Is Voice Over Internet Protocol (VoIP) voice service subject to Illinois's Telecommunications Excise Tax and the Simplified Municipal Telecommunications Tax?

Plain-English summary

An accountant wrote to the Illinois Department of Revenue on behalf of clients who provide telecommunications service — including Voice Over Internet Protocol ("VoIP") voice service — to business ("Enterprise") customers in Illinois. One of those clients' own customers had argued that VoIP voice service was exempt from the Simplified Municipal Telecommunications Tax, pointing to a statutory exemption they believed applied to data or email sent over a VoIP line. The accountant disagreed and asked the Department to confirm that VoIP voice service is, in fact, taxable.

The Department agreed with the accountant. It explained that both the statewide Telecommunications Excise Tax (35 ILCS 630) and the Simplified Municipal Telecommunications Tax Act (35 ILCS 636), which lets municipalities impose their own local telecommunications tax, define "telecommunications" very broadly — covering, among other things, any transmission of messages or information by electronic or similar means between points by wire, cable, fiber optics, laser, microwave, radio, or satellite. VoIP voice service falls squarely within that definition. The only thing excluded from "telecommunications" is a narrower category of "value added services" where computer processing acts on the form, content, code, or protocol of information for purposes other than transmission — and voice service is not that.

The Department also noted that federal law does not block this result. The Internet Tax Freedom Act imposes a federal moratorium on state and local taxation of "Internet access," but VoIP voice service does not fit the Act's definition of "Internet access," so the moratorium does not shield it. Bottom line: VoIP communications originating or received in a municipality that has adopted the Simplified Municipal Telecommunications Tax are subject to that municipality's tax, and VoIP communications are also subject to the statewide Illinois Telecommunications Excise Tax. Neither Act contains an exemption for VoIP.

What this means for you

Telecommunications and VoIP providers

If you provide VoIP voice service to customers in Illinois, you should be charging and remitting both the state Telecommunications Excise Tax (7% of gross charges under 35 ILCS 630/3 and 630/4) and, where applicable, the local Simplified Municipal Telecommunications Tax (up to 6% or 7% of gross charges depending on the municipality's population, under 35 ILCS 636/5-10 and 5-15). There is no VoIP-specific exemption in either Act, so treating VoIP voice service as tax-free because it travels over the internet is not supported by this GIL.

Business (Enterprise) customers of VoIP services

If your company purchases VoIP voice service from a retailer, expect the Telecommunications Excise Tax and any applicable municipal telecommunications tax to be included in the "gross charges" billed to you. The exemption some customers point to for "data or email transmitted over a VoIP line" is narrower than it may sound — it does not cover voice communications, which the Department treats as ordinary taxable telecommunications.

Accountants and tax professionals

The ruling turns on the breadth of the statutory definition of "telecommunications" in both 35 ILCS 630/2(c) and 35 ILCS 636/5-7, and on the narrow scope of the "value added services" carve-out in those same provisions. It also confirms that the Internet Tax Freedom Act's moratorium on taxing "Internet access" (47 U.S.C. § 151 note) does not extend to VoIP voice service, because VoIP does not meet the Act's definition of "Internet access." Remember this is a GIL — it directs taxpayers to the relevant statutes and regulations but is not binding Department policy the way a Private Letter Ruling would be.

Common questions

Q: Is VoIP voice service taxable in Illinois?
A: Yes. The Department concluded that VoIP is "telecommunications" subject to tax within the meaning of both the Telecommunications Excise Tax Act and the Simplified Municipal Telecommunications Tax Act, because the statutory definition of "telecommunications" broadly covers any transmission of messages or information by electronic or similar means between points by wire, cable, fiber optics, laser, microwave, radio, or satellite.

Q: Doesn't the statutory exemption for "data or email" transmitted over a VoIP line cover voice calls too?
A: No. The Department rejected that reading. The exemption is for "value added services" where computer processing acts on the form, content, code, or protocol of information for purposes other than transmission — not for voice communications carried over a VoIP line.

Q: Does the federal Internet Tax Freedom Act block Illinois from taxing VoIP?
A: No. That Act imposes a moratorium only on taxing "Internet access," and VoIP voice service does not fall within the Act's definition of "Internet access." States remain free to tax VoIP telecommunications.

Q: Does the local Simplified Municipal Telecommunications Tax apply everywhere in Illinois?
A: Only in municipalities that have adopted it. Where adopted, the rate can be up to 6% for municipalities under 500,000 in population and up to 7% for municipalities of 500,000 or more, applied to gross charges for telecommunications originating or received in that municipality.

Q: Is this GIL binding on the Department?
A: No. A General Information Letter directs taxpayers to relevant statutes, regulations, and other guidance; it is not a statement of Department policy and is not binding, unlike a Private Letter Ruling issued under 2 Ill. Adm. Code 1200.110.

Citations and references

Statutes and rules:

• 35 ILCS 630/2, 630/3, 630/4, 630/5 (Telecommunications Excise Tax Act — imposition, 7% rate, and definitions)
• 35 ILCS 635/10 (Telecommunications Infrastructure Maintenance Fee)
• 35 ILCS 636/5-7, 636/5-10, 636/5-15 (Simplified Municipal Telecommunications Tax Act — imposition, rate, and definitions)
• 86 Ill. Adm. Code 495.100 (Telecommunications Excise Tax regulation)
• 47 U.S.C. § 151 note; §§ 1101, 1105 (Internet Tax Freedom Act — moratorium and "Internet access" definition)
• 47 U.S.C. § 152 note; Pub. L. 104-104 (state/local taxation authority preserved)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2021.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2021/st21-0017-gil.pdf

Original ruling text

ST 21-0017 04/13/2021 TELECOMMUNICATIONS EXCISE TAX
In general, Voice Over Internet Protocol (“VOIP”) is telecommunications subject
to tax within the meaning of “Telecommunications” and “Gross Charges”
pursuant to The Telecommunications Excise Tax, 35 ILCS 630/2; the
Telecommunications Infrastructure Maintenance Fee, 35 ILCS 635/10; and the
Simplified Municipal Telecommunications Tax Act, 35 ILCS 636/5-7. (This is a
GIL.)
April 13, 2021
Dear NAME:
This letter is in response to your letter dated February 22, 2021, 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:
RE: General Information Letter under 2 Illinois Administrative Code
1200.120
To whom it may concern.
ACCOUNTANT represents several clients in Illinois who are subject to the
Simplified Municipal Tax. Many of those providers are provisioning voice
service to Enterprise end users.
Recently one of our clients was notified by their client (located in Illinois)
that they did not believe they were subject to the Simplified Municipal
[Telecommunications] Tax for voice service provisioned over “Voice over
Internet Protocol (I VoIP) lines. They cited Tax Regulation 35 ILCS 636/51 as the basis for their position. Specifically, the statutory exemption for
data or email transmitted over a VoIP line.
We point to the broad definition of "Telecommunications " within the
statute.

ACCOUNTANT
Page 2
April 13, 2021
"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”
We believe that the client’ s interpretation is incorrect, specifically that the
exemption is for data transmission only, and that voice communication over
a VoIP line is assessable for the Simplified Municipal [Telecommunications]
Tax. We have confirmed this with other sources that provide tax services
and found this position to be correct.
We would appreciate your response to the question regarding the
assessability of voice transmission over an I VoIP line. You can contact
me directly if you have any questions or need further clarification.
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 tax imposed shall be
collected from the taxpayer by a retailer maintaining a place of business in this State
and remitted to the Department, 35 ILCS 630/5. 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.
“Gross charge” means the amount paid for the act or privilege of originating or
receiving telecommunications in this State, or in such municipality, 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. See 35 ILCS 630/2(a) and 35 ILCS 636/5-7.

ACCOUNTANT
Page 3
April 13, 2021
Further, the definition of telecommunications under each Act is very broad and
encompasses Voice Over Internet Protocol communications. More specifically, both
Acts define "Telecommunications" as, in addition to the meaning ordinarily and
popularly ascribed to that term, including, 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 oneway 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. See 35 ILCS 636/5-7 and 35 ILCS
630(2)(c). “Telecommunications” does 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.” (Emphasis added.)
See 35 ILCS 636/5-7 and 35 ILCS 630/2(c).
Voice Over Internet Protocol (“VoIP”) is telecommunications subject to tax within
the meaning of “Telecommunications” and “Gross Charges” pursuant to The
Telecommunications Excise Tax, 86 Ill. Adm. Code 495.100; the Telecommunications
Infrastructure Maintenance Fee, 35 ILCS 635/10; and the Simplified Municipal
Telecommunications Tax Act, 35 ILCS 636/5-7. Neither the Telecommunications
Excise Tax Act nor the Simplified Municipal Telecommunications Tax Act provide any
exemption for VoIP services.
Further, federal law has preserved States’ ability to tax VoIP services. The
Internet Tax Freedom Act imposes a federal moratorium on state or municipal taxes on
Internet access. 47 USCA § 151 note; § 1101. However, states are allowed to tax VoIP
services as Congress specifically excluded them, defining “Internet access” as:
(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 videocapable electronic mail and instant messaging), video clips, and personal
electronic storage capacity;

ACCOUNTANT
Page 4
April 13, 2021
(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 video-capable electronic mail and instant messaging), video clips, and
personal electronic storage capacity, that are provided independently or not
packaged with Internet access.
(Emphasis added.) 47 USCA § 151 note; § 1105. Additionally, in a note on section 152
of the Federal Communications Act (of which the Internet Tax Freedom Act is a part),
Congress specified, in relevant part, that nothing in the Act or the amendments made by
it “shall be construed to modify, impair, or supersede, or authorize the modification,
impairment, or supersession of, any State or local law pertaining to taxation,” subject to
certain unrelated exceptions. See Pub. L. 104-104, Title VI, §601, 110 Stat. 143, 47
U.S.C. §152 note (1996) (“Pub. L. 104-104”).
As such, VoIP communications either originating in or received in a municipality
that has imposed the Simplified Municipal Telecommunications Tax are subject to the
applicable tax rate for that municipality. Additionally, VoIP communications are subject
to the Illinois 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,
Alexis K. Overstreet
Associate Counsel
AKO:rkn