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Illinois: Prepaid Wireless Services Are Taxable

  • Oct 16, 2012 | Gail Cole

Illinois retailers that sell prepaid wireless services must collect and remit sales tax, according to 12-0043-GIL, issued by the Illinois Department of Revenue in July, 2012. In addition, retailers must collect and remit a prepaid wireless 9-1-1 surcharge.

Retailer's Occupation Tax

Since January 1, 2001, prepaid telephone calling arrangements have been considered tangible personal property and are subject to Retailer's Occupation Tax liability. (35 ILCS 120/2).

"[P]repaid telephone calling arrangements shall be considered tangible personal property subject to the tax imposed under [the Retailer's Occupation Tax] Act regardless of the form in which those arrangements may be embodied, transmitted, or fixed by any method now known or hereafter developed."

Illinois Compiled Statutes define prepaid telephone calling arrangements, but it's more helpful to consider what does not meet the definition of a prepaid telephone calling arrangement:

"an arrangement whereby the service provider reflects the amount of the purchase as a credit on an account for a customer under an existing subscription plan." 35 ILCS 120/2-27

Such arrangements are subject to the Telecommunications Excise Tax, rather than the Retailer's Occupation Tax, per 35 ILCS 630/3 & 4 :

The Prepaid Wireless 9-1-1 Surcharge Act 

"The Prepaid Wireless 9-1-1 Surcharge Act imposes on consumers a prepaid wireless 9-1-1 surcharge of 1.5% per retail transaction. … A home rule municipality having a population in excess of 500,000 on the effective date of the Act may impose a prepaid wireless 9-1-1 surcharge not to exceed 7% per retail transaction …" rather than the 1.5% surcharge. 50 ILCS 753/15(a) & (a-5). 12-0043-GIL.

Sellers are encouraged to separately state the surcharge as a distinct item. If they don't, they must maintain "books and records" of the surcharge.

The 9-1-1 surcharge will be applied to the entire non-itemized or bundled price unless:

  • the dollar amount of the prepaid wireless telecommunications service is disclosed to the consumer or
  •  the retailer can identify the portion of the price that is attributable to the prepaid wireless telecommunications service by reasonable and verifiable standards.

 Exception to the 9-1-1 Surcharge

"If a minimal amount of prepaid wireless communications service is sold with a prepaid wireless device for a single, non-itemized or bundled price, then the seller may elect not to apply the prepaid wireless 9-1-1 surcharge… ." Minimal here means 10 minutes or less or $5 or less. 35 ILCS 753/15 (f). 12-0043-GIL.

It's almost enough to make a person go back to rotary phones.

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Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.