Does Illinois's Telecommunications Excise Tax apply to dark fiber leased under an Indefeasible Right of Use (IRU) or to a non-indefeasible right to use fiber strands between two locations?

Plain-English summary

A dark-fiber network company wrote to the Illinois Department of Revenue asking whether it should be charging Telecommunications Excise Tax on its services. The company explained that it owns fiber-optic network capacity but doesn't provide any "lit" or wireless services to end users -- it offers only "dark fiber," meaning fiber strands with no electronics on them, no light running through them, and no information transmitted. It offers this dark fiber to customers two ways: (1) an Indefeasible Right of Use (IRU), a long-term contractual right to a portion of a cable's capacity that can't be annulled or voided, and (2) a non-indefeasible right to use fiber strands between two locations. The company noted that based on its own reading of Department guidance it didn't think it should be charging the tax, but some of its competitors did include tax on their invoices, and it wanted clarity.

The Department's response walked through the statutory framework and reached a clear conclusion for both service types. The Illinois Telecommunications Excise Tax Act imposes a 7% tax on the act or privilege of originating or receiving intrastate or interstate telecommunications in Illinois (35 ILCS 630/3, 630/4; 86 Ill. Adm. Code 495.140), and the Simplified Municipal Telecommunications Tax Act separately lets municipalities impose their own tax (up to 6% for municipalities under 500,000 people, up to 7% for larger ones) on the same kind of activity (35 ILCS 636/5-10, 5-15). Both taxes turn on the same core definition: "telecommunications" means messages or information transmitted by wire, cable, fiber-optics, laser, microwave, radio, satellite, or similar facilities (35 ILCS 630/2(c)).

The Department explained that dark fiber -- citing a technical dictionary definition -- is optical fiber through which no light is transmitted and no signal is carried; it has no electronics on it and transmits no information. Because "telecommunications" is defined around the transmission of messages or information, and dark fiber transmits nothing, the Department concluded that both of the company's service types -- the IRU lease of dark fiber capacity and the non-indefeasible right to use fiber strands between two locations -- fall outside the definition of "telecommunications" and are not subject to either the state Telecommunications Excise Tax or the municipal telecommunications tax.

The Department also flagged a related but separate compliance point: telecommunications retailers who provide both taxable telecommunications services and other, non-taxable services must separately state and disaggregate the charges for each in their books and records -- if they don't, the Department will treat the entire undifferentiated charge as taxable telecommunications revenue. Finally, the Department declined to comment on whether the company's competitors were correct to charge tax on their own invoices, saying it had insufficient information about those other companies' services or products to assess their tax liability.

What this means for you

Dark fiber and fiber-network providers

If you lease or license dark fiber -- fiber-optic capacity with no active signal or light running through it, whether under a long-term IRU or a more limited right-to-use arrangement -- this GIL indicates the Department does not treat that as "telecommunications" under 35 ILCS 630/2(c), so it isn't subject to the 7% state Telecommunications Excise Tax or a municipality's telecommunications tax. But because this is a GIL rather than a binding PLR, another company cannot rely on this letter as legal protection for its own dark-fiber arrangement; if you want a binding answer for your specific contracts, you'd need to request your own Private Letter Ruling under 2 Ill. Adm. Code 1200.110.

Providers who sell both dark fiber and "lit" telecommunications services

If your business offers a mix of taxable telecommunications services (lit fiber, voice, data transmission) and non-taxable services (dark fiber, equipment, other non-transmission services) to the same customers, keep the charges for each separately stated and disaggregated in your invoices and books and records. The Department's letter is explicit that if you don't separate them, it will tax the entire combined charge as if it were all telecommunications revenue -- even the portion attributable to genuinely non-taxable dark fiber.

Accountants and tax professionals

This GIL is a useful, fairly concrete application of the "telecommunications" definition (35 ILCS 630/2(c)) to a specific fact pattern -- unusual for a GIL, which more often declines to resolve the taxpayer's specific facts. Still, remember a GIL is not a statement of Department policy and does not bind the Department for any other taxpayer's similar-looking dark-fiber arrangement; a client who wants certainty on their own contract structure should pursue a PLR. Also note the Department expressly would not comment on third parties' (here, competitors') tax positions -- a GIL only addresses the requesting taxpayer's own described facts.

Common questions

Q: Is dark fiber leased under an Indefeasible Right of Use (IRU) subject to Illinois's Telecommunications Excise Tax?
A: No. The Department concluded that dark fiber provided under an IRU does not meet the definition of "telecommunications" in 35 ILCS 630/2(c), because no light, signal, or information is transmitted through it.

Q: What about a non-indefeasible right to use fiber strands between two locations?
A: Also no. The Department reached the same conclusion for this second service type for the same reason -- dark fiber, by definition, carries no messages or information.

Q: What rate would apply if the service WERE taxable telecommunications?
A: The state Telecommunications Excise Tax is 7% of gross charges (35 ILCS 630/3, 630/4). Municipalities may separately impose their own tax under the Simplified Municipal Telecommunications Tax Act, up to 6% for municipalities under 500,000 in population or up to 7% for municipalities of 500,000 or more (35 ILCS 636/5-10, 5-15).

Q: What happens if a provider sells both dark fiber and taxable telecommunications services without separating the charges?
A: The Department states that if the charges for taxable and non-taxable services aren't disaggregated and separately stated in the retailer's books and records, the entire combined charge is taxable as a sale of telecommunications.

Q: Did the Department comment on whether the company's competitors were right to charge tax on similar services?
A: No. The Department said it had insufficient information about the competitors' specific services or property to comment on their tax liability.

Citations and references

Statutes:

• 35 ILCS 630/2(c) (definition of "telecommunications")
• 35 ILCS 630/3 and 630/4 (imposition of the 7% Telecommunications Excise Tax)
• 35 ILCS 636/5-10 and 5-15 (Simplified Municipal Telecommunications Tax Act)

Regulations:

• 86 Ill. Adm. Code 495.100(a) ("gross charges" defined)
• 86 Ill. Adm. Code 495.100(c) (exclusions from "gross charges," e.g. data storage/processing charges)
• 86 Ill. Adm. Code 495.140 (Telecommunications Excise Tax imposition regulation)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedure)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2024.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2024/ST24-0004-GIL.pdf

Original ruling text

ST 24-0004-GIL

February 1, 2024

TELECOMMUNICATIONS EXCISE TAX

This letter discusses dark fiber. See 35 ILCS 630/2. (This is a GIL.)
February 1, 2024

NAME
COMPANY
ADDRESS
Dear NAME:
This letter is in response to your letter dated January 18, 2024, 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 https://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:
Hello,
I am writing to get guidance on whether my business, COMPANY, should
be charging telecommunications excise tax on our services. All our
services are dark fiber, where we own the network but do not provide any
lit/wireless services to end users.
We typically offer two types of services –
1)

2)

Indefeasible Right of Use (IRU) is a contractual agreement
(temporary ownership) of a portion of the capacity of a cable. As
the name suggests, the contract provides an indefeasible right to
use a cable and cannot be annulled or voided.
We also offer the right to use strands (not indefeasible) to our
customers in between two locations.

COMPANY/NAME
Page 2
February 1, 2024
Per the telecom guidance, it does not appear that we should be charging
tax; however, we have competitors that we buy services from that include
a tax on the invoices.
Please assist.
DEPARTMENT’S RESPONSE:
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 by such persons. 35 ILCS 630/3 and 4; 86 Ill. Adm. Code 495.140.
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 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.
“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” 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.”
See 35 ILCS 630/2(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

COMPANY/NAME
Page 3
February 1, 2024
telecommunications, the cost of materials used, labor or service costs or any other
expense whatsoever. 86 Ill. Adm Code 495.100(a). “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.” 86 Ill. Adm.
Code 495.100(c).
Dark fiber is “[o]ptical fiber through which no light is transmitted and which,
therefore, no signal is being carried. Generally speaking, a dark fiber is one of many
fibers contained within a cable.” Newton’s Telecom Dictionary, 23rd Edition (2007).
Dark fiber has no electronics on it, no light is sent down the fiber, and no information is
transmitted.
“Telecommunications,” means “messages or information transmitted . . . between
or among points by wire, cable, fiber-optics, laser, microwave, radio, satellite or similar
facilities.” See 35 ILCS 630/2(c). Dark fiber strands provided on a long-term lease
basis pursuant to an Irrevocable Right to Use, or IRU, do not meet the definition of
“telecommunications” and are not subject to Telecommunications Excise Tax. Dark
fiber strands (not indefeasible) provided to customers between two locations also do not
meet the definition of “telecommunications” and are not subject to Telecommunications
Excise Tax.
Your email provides insufficient information to comment on the tax liability on
services or tangible personal property you acquire from your competitors.
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:sc