c). If telecommunications retailers
provide these services, the charges for each service must be disaggregated and separately stated
from telecommunications charges in the books and records of the retailers. If these charges are not
thus disaggregated, the entire charge is taxable as a sale of telecommunications.
“Gross charges” 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. “Gross charges” do not include “charges for the storage of data or information
for subsequent retrieval or the processing of data or information intended to change its form or
content.” See 86 Ill. Adm. Code 495.100(c).
The Internet Tax Freedom Act imposes a federal moratorium on state or municipal taxes on
Internet access until November 1, 2014. 47 USCA § 151 note; § 1101. “Internet access”:

(A) means a service that enables users to connect to the Internet to access content,
information, or other services offered over the Internet;
(B) includes the purchase, use or sale of telecommunications by a provider of a service
described in subparagraph (A) to the extent such telecommunications are purchased,
used or sold(i) to provide such service; or
(ii) to otherwise enable users to access content, information or other services offered
over the Internet;
(C) includes services that are incidental to the provision of the service described in
subparagraph (A) when furnished to users as part of such service, such as a home
page, electronic mail and instant messaging (including voice and video-capable
electronic mail and instant messaging), video clips, and personal electronic storage
capacity;
(D) does not include voice, audio or video programming, or other products and services
(except services described in subparagraph (A), (B), (C), or (E)) that utilize Internet
protocol or any successor protocol and for which there is a charge, regardless of
whether such charge is separately stated or aggregated with the charge for services
described in subparagraph (A), (B), (C), or (E); and
(E) includes a homepage, electronic mail and instant messaging (including voice and
video-capable electronic mail and instant messaging), video clips, and personal
electronic storage capacity, that are provided independently or not packaged with
Internet access.
Telecommunications that are purchased, used or sold by a provider to enable users to connect
to the Internet or to otherwise enable users to access content, information or other services offered
over the Internet are subject to the federal moratorium. Thus, not all telecommunications are subject
to the moratorium. In addition, paragraph D of the definition of “Internet access” excludes “voice,
audio or video programming, or other products and services (except services described in
subparagraph (A), (B), (C), or (E)) that utilize Internet protocol or any successor protocol and for
which there is a charge, regardless of whether such charge is separately stated or aggregated with
the charge for services described in subparagraph (A), (B), (C), or (E).” Therefore,
telecommunications, including for example Voice over Internet Protocol (VoIP), that are not
purchased, used or sold to a provider to enable users to connect to the Internet or to otherwise
enable users to access content, information or other services offered over the Internet, are not
subject to the federal moratorium and are subject to the Telecommunications Excise Tax.
Your letter does not identify all the uses a customer may make of the wireless service sold by
Company A. The wireless service Company A provides may be used to provide telecommunications
services that are not subject to the moratorium and are subject to Telecommunications Excise Tax.
Section 1106 of the Internet Tax Freedom Act states:
“If charges for Internet access are aggregated with and not separately stated from
charges for telecommunications or other charges that are subject to taxation, then the
charges for Internet access may be subject to taxation unless the Internet access
provider can reasonably identify the charges for Internet access from its books and
records kept in the regular course of business.”

Under the Department’s regulations, non-taxable services are not subject to
Telecommunications Excise Tax provided that the charges for such services are disaggregated and
separately identified from other charges in the books and records of the telecommunications retailer.
See 86 Ill. Adm. Code 495.100.
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