Which Illinois taxes and 9-1-1 surcharge applied when a wireless retailer accepted payments for prepaid or subscription plans?

Plain-English summary

A wireless store accepted customer payments for plans offered by multiple carriers and asked which sales, telecommunications, and prepaid wireless 9-1-1 charges it had to collect.

IDOR distinguished the product types:

• A prepaid telephone calling arrangement was paid for in advance and provided a known amount of service that stopped when consumed unless recharged. It was tangible personal property subject to Retailers' Occupation Tax.
• A payment card or advance payment credited to an existing subscription plan was not a prepaid calling arrangement. Plans outside the statutory prepaid definition were taxed under the Telecommunications Excise Tax.
• Prepaid wireless telecommunications service was subject to the Prepaid Wireless 9-1-1 Surcharge rules described in the letter.

For a single bundled price containing prepaid wireless service and other products, the surcharge generally applied to the whole price unless the service amount was disclosed or reasonably allocated from regular books and records. A seller could elect not to apply the surcharge when a prepaid device bundle contained only a minimal amount of service—10 minutes or less or $5 or less under the historical rule—and then all gross receipts remained subject to Retailers' Occupation Tax.

IDOR did not determine the store's exact role without the contracts. A person might be the retailer of prepaid calling arrangements, a telecommunications reseller, or merely a bill-collection service. A seller of prepaid cards or recharged minutes was generally responsible for Retailers' Occupation Tax and the prepaid wireless 9-1-1 surcharge.

Common questions

Was every plan marketed as “prepaid” a prepaid calling arrangement? No. A credit to an existing subscription account did not qualify.

Did bundled prepaid wireless sales face the surcharge? Generally yes, subject to allocation and the historical minimal-service rule.

Did IDOR decide the payment store's exact responsibility? No. It needed the provider contracts.

Citations and references

• 35 ILCS 120/2 and 120/2-27
• 35 ILCS 630/2 through 4
• 50 ILCS 753/15
• 35 ILCS 636/5-10 and 5-15

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-12-0043.pdf

Original ruling text

ST 12-0043-GIL 07/30/2012 MISCELLANEOUS
This letter discusses the Prepaid Wireless 9-1-1 Surcharge Act. 50 ILCS 753.
(This is a GIL.)
July 30, 2012
Dear:
This letter is in response to your letter dated July 2, 2012, in whic h you request information. T he
Department issues two types of letter rulings. Pr ivate Letter Rulings (“PLRs”) are is sued by the
Department in response to specific taxpay er inquiries concerning the applic ation of a t ax statute or
rule to a particular fact situation. A PLR is bi nding on the Department, but only as to the taxpay er
who is the subject of the request for ruling and only
to the ext ent 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 regulatio ns or other sources of information regarding t he
topic about which they have inquired. A GIL is not
a statement of Depart ment policy and is not
binding on the Department. S ee 2 Ill. Adm. Code 1200.120. Y ou 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 hav e provided require that we respond with a GIL.
In your letter you have stated and made inquiry as follows:
I have questions regarding taxe s that should be collec ted, at retail, for wireless service
payments. My uncertainty pertains to the def inition of the type of wireless service,
prepaid or not.
I will attempt to be concise in my facts, references, and questions.
•
•
•

My business is that of wireless retail (brick and mortar).
Consumers come to our establishment s to pay for their wireless service,
although they could do the same via other methods (i.e. phone, internet).
We can take payments from many
providers, each offering different
plan/subscription types.

There are three taxes that I understand my [sic] come into play, and I would like to know
if we, a wireless retailer (not service operator or provider), should collect them.

1. Retailers’ Occupation Tax
   The initial part of the following regulation leads me to believ e that sales tax shou ld be
   collected:
   Title 86 Part 130 RETAILERS’ OCCUPATION TAX Section 1 30.101 Character and
   Rate of Tax (http://tax.illinois.gov/LegalInformation/regs/part130/130-101.pdf)
   The Retailers’ Occupation Tax Act (the Act) [35 ILCS 120] imposes a tax upon persons
   engaged in this State in the business of selling tangible personal property to purchasers
   for use or consumption. On and after
   January 1, 2001, prepai d telephone calling
   arrangements shall be considered tangible personal property subject to the tax imposed

ST 12-0043-GIL
July 30, 2012
Page 2
under the Act regardless of the form in which those a rrangements may be embodied ,
transmitted, or fixed by any method now kn ow or hereafter developed (Section 2 of the
Act).
But then the regulation goes on to specifically state:
“Prepaid telephone calling arr angement” 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.
If I had to assume what this Act was trying to distinguish, I would guess that the Act is
trying to address the differences typically found between contract service, and that of
non-contract service ( although even those in cont ract, are eventually out of contract).
And/or, I may think that the Act is trying to
refer to whether or not a bill is ma iled
(despite e-billing being increasing popular). And/or, I might thin k that the Act is trying to
refer to different relationshi ps where credit is granted, or not granted, by the service
provider. Unfortunately, I do not have the luxury of assumi ng intention, rather, I must
follow the specific language of the regulation.
From my understanding of the Retailers’ Occupation Tax Ac t, prepaid is b eing defined
as usage in “predetermined units or dollars ”, and not that of a “subscription plan”
whereby the purchase is reflected as a “credit” on an account.
My understanding of an example arrangement qualifying as a “Prepaid telephone calling
arrangement”:
•

$10 added to an account, to be used at a rate of $0.20 per minute

My understanding of an example arrangement not qualifying as a “Prepaid telephone
calling arrangement”:
•

$100 added to an ac count, to be used at a rate of $55/month for an
unlimited usage plan, deducted from t he account balance/credit on the
5th of every month

Thus, regardless of whether a customer is under contract or not, or if the customer is
mailed a bill or not, or if the cust omer is granted credit or not (because this regulation
does not speak to any of that), determining applicability of of [sic] Retailers’ Occupation
Tax (and t hus Sales Tax), is dependent on the plan/arrangement chosen by the
consumer. Of which, both aforementioned plan types are offered by many wireles s
providers, including those traditionally referred to as “prepaid” providers.
Am I correct in saying that Sales Ta x should not be collected on non-minute or noncard purchases, even if commonly referred to as “prepaid” (as in the second example
provided above), but not per Illinois’ definition?

2. Telecommunications Excise Tax

ST 12-0043-GIL
July 30, 2012
Page 3
If indeed such payments are not subject to
the Retailers’ Occupation T ax, then the
following leads me to believe that Telecommunications Excise Tax should be collected:
ST 12-0014-GIL 03/14/2012 TELECOMMUNICATIONS EXCISE TAX
(http://tax.illinois.gov/LegalInformation/Letter/rulings/st/2012/ST-12-0014.pdf)
Prepaid telephone plans that do not meet the defin ition of a “prepaid telephone calling
arrangement” are taxed under the Telecommunications Excise Tax.
And if there is uncertainty pertaining to
stated:

the timing of the payme nt, the followin g is

Paying in advance recurring monthly char
ges for telecommunications services
obtained under a subscription pl an does not convert telecommunications services int o
a prepaid telephone calling arrangement.
Therefore, I believe that Telecommunications Excise Tax should be paid, but is this the
responsibility of a retailer whom only posts payments, and does not provide the service
them self?

3. E911 Surcharge
   I understand that the E911 Surcharge is
   telecommunications services, but is the
   qualification?

to be c ollected on prepaid wireless
same logic as above used to determine

FY 2012-01 (http://tax.illinois.gov/Publications/Bulletins/2012/FY-2012-01.pdf)
Prepaid wireless telecommunications service is service that must be paid for in
advance and is sold in predetermined unit s or dollars. As the predetermined units are
used, the amount remaining available for us e declines in a k nown amount. Examples
include prepaid calling cards and minutes added to “pay-as-you-go” phones.
Therefore, a $55/mont h plan, where the purchase is reflect ed as a c redit to the
account, is not considered a “prepaid tel ephone calling arrangement”, and thus does
not qualify for the retail E911 Surcharge? Again, even if commonly called “prepaid”?
In Illinois, specifically Ch icago, you can understand how im portant these answers are.
Sales Tax is 9.5%, and the E911 Surcharge
is another 7%, totaling 16. 5%! I am
uncertain about the Telecommunications Excise Tax.
I very much appreciate your time, and seek an official ruling for my records.
DEPARTMENT’S RESPONSE:
The Illinois Retailers' Occupation Tax Act

ST 12-0043-GIL
July 30, 2012
Page 4
The Illinois Retailers' Occupation Tax Act imposes a tax upon persons engaged in this State in the
business of selling tangible personal property at retail to purchase rs for use or consumption. See 86
Ill. Adm. Code 130.101. In Illinois, Use Tax is imposed on the pr ivilege of using, in this State, any
kind of tangible personal propert y that is purchased anywhere at retail from a retailer. See 86 Ill.
Adm. Code 150.101. These taxes comprise what is commonly known as "sales" tax in Illinois.
Retailers’ Occupation Tax is measured by t he sellers’ gross receip ts from sales of tang ible personal
property. If retailers sell cellular phones to t heir customers, the reta ilers incur Retailers’ Occupation
Tax measured by the gross receipts from the sales. At the time the retailers purchase cellular phones
from their suppliers, the retailers should s upply Certificates of Resale to their suppliers. Then, wh en
the retailers sell the cellular phones, the retailers will pay Retailers’ O ccupation Tax based on t he
amount they receive from their customers. This am ount represents the gross receipts received from
the sale of the cellular phone. It is important that retailers be very careful when c omputing the
amount of gross receipts from the sales of their cellular phones. “Gross receipts” means “all the
consideration actually received by the seller, except traded-in tangi ble personal property” from all
sources. See 86 Ill. Ad m. Code 130.401. The retail ers are required to coll ect a complementary Use
Tax liability from t heir customers when the sale s of the cellular phones oc cur. The tax s hould be
listed as a separate item from t he selling price of the equipment and not as an administration or
service charge. See 86 Ill. Adm. Code § 150.135.
Beginning January 1, 2001, prepaid telephone calling arrangements are considered tangible personal
property subject to R etailers' Occupation T ax liability and not the Telecom munications Excise Tax.
35 ILCS 120/2. Prepaid teleph one plans that do not meet the def inition of a “prepaid telephone
calling arrangement” are ta xed under the Telecommunications Exc ise Tax. 35 ILCS 630/3 & 4.
"Prepaid telephone calling arrangem ents" generally means the right
to exclus ively purchase
telephone or telecommunications services that mu st be paid for in advanc e, provided that, unless
recharged, no further service is provided once t hat prepaid amount of serv ice has been consumed.
“Prepaid telephone calling arrangem ents” include the recharge of a prepaid calling arrangement.
"Prepaid telephone calling arr angement" does not however inclu de an arrangement whereby a
customer purchases a payment card and pursuant to w hich the service provider reflects the amount
of the purchase as a credit on an account for a cust omer under an existing subscription plan. 35
ILCS 120/2-27.
The Telecommunications Excise Tax Act
The Illinois Telecommunications Excise Tax Act imposes a tax on the act or pr ivilege of originating or
receiving intrastate or interstate telecommunications by persons in Illino is at the rate of 7% of the
gross charges for such telecom munications purchased at retail f rom 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 telecomm unications 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 m eaning ordinarily and popul arly ascribed to it, includes,
without limitation, messages or information transmi tted through use of loca l, toll and wide ar ea
telephone service; private line services; channel
services; telegraph services; teletypewriter;

ST 12-0043-GIL
July 30, 2012
Page 5
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 poin ts by wire, cable, fib er-optics, laser, microwave, rad io, satellite or
similar facilities. “Telecommunic ations” 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 serv ice must be disaggregated and separately stated
from telecommunications charges in the books and rec ords of the retailers. I f 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 servic es and equipment provided in connect ion therewith
by a retailer, valued in money whet her paid in money or otherwise, in cluding cash, credits, services
and property of every kind or nature, and shall be determined without any deduction on account of the
cost of such telecom munications, the cost of ma terials used, labor or service costs or any ot her
expense whatsoever. “Gross charges” do not inclu de “charges for the storage of data or information
for subsequent retrieval or the pr ocessing of data or information intended to change its form or
content.” See 86 Ill. Adm. Code 495.100(c).
The Prepaid Wireless 9-1-1 Surcharge Act
The Prepaid Wireles s 9-1-1 Surcharge Act im poses 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 hav ing a population in excess of
500,000 on the effective date of the Act may im
pose 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 municipalit y having a population in
excess of 500,000 that elects to impose a prepaid wireless 9-1-1 and s hall be remitted to the
Department by the seller. The am ount of the prepaid wireless 9-1- 1 surcharge shall be separately
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 cons umer. If the seller does not separately state the surcharge as a
distinct item to the consumer, t hen the seller shall main tain books and rec ords which clearly ide ntify
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 wit h one or more other products or
services that is not subject to the prepaid wirel ess 9-1-1 surcharge for a si ngle, non-itemized or
bundled price, then the appropriate prepaid wireless 9-1-1 surcharge sh all 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 pr epaid wireless teleco mmunications service if that dollar amount is
disclosed to the consumer or (ii) the portion of the price that is a ttributable to the prepaid wireless
telecommunications service if t he retailer can i dentify that po rtion by re asonable and verifiable
standards from its books and record s 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.

ST 12-0043-GIL
July 30, 2012
Page 6
However, if a minimal amount of prepaid wireless telecommunications service is sold with a prepaid
wireless device for a s ingle, non-itemized or bundled price, then the sell er may elect not to apply the
prepaid wireless 9-1-1 surcharge to su ch transaction. For purpos es 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).
If a minimal amount of prepaid wireless telecommunications service is sold with a prepaid wireless
device for a single, non-itemized or bundled price and the seller elects not to apply the prepaid
wireless 9-1-1 surcharge to such transaction, no amount of prepaid wireless 9-1-1 surcharge will be
added to Schedule B of the ST-1, Sa les and Use Tax and E9 11 Surcharge Return. However, all of
the gross receipts received from the sale will be subject to Retailers’ Occupation Tax liability.
Except for the situations when a minimal amount of prepaid wirele ss telecommunications service is
sold with a prepaid wireless dev ice for a single, no n-itemized or bundled pric e, all sales of prepaid
wireless telecommunications services, regardless of the amount, are subject to the prepaid wireless
9-1-1 surcharge and report ed on Schedule B of the S T-1, Sales and Use T ax and E9 11 Surcharge
Return.
A person may be a retailer of prepai d calling arrangements, a reseller of telecommunications service
or simply providing a bill co llection service for a telecommunications provider. Without reviewing the
contracts between a retailer and its suppliers, it is not possible to determine the tax liability of each of
the parties. We note, however, t hat a person that sells prepaid calli ng arrangements, whether in the
form of a card or recharge of minutes, is genera lly considered the retailer of such arrangements and
responsible for paying Retailers’ Occupation Tax and the Prepaid Wireless 9-1-1 Surcharge.
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