Were prepaid wireless electronic PINs taxed as telephone service or as tangible personal property, and did the 9-1-1 surcharge also apply?

Plain-English summary

A prepaid-wireless seller asked whether electronic PIN sales carried ordinary sales tax in addition to a prepaid-wireless 9-1-1 surcharge.

IDOR said a qualifying prepaid telephone calling arrangement was tangible personal property subject to Retailers' Occupation and Use Taxes and applicable local occupation taxes. The definition covered prepaid calling rights accessed by a number or authorization code and included recharges, but excluded credits placed on an existing subscription plan.

A prepaid plan outside that definition remained subject to Telecommunications Excise Tax. The 2013 letter separately described a prepaid-wireless 9-1-1 surcharge, including a different rule for a home-rule municipality with more than 500,000 residents.

For a single bundled price, the 9-1-1 surcharge generally applied to the whole amount unless the wireless portion was disclosed or reasonably identified in regular business records. A minimal service allotment sold with a device could qualify for an election not to apply the surcharge.

Common questions

Were electronic PINs automatically treated as nontaxable services? No. Qualifying prepaid calling arrangements were treated as tangible personal property.

Could sales tax and a 9-1-1 surcharge both apply? The letter described them as separate obligations.

Did paying a monthly subscription in advance convert it into a prepaid calling arrangement? No.

Citations and references

• 35 ILCS 120/2 and 120/2-27
• 35 ILCS 630/2 through 630/4; 86 Ill. Adm. Code 495
• 50 ILCS 753/15

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2013.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2013/st-13-0016.pdf

Original ruling text

ST 13-0016-GIL 03/31/2013 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.)
March 31, 2013
Dear:
This letter is in response to your letter dated January 22, 2013, 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:
This is to request legal advice on the amounts of sales taxes that are to be charged on
sale of PREPAID WIRELESS SERVICES.
We believe that in the city of Chicago, we have to charge 7 percent for the Surcharge
E911 for transactions of prepaid wireless telecommunications service.
We have been told that we should also charge the customer with 9.5% on purchases of
ELECTRONIC PINS, creating a total tax of 16.5% on the transaction.
Is there any established sales tax obligation on prepaid services?
We believe that Prepaid wireless telecommunications services are paid for in advance
and is sold in predetermined units or dollars, and that sale is of SERVICES.
Please let us know what the Law says and whether we are charging the customer the
correct amount of taxes. If we are charging the correct amount of taxes, there is no
problem, but if we are not charging them the correct amount, we may be obligated to
pay the additional taxes. We wanted to be correct and to pay what the Law of the State
indicates.
Please note that:

1. • if I charge additional taxes, my customers will get angry,
2. • think that we are steeling money,
3. • refuse to do business with us, because in some places there is no tax being
     charged for the services.
4. • Is this some sort of Illegal competition?

ST 13-0016-GIL
March 31, 2013
Page 2
Please help us clarify the problem. We believe on paying what is correct, and we want
to charge the customer the right amounts of taxes.
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

ST 13-0016-GIL
March 31, 2013
Page 3
the Department by the seller. The amount 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 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