Were sales tax and a prepaid wireless 9-1-1 surcharge automatically improper on a monthly phone recharge?

Plain-English summary

A consumer complained that two stores charged different amounts of “sales tax” and 9-1-1 surcharge on a $50 monthly wireless recharge and asked IDOR to investigate one store for fraud.

IDOR did not determine which store was correct and made no fraud finding. It explained that the tax depended on the legal type of plan:

• A prepaid telephone calling arrangement was paid for in advance and stopped providing service when the purchased amount was consumed unless recharged. It was tangible personal property subject to Retailers' Occupation Tax and applicable local occupation taxes.
• A payment credited to an account under an existing subscription plan was not a prepaid calling arrangement. Paying recurring monthly subscription charges in advance did not change that classification; such plans were under the Telecommunications Excise Tax.
• A prepaid wireless retail transaction also faced the Prepaid Wireless 9-1-1 Surcharge rules described in the letter.

For bundled prepaid wireless service, the surcharge generally applied to the whole non-itemized price unless the seller disclosed or reasonably allocated the service portion. The historical rule allowed an election not to impose the surcharge on a device bundle containing only 10 minutes or less or $5 or less of service.

Common questions

Was there a universal $2 tax on a $50 recharge? The letter stated no such flat rule.

Was a 9-1-1 surcharge necessarily fake? No. Illinois had a prepaid wireless surcharge, but classification and sourcing mattered.

Did IDOR decide the store committed fraud? No.

Citations and references

• 35 ILCS 120/2 and 120/2-27
• 35 ILCS 630/2 through 4
• 50 ILCS 753/15

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2012.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2012/st-12-0039.pdf

Original ruling text

ST 12-0039-GIL 07/24/2012 MISCELLANEOUS
This letter discusses “prepaid telephone calling arrangements” and the Prepaid
Wireless 9-1-1 Surcharge Act. See 35 ILCS 120/2-7 and 50 ILCS 753. (This is a GIL.)
July 24, 2012
Dear:
This letter is in response to your letter received June 15, 2012, 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:
I’m writing this letter to report fraud. I went to the police department and they said they
couldn’t help me and I had to write to you. There is a business in CITY1 that is charging
customers extra taxes and claiming the state of Illinois makes them. I have been recharging
my PHONE at STORE1 in CITY2 for 3 years and they have always charged me $2.00 sales
tax each month. My bill is $50.00 per month and I always pay $52.00 total.
I recently moved to CITY1 and went to the STORE2 in CITY1. I was shocked when they told
me my payment would be $55.13. I explained to them that my payment is always $52.00 and
asked to speak to the owner. He told me the state of Illinois requires him to collect sales tax
and 911 tax. I told him that the sales tax has always been $2.00. He said that I was wrong
and the sales tax is 8.75 percent and the 911 tax is 1.5 percent. He was very rude and I could
tell he was lying because he wouldn’t listen to what I was telling him. I never had to pay all this
tax before. The sales tax is $2.00 for a recharge.
The next week I went to STORE1 IN CITY2 and spoke with the owner there. I told him that the
STORE2 was charging me $55.13 for my recharge. He told me they had a lot of complaints
about the STORE2 over charging customers and claiming it is sales tax. The owner of
STORE1 told me he has been in business for 20 years and the sales tax was always $2.00 for
a recharge. He laughed when I told him the STORE2 was charging 911 tax. He said 911 is
free and there is no such thing as 911 tax. I cant [sic] believe the STORE2 in CITY1 can stay
in business and charge customers fake taxes.
Now I have to waste all my gas to drive down to CITY2 and go to STORE1 to get my PHONE
recharged because the STORE2 is ripping people off. I would like you to go and investigate
the STORE2 and arrest the owner for fraud. People are having a hard time paying bills and
shouldn’t have to pay extra in fraudulent charges so the owner in CITY1 can make extra
money. I hope he goes to jail for fraud.

ST 12-0039-GIL
July 24, 2012
Page 2

DEPARTMENT’S RESPONSE:
The Telecommunications Excise Tax Act (The 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. See
35 ILCS 630/3 & 4 and 86 Ill. Adm. Code 495. The Act defines gross charges as including amounts
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 retailers. 35 ILCS 630/2(a).
Beginning January 1, 2001, prepaid telephone calling arrangements are considered tangible personal
property subject to the tax imposed under the Retailers’ Occupation Tax Act, regardless of the form in
which those arrangements may be embodied, transmitted, or fixed by any method now known or
hereafter developed. 35 ILCS 120/2. The 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 at a rate of 6.25%. Under the Use Tax Act, a tax is imposed upon the privilege of using
in this State tangible personal property purchased at retail from a retailer. The Use Tax Act applies
when tangible personal property is purchased anywhere at retail. In essence, the retailer collects the
Use Tax from the customer to reimburse it for the Retailers’ Occupation Tax paid by it to the State.
Prepaid telephone calling arrangements are also subject to retailers’ occupation taxes imposed by
units of local government.
"Prepaid telephone calling arrangements" mean the right to exclusively purchase telephone or
telecommunications services that must be paid for in advance and enable the origination of one or
more telephone calls or other telecommunications using an access number, an authorization code, or
both, whether manually or electronically dialed, for which payment to a retailer must be made in
advance, provided that, unless recharged, no further service is provided once that prepaid amount of
service has been consumed. Prepaid telephone calling arrangements include the recharge of a
prepaid calling arrangement. "Prepaid telephone calling arrangement" does not include an
arrangement whereby the service provider reflects the amount of the purchase as a credit on an
account for a customer under an existing subscription plan. 35 ILCS 120/2-27.
Prepaid telephone plans that do not meet the definition of a “prepaid telephone calling arrangement”
are taxed under the Telecommunications Excise Tax. Paying in advance recurring monthly charges
for telecommunications services obtained under a subscription plan does not convert
telecommunications services into a prepaid telephone calling arrangement.
The Prepaid Wireless 9-1-1 Surcharge Act imposes on consumers a prepaid wireless 9-1-1
surcharge of 1.5% per retail transaction. This surcharge does not apply in a home rule municipality
having a population in excess of 500,000. A home rule municipality having a population in excess of
500,000 on the effective date of the Act may impose a prepaid wireless 9-1-1 surcharge not to
exceed 7% per retail transaction sourced to that jurisdiction. 50 ILCS 753/15(a) & (a-5).
The prepaid wireless 9-1-1 surcharge shall be collected by the seller from the consumer with respect
to each retail transaction occurring in this State and home rule municipality having a population in
excess of 500,000 that elects to impose a prepaid wireless 9-1-1 surcharge and shall be remitted to
the Department by the seller. The amount of the prepaid wireless 9-1-1 surcharge shall be separately

ST 12-0039-GIL
July 24, 2012
Page 3
stated as a distinct item apart from the charge for the prepaid wireless telecommunications service on
an invoice, receipt, or other similar document that is provided to the consumer by the seller or shall be
otherwise disclosed to the consumer. If the seller does not separately state the surcharge as a
distinct item to the consumer, then the seller shall maintain books and records which clearly identify
the amount of the 9-1-1 surcharge for retail transactions. 35 ILCS 753/15(b) & (b-5).
When prepaid wireless telecommunications service is sold with one or more other products or
services that is not subject to the prepaid wireless 9-1-1 surcharge for a single, non-itemized or
bundled price, then the appropriate prepaid wireless 9-1-1 surcharge shall be applied to the entire
non-itemized or bundled price unless the seller elects to apply the prepaid wireless 9-1-1 surcharge to
(i) the dollar amount of the prepaid wireless telecommunications service if that dollar amount is
disclosed to the consumer or (ii) the portion of the price that is attributable to the prepaid wireless
telecommunications service if the retailer can identify that portion by reasonable and verifiable
standards from its books and records that are kept in the regular course of business for other
purposes, including, but not limited to, books and records that are kept for non-tax purposes.
However, if a minimal amount of prepaid wireless telecommunications service is sold with a prepaid
wireless device for a single, non-itemized or bundled price, then the seller may elect not to apply the
prepaid wireless 9-1-1 surcharge to such transaction. For purposes of this subsection, an amount of
service denominated as 10 minutes or less or $5 or less is considered minimal. 35 ILCS 753/15(f).
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