Illinois, Prepaid Telephone Calling Cards Services Arrangements, and Sales Tax
- Apr 9, 2013 | Gail Cole
The Illinois Department of Revenue has issued a General Interest Letter reminding that prepaid telephone calling card arrangements are subject to sales and use taxes under the Telecommunications Excise Tax Act.
The 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.” Gross charges include “amounts 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 retailers.”
Furthermore, prepaid telephone calling card arrangements have been considered tangible personal property since January 1, 2013. As such, they are subject to the state use tax, which is currently 6.25%. “The Use Tax Act applies when tangible personal property is purchased anywhere at retail. In essence, the retailer collects the Use Tax from the customer to reimburse it for the Retailers’ Occupation Tax paid by it to the State.”
The DOR explains that a prepaid telephone calling arrangement “does not include 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.” Any prepaid telephone plan that is not defined as a “prepaid telephone calling arrangement” is subject to the Telecommunications Excise Tax.
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