When did Illinois tax a telecommunications late fee, and could the Department decide whether the fee on this customer's bill was taxable?

Plain-English summary

A customer asked why a telecommunications bill imposed a charge labeled State Tax on a late fee.

IDOR explained two separate tax analyses. For Telecommunications Excise Tax, a late fee separately stated from telecommunications charges was not taxable. If it was not separately stated, it was included in the taxable charge. The State rate was 7%, and municipalities could impose an additional telecommunications tax within the statutory limits. The letter also said Internet-access data plans generally were not subject to this excise tax because of the federal Internet Tax Freedom Act.

For sales tax on tangible personal property, a separately recorded finance or interest charge was excluded from selling price, but a penalty added because the buyer failed to pay on time became taxable receipts. Classification depended on the sale agreement and customary charges in the trade.

IDOR could not give the customer a final answer because the supplied invoice combined taxes, governmental surcharges, and fees and did not show the nature and purpose of the charge.

What this means for you

Telecommunications providers should separately state late fees and maintain records separating taxable telecommunications from other services. For retail sales, contract terms and accounting records should distinguish a finance charge from a payment penalty.

Common questions

Was every separately stated telecom late fee taxable? No. The letter said a separately stated late fee was not subject to Telecommunications Excise Tax.

Was Internet access taxable? IDOR said wireless data plans that let users access the Internet generally were not subject to Telecommunications Excise Tax under the federal moratorium.

Did IDOR decide the tax shown on this bill was correct? No. The combined invoice did not provide enough information.

Citations and references

• 35 ILCS 630/2, 3, and 4.
• 35 ILCS 636/5-10 and 5-15.
• 86 Ill. Adm. Code 495.100(c) and 130.420.
• 47 U.S.C. § 151 note, § 1101.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2016.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2016/st-16-0044-gil.pdf

Original ruling text

ST 16-0044-GIL 09/07/2016 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
Part 495. (This is a GIL).

September 7, 2016

Dear Xxxxx:
This letter is in response to your letter June 29, 2016, in which you requested 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 have asked COMPANY 1 what this State Tax is that I am being charged for on our late
fee. I was sent § 14-113.10. Penalties. If a “penalty” is added to the base retail price
because the purchaser does not timely pay the selling price and the penalty is paid to
the seller, such penalty is a part of the gross receipts and is included in the selling price.
ROT Reg. § 130.420.
I do not understand this explanation.
I called your 800 number and they did not have an answer and when I explained the tax
was 6.99% I was transferred to Telecommunication Excise Tax department. Reviewing
the information the Telecommunication Excise Tax department was unable to answer
my question. I was instructed to write the legal department for help.
My question is: Are late fees taxable to the consumer and if yes what taxes am I
paying? As you can see on the attached COMPANY 1 bill the detail says State Tax.
I hope you can shed some lite in my direction.

DEPARTMENT’S RESPONSE:
Telecommunications Excise Tax
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.
The incidence of the tax is on the person who originates or terminates intrastate or interstate
telecommunications, and the tax is collected and remitted to the Department by the retailer of the
telecommunications. The combined rate of State and local telecommunications taxes in Hoffman
Estates presently is 13%.
“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. 86 Ill. Adm. Code 495.100(c). Section 495.100 identifies a number of items
that are not included in “gross charges” for purposes of the Telecommunications Excise Tax.
The Internet Tax Freedom Act imposes a federal moratorium on state or municipal taxes on
Internet access. 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 videocapable electronic mail and instant messaging), video clips, and personal electronic
storage capacity, that are provided independently or not packaged with Internet access.

Generally, as a result of the moratorium, data plans provided by wireless carriers that allow
users to access the Internet are not subject to the Telecommunications Excise Tax.
If a late fee is not separately stated from the charges for telecommunications, the late fee
would be subject to Telecommunications Excise Tax. If a late fee is separately stated from the
charges for telecommunications, the charges for the late fee are not subject to Telecommunications
Excise Tax.
Sales Tax
Telecommunications retailers often sell tangible personal property, such as cellular phones,
phone chargers and other related items. 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. 35 ILCS 120/2; 86 Ill. Adm. Code 130.101. In Illinois, Use Tax is
imposed on the privilege of using, in this State, any kind of tangible personal property that is
purchased anywhere at retail from a retailer. 35 ILCS 105/3; 86 Ill. Adm. Code 150.101. These taxes
comprise what is commonly known as “sales” tax in Illinois. If the purchases occur in Illinois, the
purchasers must pay the Use Tax to the retailer at the time of purchase. The retailers are then
allowed to retain the amount of Use Tax paid to reimburse themselves for their Retailers' Occupation
Tax liability incurred on those sales.
Generally, home rule and non-home rule municipalities, counties, school districts and special
districts may impose local occupation taxes. See Illinois Municipal Code (65 ILCS 5) and Counties
Code (55 ILCS 5). Special Districts (for example, airport, forest preserves, fire protection, park,
sanitary, transit and water) can be found in Chapter 70 of the Illinois Complied Statutes beginning
with 70 ILCS 5 and ending at 70 ILCS 3720. Not all units of local government impose a local
occupation tax, and not all units of local government impose the same rate of tax.
A tax rate finder is located on the Department’s website. The combined rate of State and local
occupation taxes imposed in the portion of Hoffman Estates located in Cook County is 10%. The

combined rate of State and local occupation taxes imposed in the portion of Hoffman Estates located
in Kane County is 8%.
Where any tangible personal property is sold under installment contracts, the interest or
finance charges on account of credit so extended are not considered to be a part of the "selling price"
in computing Retailers' Occupation Tax liability. 86 Ill. Adm. Code 130.420(a). Generally, when
sellers make sales and, as part of the agreements for those sales, charge a finance charge on any
unpaid balance of the purchase price, those sales would be treated similarly to installment sales for
the purpose of application of Section 130.420(a). The books and records of retailers must clearly
reflect such finance or interest charges.
If a "penalty" is added to the base retail price in the event that the purchaser does not pay such
price within a specified time and such penalty is paid to the seller, such "penalty" becomes a part of
the taxable receipts from the sale. 86 Ill. Adm. Code 130.420(b).
Whether a charge is considered a finance charge or a penalty for purposes of the application
of Section 130.420 will depend on the specific terms of each sale agreement. The determination may
also be affected by the types and amount of charges customarily charged to customers in that kind of
trade.
After a review of the copy of the invoice you provided, we cannot determine the nature and
purpose of the charges reflected on the invoice. I would also note that the invoice combines in one
charge taxes, governmental surcharges and fees.
You may wish to contact Consumer Services at the Illinois Commerce Commission for further
assistance.
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
Sales and Excise Taxes
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