How did Illinois tax videoconference room, bridging, and ISDN charges?

Plain-English summary

An out-of-state company arranged videoconference rooms through independent affiliates and sometimes provided bridging over the public Internet or ISDN connections billed in 15-minute increments. It asked about sales tax, telecommunications tax, resale treatment, and sourcing.

IDOR did not expressly decide whether the described bridging or ISDN charges were telecommunications. It said that when a room or service transferred no tangible personal property, Retailers' Occupation, Use, Service Occupation, and Service Use Tax did not apply.

Under the telecommunications rules described in 2015, taxable gross charges included transmission and related services and equipment, while value-added processing, data storage, and processing that changed data's form or content could be excluded. A retailer providing taxable and nontaxable services had to disaggregate them in its books and records. The separation did not have to appear on the customer invoice, but failure to separate the charges made the entire amount taxable as telecommunications.

A purchaser claiming telecommunications for resale needed an active Illinois resale number and had to furnish it to the supplier. Purchases made before the number was issued and presented remained taxable.

What this means for you

This GIL supplies classification and documentation rules rather than a definitive result for the company's services. Contracts and records had to distinguish room access, value-added processing, and actual transmission, and resale documentation had to be in place before purchase.

Common questions

Did IDOR decide that bridging was nontaxable? No.

Was customer-invoice separation required? No, but the retailer's books and records had to disaggregate the charges.

Could a later resale number exempt earlier ISDN purchases? No.

Citations and references

• 35 ILCS 630/2, 3, 4, and 8.
• 35 ILCS 636/5-10 and 5-15.
• 86 Ill. Adm. Code 495.100(c).
• 86 Ill. Adm. Code 130.101, 140.101, 150.101, and 160.101.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2015.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2015/st-15-0028-gil.pdf

Original ruling text

ST-15-0028-GIL 05/14/2015 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 86 Ill. Adm. Code
495.

May 14, 2015

Dear XXXX:
This letter is in response to your letter dated January 26, 2015, 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:
Please accept this letter as a formal request for a General Information Letter (“GIL”).
We are seeking guidance on whether a client’s videoconferencing services are subject
to taxation in the state of Illinois.
The Company is in the business of providing videoconferencing meeting suites
throughout the U.S. and in numerous other countries. Its office is located in OUT OF
STATE.
The Company has developed a network of approximately 1,000 operators of
videoconferencing facilities throughout the world, and it refers to these operators as
“affiliates.” The Company has no ownership interest in any of these affiliates. Upon the
request of a customer that requires the use of a videoconferencing facility, it makes a
reservation with an affiliate for the use of its room.
The following examples describe the Company’s services, which can be delivered in
several different combinations based on customer need:

1. A customer with its own videoconferencing equipment might require the use of a remote
videoconferencing facility (e.g., to interview a job candidate in a city in which the
customer has no office). In this case, the Company identifies a local videoconferencing
facility from its affiliate network and schedules the facility for its customer’s use. The
Company has no further involvement in the videoconference.


Resulting Transactions:
The affiliate will invoice the Company for the use of the room, and the Company will
then invoice its own customer for the room, plus a mark-up over the amount charged by
the affiliate. The Company is effectively a broker in arranging for the facility.

2. Same scenario as example #1, but the customer requests that the Company provide
   “bridging services” for the videoconference. Bridging services are described as follows:
   the Company connects each participant by connecting the customer’s
   videoconferencing device to the affiliate’s videoconferencing device by using the public
   internet and the internet protocol (“IP”) address of each device. This connection is
   made by an employee of the Company who utilizes its videoconference bridging
   equipment and connects the devices over the public internet using IP addresses. Once
   the connection is made, the Company’s employee monitors the videoconference from
   start to finish and ensures the videoconference is not disconnected or that any problems
   are corrected.
   
   

Resulting Transactions:
The affiliate will invoice the Company for the use of the room, and the Company will
then invoice its own customer for the room, plus a mark-up over the amount charged by
the affiliate.
The Company separately charges the customer a bridging service fee.

3. Same scenario as #1 and #2, but the customer has no access to the public internet;
   therefore, the Company connects the videoconference using an Integrated Services for
   Digital Network (“ISDN”) connection.
   A customer will utilize ISDN to connect its videoconferencing equipment to a remote
   videoconferencing facility or to the videoconference bridge instead of IP for the following
   reasons:
   
   
   

That company may not have IP available at its physical office location to connect its
videoconferencing room.
That company may have IP available at its physical office location, but it is only utilized
for standard internet and they have not configured the videoconferencing room to
connect over IP.
That company may prefer to continue to use ISDN as opposed to IP for perceived cost
and security benefits or because of the lack of technology expertise to make that
transition to IP.
ISDN is the older method for connecting videoconferencing facilities together. As the
availability of IP has become more widespread, implementation costs and monthly costs
have gone down, and higher IP speeds are available to create a higher-quality video

experience. As a result, more videoconferencing sites have made the transition to IP
connections. There are some customers who have chosen not to make this change for
the possible reasons listed above.





Resulting Transactions:
The affiliate will invoice the Company for the use of the room, and the Company will
then invoice its own customer for the room, plus a mark-up over the amount charged by
the affiliate.
The Company separately charges the customer a bridging service fee.
The Company separately charges the customer ISDN fees for every 15-minute
increment.
The Company is invoiced by its supplier of ISDN connectivity for any ISDN charges
incurred.
Illinois Department of Revenue General Information Letter No. ST 02-0035-GIL
addresses the application of the State’s telecommunication excise tax to
videoconferencing services; however, the facts are slightly different than those of our
client. The GIL offers three alternatives for sourcing videoconference services for
purposes of collecting the telecommunications excise tax but does not provide any
definitive direction on how the videoconferencing services should be sourced. Based
on those reasons, we are not comfortable relying on the guidance provided in that GIL
and are requesting further clarification.
Please verify (1) that the rental of a room used for videoconferencing purposes,
described in examples one through three above, is not subject to the State’s retailer’s
occupation tax, and (2) that the “bridging services,” described in example two above,
and the ISDN charges, described in example three above, are not subject to the State’s
telecommunications excise tax. If the ISDN connection fees are taxable
telecommunication charges, should the client provide its resale certificate to its vendor
to indicate that the purchase is tax exempt, or is it acceptable to collect tax from its
customers on the mark-up only? Also, if the ISDN connection fees are taxable
telecommunication charges, what is the appropriate method for sourcing the tax?
If any additional details are required to provide a determination of taxability, please
contact NAME at XXX-XXX-XXXX. Thank you for your consideration.
DEPARTMENT’S RESPONSE:
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. 86 Ill. Adm. Code 130.101. The Use Tax Act imposes a tax upon the
privilege of using in this State tangible personal property purchased at retail from a
retailer. 86 Ill. Adm. Code 150.101. If no tangible personal property is being transferred
to the customers, then neither Illinois Retailers’ Occupation Tax nor Use Tax would
apply. Likewise, the Service Occupation Tax Act and Service Use Tax are imposed on
the transfer of tangible personal property incident to sales of service. 86 Ill. Adm. Code
140.101 and 160.101. If no tangible personal property is being transferred to customers

incident to the services being provided, then no Illinois Service Occupation Tax or
Service Use Tax would apply.
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 636/510 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 two way
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 act or privilege of originating or receiving telecommunications in the State of
Illinois shall not be made tax-free on the ground of being a sale for resale unless the
person has an active resale number from the Department and furnishes that number to
the retailer in connection with certifying to the retailer that any sale to such person is
nontaxable because of being a sale for resale. See 35 ILCS 630/8.
Telecommunications Excise Tax liability would be incurred on all purchases of

telecommunications originating or received in Illinois prior to the resale number being
issued and presented by the purchaser. See 35 ILCS 630/8.
If both taxable and non-taxable services are provided, the charges for each must
be disaggregated and separately identified. See 86 Ill. Adm. Code 495.100(c). The
statute does not require disaggregation on the customer’s invoice, however. Therefore,
it is the Department's position that so long as the non-telecommunications charges are
disaggregated from the telecommunications charges in the retailer’s books and records,
for audit purposes, such disaggregation need not be shown on the customer’s invoice. If
the
non-telecommunications
charges
are
not
disaggregated
from
the
telecommunications charges, the full amount will be subject to Telecommunications
Excise Tax. If none of the charges billed were for telecommunications, then none of the
charges would be subject to tax.
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,

Debra M. Boggess
Associate Counsel
DMB:mdb