My state government agency buys telecom services used by our staff in Illinois -- does Illinois's telecommunications excise tax exemption for 'state governments' cover MY state, or only Illinois's own government?

Plain-English summary

Another U.S. state's Department of Revenue ("STATE") purchased MPLS telecommunications services from a vendor ("COMPANY") for the benefit of STATE personnel located in Illinois. During a telecommunications audit, STATE discovered that COMPANY had been charging it the Illinois Telecommunications Excise Tax on those purchases. STATE submitted a claim asking COMPANY to stop the charges and refund the amounts already collected, arguing it should be exempt as a "state government" under 35 ILCS 630/2.

COMPANY denied the claim. It read Section 2(k) of the Telecommunications Excise Tax Act (TETA) as ambiguous about whether the state-government exemption covers all states, or only Illinois's own state government and its political subdivisions. COMPANY told STATE it would reconsider its billing and issue credits for past charges only if the Illinois Department of Revenue itself issued a General Information Letter confirming that all state governments -- not just Illinois's -- are exempt. STATE then asked the Department for exactly that clarification.

The Department agreed with STATE. TETA imposes a 7% excise tax on the privilege of originating or receiving intrastate or interstate telecommunications by persons in Illinois, based on gross charges for telecommunications purchased at retail from retailers (35 ILCS 630/3 and 4). But Section 2 of the Act carves certain purchasers out of "sale at retail" entirely, so they can buy telecommunications tax-free: the Federal government, State governments, State universities created by statute, and wholly owned corporate subsidiaries purchasing from a parent or sibling subsidiary. The statutory text does not distinguish Illinois's own state government from any other state's government -- it simply says "State governments."

The Department's response was direct: "The Department of Revenue, an agency of the STATE, falls within exemption for state governments and is exempt from the tax imposed by the Telecommunications Excise Tax." In other words, an out-of-state government agency purchasing telecommunications services for use by its personnel physically located in Illinois qualifies for the same state-government exemption that Illinois's own agencies would receive.

What this means for you

For out-of-state government agencies with Illinois-based staff or purchases

If your state (or a sibling agency of it) buys telecommunications services -- such as MPLS network services -- for personnel located in Illinois, those purchases fall within TETA's state-government exemption under 35 ILCS 630/2. You should not be charged the 7% Illinois Telecommunications Excise Tax on those charges, regardless of which state's government you belong to.

For telecom vendors billing government customers

If you sell telecommunications services to a government customer that isn't Illinois's own state government, don't assume the TETA state-government exemption is unavailable just because the customer is "out of state." The exemption in 35 ILCS 630/2 applies to "State governments" without qualification, so a Department of Revenue (or other agency) of any U.S. state is an exempt purchaser when it buys telecommunications services taxed under this Act. Billing such a customer the Telecommunications Excise Tax, and then requiring a GIL before crediting past charges, is more caution than the statute strictly requires -- but it is exactly the process that produced this GIL.

If you're disputing past erroneous charges

This GIL resulted from a real dispute: a vendor had been charging the tax, the government customer's audit caught it, and the vendor conditioned any credit for past charges on the Department confirming the exemption in writing. If you're in a similar position, this GIL (and the statutory language it relies on) is a citable basis for both stopping ongoing charges and seeking credit for amounts already paid.

Common questions

Q: Does the state-government exemption cover only Illinois's own state agencies, or other states too?
A: All state governments. The Department confirmed that Section 2(k)'s exemption for "State governments" is not limited to Illinois -- an agency of any state's government, like another state's Department of Revenue, qualifies as an exempt purchaser.

Q: Does the exemption cover a state university too?
A: Yes, but only if the university was "created by statute." Section 2 of TETA exempts "State universities created by statute" from the definition of "sale at retail," alongside the Federal and State governments and certain wholly owned corporate subsidiaries.

Q: What tax rate would have applied if the exemption didn't apply?
A: 7%. Under 35 ILCS 630/3 and 4, the Telecommunications Excise Tax is imposed at the rate of 7% of the gross charges for intrastate or interstate telecommunications purchased at retail by persons in Illinois.

Q: Is this GIL binding on the Department, or on the vendor in this dispute?
A: No. Like all GILs, this one is issued under 2 Ill. Adm. Code 1200.120 to direct taxpayers to relevant regulations and other sources of information -- it is not a statement of Department policy and is not binding on the Department.

Citations and references

Statutes cited:

• 35 ILCS 630/2 (Telecommunications Excise Tax Act definitions; exempts the Federal and State governments, statutorily created State universities, and certain wholly owned corporate subsidiaries from "sale at retail")
• 35 ILCS 630/3 and 4 (impose the 7% Telecommunications Excise Tax on gross charges for telecommunications purchased at retail by persons in Illinois)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2019.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2019/st19-0011-gil.pdf

Original ruling text

ST-19-0011-GIL 06/06/2019 TELECOMMUNICATIONS
The state government exemption in the Telecommunications Excise Tax Act applies to the 50
states. 35 ILCS 630/2. (This is a GIL.)
June 6, 2019
Dear Xxxx:
This letter is in response to your e-mail dated May 8, 2019, 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:
It was a pleasure speaking with you today. Thank you for taking the time to discuss this
issue and assisting in clarifying the proper application of the Illinois law with respect to
state government customers. The Department of Revenue of STATE (the “STATE”)
purchases MPLS telecommunications services from COMPANY for the benefit of its
personnel located in Illinois. During the course of a telecommunications audit, the
STATE determined that COMPANY was applying the Illinois Telecommunications
Excise Tax to STATE transactions. In July XXXX, the STATE submitted a claim to
COMPANY to cease these charges and to credit the STATE for past erroneous
charges. As we discussed, the basis of the STATE request is 35 ILCS 630, also known
as and cited as “Telecommunications Excise Tax Act” (TECA). The applicable
language, Section 2(k), reads as follows:
“Sale at retail” means the transmitting, supplying or furnishing of telecommunications
and all services and equipment provided in connection therewith for a consideration to
persons other than the Federal and State governments, and State universities
created by statute and other than between a parent corporation and its wholly owned
subsidiaries or between wholly owned subsidiaries for their use or consumption and not
for resale.
On January 17, XXXX, COMPANY denied the STATE’S claim arguing that the Section
2(k) does not clarify whether all state governments are exempt from the tax or only the
state governments of Illinois (i.e., its political subdivisions). The STATE disagrees with
COMPANY’s decision and interprets the Illinois law to exempt other state governments
like STATE. If the Illinois General Assembly intended to only include state governments
of Illinois, then presumably the wording in Section 2(k) would have been written to

ST-19-0056-GIL
Page 2
specifically exclude all state governments outside of the State of Illinois. The
interpretation that the exemption includes all state governments is consistent with the
language included in TETA guidance published online by the Illinois Department of
Revenue.
COMPANY has informed the STATE it would agree to reopen the previously denied
claim and consider cessation of billing the Illinois Telecommunications Excise Tax and
crediting past TETA-related charges back to the STATE if the Illinois Department of
Revenue issues a General Information Letter clarifying that all state entities are
exempt from taxation.
The STATE respectfully requests a General Information Letter from the Illinois
Department of Revenue to clarify whether state governments outside of Illinois are
exempt from taxes applied under TETA.
Thank you for your time.
DEPARTMENT’S RESPONSE:
The 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 only purchasers who can purchase telecommunications tax-free are Federal
and State governments, State Universities created by statute, and wholly owned corporate
subsidiaries purchasing from the parent or other wholly owned subsidiary. 35 ILCS 630/2. The
Department of Revenue, an agency of the STATE, falls within exemption for state governments and
is exempt from the tax imposed by the Telecommunications Excise 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,
Richard S Wolters
Associate Counsel
RSW:rkn