When a company installs cell-tower/telecom transmission equipment (wiring, cabling, and related materials) onto real property under time-and-materials or lump-sum contracts, is the company treated as a construction contractor subject to Use Tax, or as a retailer that must charge sales tax, and does using or acting as a subcontractor change the answer?

Plain-English summary

A group of companies that install cellular transmission equipment (and the wiring, cabling, and other materials needed to make it work) on cell towers, commercial buildings, and stadiums asked the Illinois Department of Revenue whether they were "construction contractors" who owe Use Tax, or "retailers" who must charge their customers sales tax. They described twelve variations: new construction versus existing structures, time-and-materials versus lump-sum contracts, equipment furnished by the installer versus furnished by the cellular carrier, and acting as a general contractor versus a subcontractor.

The Department's answer: whenever tangible personal property is permanently affixed to or incorporated into real property, the installer is a construction contractor and is deemed the end user of that property. As the end user, the contractor owes Use Tax on its own cost price for the materials — it does not charge sales tax to its customer, and it generally should not give suppliers a resale certificate. This holds true whether the contractor is the prime contractor or a subcontractor, and whether the job is billed time-and-materials or lump sum. The only thing that can change the analysis is if the company also makes separate "over the counter" retail sales of its product, which is governed by a different rule (86 Ill. Adm. Code 130.2075(b)).

What this means for you

Construction contractors and installers (including telecom/cell-site installers)

If you permanently attach equipment, wiring, or other tangible personal property to real estate — a cell tower, building, or similar structure — you are a construction contractor for Illinois tax purposes, no matter what your contract calls itself (time-and-materials or lump sum) and no matter whether you're the prime contractor or a subcontractor. You owe Illinois Use Tax on your cost price for the materials you incorporate, not sales tax charged to your customer. If you buy from an out-of-state supplier that doesn't collect Illinois tax, you must self-assess and pay the Use Tax directly to the Department (with credit available for tax properly paid to another state).

Subcontractors and general contractors working together

The transaction between a general contractor and a subcontractor who is also acting as a construction contractor is not itself taxable. Instead, the Use Tax liability follows whichever party actually purchases the tangible personal property being incorporated into the real estate — if the general contractor buys the materials and simply subcontracts the installation labor, the general contractor (not the subcontractor) owes the Use Tax.

Contractor-manufacturers

If you both manufacture and install the finished item (for example, fabricating equipment you then install), your Use Tax base is what you paid for the raw materials that went into the finished item, plus incidental hardware like nails or screws used during installation — not the item's finished retail value.

Businesses that also sell "over the counter"

If, in addition to installing under contracts, you also make separate retail sales of your product directly to customers, a different set of rules applies (86 Ill. Adm. Code 130.2075(b)), and local retailers' occupation tax sourcing rules (86 Ill. Adm. Code 270.115) come into play for sales made in Illinois.

Common questions

Q: Do I charge my customer sales tax on a lump-sum contract to install cell-site equipment?
A: No. Because the equipment, wiring, and cabling are permanently affixed to real property, you are a construction contractor and the end user of that property. You owe Use Tax on your own cost, and you have no legal authority to collect Use Tax from your customer — though many contractors build the cost into their price or add a contractual "reimbursement" line (which cannot be labeled "sales tax").

Q: Does it matter whether I'm the general contractor or a subcontractor?
A: No. Both general contractors and subcontractors who install materials into real estate are construction contractors and owe Use Tax on their own purchases of the tangible personal property they incorporate.

Q: What if the cellular carrier supplies the equipment and I just install it?
A: The ruling addresses this pattern among its twelve scenarios but resolves them all under the same general rule: whoever purchases the tangible personal property being permanently affixed to real estate is the one who incurs the Use Tax on that property. If the carrier furnishes the equipment itself, the installer's Use Tax exposure is limited to whatever materials (wiring, cabling, hardware) the installer itself purchases and incorporates.

Q: Can I buy my equipment tax-free with a resale certificate?
A: Generally no. As end users, construction contractors should not give resale certificates to suppliers; instead they should pay Use Tax (and any local tax reimbursement) at the time of purchase, unless they also separately sell items at retail under 86 Ill. Adm. Code 130.2075(b).

Q: What if I already paid sales/use tax to another state on the same materials?
A: You are entitled to a credit against your Illinois Use Tax liability to the extent you properly paid tax to another state on the same property. See 86 Ill. Adm. Code 150.310.

Citations and references

Regulations:

• 86 Ill. Adm. Code 130.1940 (construction contractors deemed end users of tangible personal property)
• 86 Ill. Adm. Code 130.2075 (Use Tax base for contractors, including contractor-manufacturers; rate under subsection (c))
• 86 Ill. Adm. Code 130.2075(b) (contractors who also make over-the-counter retail sales)
• 86 Ill. Adm. Code 150.310 (credit for tax properly paid to another state)
• 86 Ill. Adm. Code 270.115 (sourcing local retailers' occupation tax for Illinois sales)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure)
• 2 Ill. Adm. Code 1200.120 (GILs are not binding on the Department)

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/st21-0047-gil.pdf

Original ruling text

ST-21-0047 11/23/2021 CONSTRUCTION CONTRACTORS
When a construction contractor permanently affixes tangible personal property to
real property, the contractor is deemed the end user of that tangible personal
property. As the end user, the contractor incurs Use Tax on the cost price of that
tangible personal property. See 86 Ill. Adm. Code 130.1940 and 86 Ill. Adm.
Code 130.2075. (This is a GIL.)
November 23, 2021
Dear NAME:
This letter is in response to your letter dated October 6, 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:
I represent the following companies that are involved in providing services
to the telecom industry and am seeking clarification as to the tax treatment
of the following services.
COMPANY1. FEIN XX-XXXXXXX
COMPANY2. FEIN XX-XXXXXXX
COMPANY3 FEIN XX-XXXXXXX
1) The company contracts with a cellular service provider to furnish
and install transmission equipment (including any wiring,
cabling, or other materials necessary for the transmission
equipment to function) on new construction, i.e., cell tower,
commercial building, stadium, etc. under a time and materials
contract.
2) The company contracts with a cellular service provider to furnish
and install transmission equipment (including any wiring,
cabling, or other materials necessary for the transmission
equipment to function) on new construction, i.e., cell tower,
commercial building, stadium, etc. under a lump sum contract.

NAME BUSINESS
Page 2
November 23, 2021
3) The company contracts with a cellular service provider to furnish
and install transmission equipment (including any wiring,
cabling, or other materials necessary for the transmission
equipment to function) on an existing structure, i.e., cell tower,
commercial building, stadium, etc. under a time and materials
contract.
4) The company contracts with a cellular service provider to furnish
and install transmission equipment (including any wiring,
cabling, or other materials necessary for the transmission
equipment to function) on an existing structure, i.e., cell tower,
commercial building, stadium, etc. under a lump sum contract.
5) The company contracts with a cellular service provider to
remove existing transmission equipment and replace it with
upgraded equipment furnished by the company, for example,
replacing 4G equipment with 5G equipment and to provide any
wiring, cabling, or other materials necessary for the
transmission equipment to function under a time and materials
contract.
6) The company contracts with a cellular service provider to
remove existing transmission equipment and replace it with
upgraded equipment furnished by the company, for example,
replacing 4G equipment with 5G equipment under a lump sum
contract.
7) The company contracts with a cellular service provider to install
transmission equipment provided by the cellular service
provider, and to provide any wiring, cabling, or other materials
necessary for the transmission equipment to function on new
construction, i.e., cell tower, commercial building, stadium, etc.
under a time and materials contract.
8) The company contracts with a cellular service provider to install
transmission equipment provided by the cellular service
provider, and to provide any wiring, cabling, or other materials
necessary for the transmission equipment to function on new
construction, i.e., cell tower, commercial building, stadium, etc.
under a lump sum contract.
9) The company contracts with a cellular service provider to install
transmission equipment provided by the cellular service
provider, and to provide any wiring, cabling, or other materials
necessary for the transmission equipment to function on an
existing structure, i.e., cell tower, commercial building, stadium,
etc. under a time and materials contract.
10) The company contracts with a cellular service provider to install
transmission equipment provided by the cellular service
provider, and to provide any wiring, cabling, or other materials
necessary for the transmission equipment to function on an

NAME BUSINESS
Page 3
November 23, 2021
existing structure, i.e., cell tower, commercial building, stadium,
etc. under a lump sum contract.
11) The company contracts with a cellular service provider to
remove existing transmission equipment and replace it with
upgraded equipment furnished by the cellular service provider,
for example, replacing 4G equipment with 5G equipment, and to
provide any wiring, cabling, or other materials necessary for the
transmission equipment to function under a time and materials
contract.
12) The company contracts with a cellular service provider to
remove existing transmission equipment and replace it with
upgraded equipment furnished by the cellular service provider,
for example, replacing 4G equipment with 5G equipment, and to
provide any wiring, cabling, or other materials necessary for the
transmission equipment to function under a lump sum contract.
In each of the scenarios above, does the use of subcontractors or acting
as a subcontractor affect the tax treatment?
It is our understanding that in all of the above scenarios if we are acting as
a contractor we must pay sales tax on our purchases and must charge
sales tax to our customer on the charges for labor. If on the other hand, it
is determined that we are selling and installing fixtures, we may purchase
the fixtures without payment of sales tax, but must pay sales tax on
materials used in the installation. We must charge sales tax on the selling
price of the fixture and the installation labor to the customer. What we are
clear on is whether we are a contractor or a retailer under each of the
above scenarios.
DEPARTMENT’S RESPONSE:
A contract to incorporate tangible personal property into real property is
considered a construction contract. The term construction contractor includes general
contractors, subcontractors, and specialized contractors such as landscape contractors.
In Illinois, construction contractors are deemed end users of tangible personal property
purchased for incorporation into real property. As end users of such tangible personal
property, these contractors incur Use Tax liability for such purchases based upon their
cost price of the tangible personal property. See 86 Ill. Adm. Code 130.1940 and 86 Ill.
Adm. Code 130.2075. Therefore, any tangible personal property that a construction
contractor purchases that will be permanently affixed to or incorporated into real
property in this State will be subject to Use Tax. As a general rule, except in cases of
construction contractors who also act as retailers as discussed below, construction
contractors should not provide resale certificates to their suppliers and should instead
pay Use Tax and any reimbursement for locally-imposed occupation taxes at the time of
purchase of tangible personal property to be incorporated into real estate. If such

NAME BUSINESS
Page 4
November 23, 2021
contractors did not pay Illinois Use Tax liability to their suppliers, which may occur when
purchasing from out-of-state suppliers, those contractors must self-assess their Illinois
Use Tax liability and pay it directly to the Department. If the contractors have already
paid a tax in another state regarding the purchase or use of such property, they will be
entitled to a credit against their Illinois Use Tax liability to the extent that they have paid
tax that was properly due to another state. See 86 Ill. Adm. Code 150.310. When the
purchasing construction contractor (whether he or she is the prime contractor or the
subcontractor) buys the item that he or she will convert into real estate in finished form,
the tax base is what such construction contractor pays for the item.
When the construction contractor-installer (whether he or she is the prime
contractor or a subcontractor) is also the manufacturer of the finished item that he or
she will incorporate into real estate for his or her customer, the tax base is what such
construction contractor pays for the materials that he or she incorporates into such
finished item, plus whatever such construction contractor may pay for nails, screws or
other items of tangible personal property that he or she buys and incorporates into real
estate for his or her customer in the course of making the installation of the finished
item. See 86 Ill. Adm. Code 130.2075(a)(2). The Illinois Use Tax rate incurred by a
construction contractor on purchases of materials from an unregistered supplier located
outside of this State is generally 6.25% as described in subsection (c) of Section
130.2075.
It is important to note that since construction contractors are the end users of the
materials that they permanently affix to real estate, their customers incur no Use Tax
liability and the construction contractors have no legal authority to collect the Use Tax
from their customers. However, many construction contractors pass on the amount of
their Use Tax liabilities to customers in the form of higher prices or by including
provisions in their contracts that require customers to “reimburse” the construction
contractor for his or her tax liability. Please note that construction contractors cannot bill
this reimbursement to a customer as “sales tax,” but can include a reimbursement of tax
on the bill.
The choice of whether a construction contractor requires a tax
reimbursement from the customer or merely raises his or her price is a business
decision on the construction contractor’s part.
If subcontractors are utilized and are acting as construction contractors, the
transaction between the general contractors and the subcontractors is not a taxable
transaction. The subcontractors incur Use Tax liability on any tangible personal
property that they purchase for incorporation into real estate. If, however, general
contractors make purchases and then contract to have subcontractors do the
installation, the general contractors incur Use Tax liability because they are making the
purchases of such tangible personal property.
If, in addition to acting as a construction contractor, a person makes separate
“over the counter” sales of his or her product, then a different set of rules would apply.
If that is the case, please see 86 Ill. Adm. Code 130.2075(b). If the sales are made in

NAME BUSINESS
Page 5
November 23, 2021
Illinois, see 86 Ill. Adm. 270.115 regarding how to source local retailers’ occupation
taxes for sales made in Illinois.
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/ld