Section 18.8 - Telecommunications Tax
Date: April 2010
Approved: Senior Associate Vice President for Business and Finance
Note: This policy is intended for the purpose of informing University employees and other University-related individuals about relevant tax issues. This policy does not constitute legal or tax advice. Individuals should consult with their attorneys or tax professionals for advice on personal issues.
Policy Statement
The University is exempt from the Federal Communications Excise Tax, as well as the State of Illinois Telecommunications Excise Tax and the Simplified Municipal Telecommunications Tax. The University is not exempt from the State Telecommunications Infrastructure Maintenance Fees. The Illinois Department of Revenue (IDOR) does not provide exemption letters for state and municipal taxes such as these, because they are specifically cited in the Illinois Compiled Statutes (ILCS).
The Telecommunications Department (ACCC) in Chicago is responsible for preparing and filing the returns, as well as remitting the tax for the Chicago campus, and University Accounting Services is responsible for preparing and filing the returns, as well as remitting the tax for the Urbana-Champaign and Springfield campuses. Form RT-10 must be filed on a monthly basis if the average monthly liability is equal to or greater than $100; however, if the average monthly liability is less than $100, Forms RT-10 can be filed on a quarterly basis. The IDOR distributes notification letters if a taxpayer qualifies to file on a quarterly basis.
See Telecommunications Taxes Summary (below) as a quick reference guide for each of these taxes, its exempt status, tax rate (if applicable to the University), and links to relevant Internal Revenue Code (IRC) or ILCS citations.
TELECOMMUNICATIONS TAXES SUMMARY
Federal Communications Excise Tax
IRC §4251 imposes a three (3) percent federal communications excise tax on amounts paid for local telephone services. For purposes of this section, IRC §4252(a) defines local telephone service as the access to a local telephone system that provides telephonic quality communications with substantially all persons having telephone or radio telephone stations within the system, and any facility or service provided in connection with such local telephone services.
According to IRS Notice 2006-50, effective August 1, 2006, federal communications excise tax does not apply to long distance (toll) services and bundled (cellular) services.
Federal communications excise tax also applies to call forwarding, caller identification, call waiting, three-way calling, equipment leasing, calling cards, service fees such as 911 surcharges and universal service fees, and late payment fees. Federal communications excise tax is not assessed on voicemail, internet service fees, installation charges, and state taxes (only if the state taxes are separately billed). See Telecommunications Matrix for more detailed information.
The University is an instrumentality of the State of Illinois and, as such, its income is exempt from federal income tax under the provisions of IRC §115. In addition, the Internal Revenue Service (IRS) has recognized the University as exempt from federal income tax as an organization described in IRC §501(c)(3) and as a public charity of the type described in IRC §§ 501(a)(1) and 170(b)(1)(A)(ii). Since the University is both an instrumentality of the state, as defined in IRC §115, and an organization exempt from tax under IRC §501(c)(3) for educational purposes, the University is exempt from federal communications excise tax under both the state and local governmental exemption as provided under §4253(i) and the exemption for nonprofit educational organizations as provided under IRC §4253(j).
Although the University is not responsible for collecting and paying federal communications excise tax on local and toll telephone services provided to University departments, faculty, and on-campus student residences, the University is responsible for collecting, reporting, and remitting federal communications excise tax to the IRS on such services resold to non-university entities that are not specifically exempt from federal communications excise tax under IRC §4253. Local and toll telephone services provided to certain University related organizations (UROs), such as the University of Illinois Foundation and the Alumni Association, are subject to federal communications excise tax.
It is imperative to note that all the facts and circumstances of each individual situation need to be considered in the determination of whether or not to assess federal communications excise tax on local and toll telephone services. A major factor in such determination is the issue and level of degree of control. Examples of issues affecting control that should be considered include, but are not limited to:
- Does the University have a significant level of control over the other party, such as having the ability to decide the officers of and requirements of members to join an organization?
- Is the other party required to adhere to University policies and procedures?
- Does the University have the right to assign and take away space/facility usage as it deems fit?
- Is the activity part of the University's educational program?
- Are University employees, such as faculty advisors, an integral part of the organization that is being provided with the telecommunication services?
- Is the other party separately organized as its own organization and does it have its own tax identification number?
Most likely, if the answers to the previous questions are "yes", then the University may have a significant degree of control, and, thus, the other party might be exempt from federal communications excise tax.
Local and toll telephone services provided to certain non-profit organizations and UROs, such as the University of Illinois Foundation and the Alumni Association, are subject to federal communications excise tax. Although registered student organizations are not authorized to make use of the University's tax-exempt status, many registered student organizations are exempt from federal communications excise tax, with the exception of organizations that are separately organized and have obtained their own tax identification number. In general, fraternity and sorority housing organizations and for-profit organizations are subject to federal communications excise tax. To reiterate, all facts and circumstances must be considered to make such determination.
Federal communications excise tax is reported to the IRS on Form 720, Quarterly Federal Excise Tax Return. Instructions for Form 720 may be found at the IRS's website. University Accounting Services is responsible for filing this form. Additional information can be found in IRS Publication 510, Excise Tax.
The Telecommunications Tax Return Schedule contains information pertaining to the frequency of filing Form 720, return and payment due dates, and filing and payment methods.
State Telecommunications Excise Tax
35 ILCS 630, Telecommunications Excise Tax Act, provides that state telecommunications excise tax is imposed by the Illinois Department of Revenue (IDOR) on intrastate and interstate telecommunications at a rate of seven (7) percent of gross charges for such telecommunications purchased at retail from retailers. For purposes of this section, intrastate telecommunications means all telecommunications that originate and terminate within the State of Illinois, and interstate telecommunications means all telecommunications that either originate or terminate outside the State of Illinois.
State telecommunications excise tax applies to any type of line charge or line service, call forwarding, caller identification, call waiting, three-way calling, calling cards, installation charges, and universal service fees. State telecommunications excise tax is not assessed on equipment leasing, voicemail, 911 surcharges, late payment fees, internet service fees, and federal taxes. See the Telecommunications Matrix for more detailed information.
IDOR Regulation 86 Ill. Adm. Code 495.105 and 35 ILCS 630/2(k) provides an exemption for state universities from state telecommunications excise tax on telecommunications purchased for their own use; therefore, the University is exempt from state telecommunications excise tax for its own use. However, the University is responsible for collecting, reporting, and remitting state telecommunications excise tax to the IDOR that is assessed on telecommunications services provided by the University to non-university entities and individuals, including services provided to students.
State telecommunications excise tax is reported to the IDOR on Form RT-2, Telecommunications Excise Tax Return. Form RT-2 is filed on (1) a monthly basis if the average monthly liability is greater than $1,000, (2) a quarterly basis if the average monthly liability is between $400.01 and $1,000, or (3) an annual basis if the average monthly liability is equal to or less than $400. Taxpayers that collect tax from more than one municipality are required to file Form RT-2M, Telecommunications Tax Schedule, to identify the charges assessed to each municipality. The Urbana-Champaign campus is required to file Form RT-2M to report the charges within the cities of Champaign, Savoy, and Urbana; however, the Chicago and Springfield campuses are not required to file Form RT-2M, as only one city is reported on Forms RT-2 filed by both campuses. The Academic Computing and Communications Center (ACCC), Telecommunications Department prepares and files the returns and remits the tax for the Chicago campus. University Accounting Services prepares and files the returns and remits the tax for Springfield and Urbana-Champaign campuses.
Electronic Filing
Effective January 1, 2003, 35 ILCS 630/6 provides that Forms RT-2 and RT-2M are required to be filed electronically with the IDOR if the taxpayer has an average monthly liability greater than $1,000. Voluntary participation in the program is encouraged. Thus, all campuses file electronically.
Electronic Payments
Effective January 1, 2003, 35 ILCS 630/6 provides that telecommunications excise tax payments must be made by Electronic Funds Transfer, commonly referred to as "EFT", if the taxpayer has a combined average monthly liability that exceeds $1,000 in the preceding year. Voluntary participation in the program is encouraged. Thus, all campuses transmit telecommunications excise tax payments by EFT.
Additional information can be found at the IDOR website.
The contains information pertaining to the frequency of filing Forms RT-2 and RT-2M, return and payment due dates, and filing and payment methods.
Simplified Municipal Telecommunications Tax
Effective January 1, 2003, 35 ILCS 636, Simplified Municipal Telecommunications Tax Act, provides that for a single municipally imposed telecommunications tax, for municipalities with populations of less than 500,000, will be collected by the IDOR and reported on Form RT-2, but municipalities with populations of 500,000 or more will continue to be collected by and reported to such municipalities. Therefore, the Springfield and Urbana-Champaign campuses report and remit municipal telecommunications tax to the IDOR on Form RT-2; however, the Chicago campus reports and remits such tax directly to the City of Chicago. This information can also be found at the Municipal Code of Chicago (NOTE that when this link opens, an error message saying "Unable to display reference" will appear. This is normal; the link is not broken). Proceed by (1) typing 3-73 in the "Quick Search" field near the top of the Web page and (2) clicking the "Search" button. Then you can (3) open the folder for Chapter 3-73, "Chicago Simplified Telecommunications Tax."
As of January 1, 2010, current municipal telecommunications tax rates are as follows:
| City |
Rate |
| Champaign |
6.00% |
| Chicago |
7.0% |
| Savoy |
0% |
| Springfield |
4.00% |
| Urbana |
6.00% |
Rates for other municipalities can be found in the Illinois Telecommunication Tax Rate Manual.
Simplified municipal telecommunications tax is assessed on the same services as state telecommunications excise tax. 35 ILCS 636/5-7 provides an exemption for state universities from simplified municipal telecommunications tax on telecommunications purchased for their own use; therefore, the University is exempt from simplified municipal telecommunications tax for its own use. However, the University is responsible for collecting, reporting, and remitting simplified municipal telecommunications tax that is assessed on telecommunications services provided by the University to non-university entities and individuals, including services provided to students.
See State Telecommunications Excise Tax , the Telecommunications Matrix, and the IDOR website for additional information.
State Telecommunications Infrastructure Maintenance Fees
The Telecommunications Infrastructure Maintenance Fee Act, as provided under 35 ILCS 635, imposes a .5 percent tax on gross telecommunication charges. State telecommunications infrastructure maintenance fees are reported to the IDOR on Form RT-10, Telecommunications Infrastructure Maintenance Fees Return.
The Telecommunications Department (ACCC) in Chicago is responsible for preparing and filing the returns, as well as remitting the tax for the Chicago campus, and University Accounting Services is responsible for preparing and filing the returns, as well as remitting the tax for the Urbana-Champaign and Springfield campuses. Form RT-10 must be filed on a monthly basis if the average monthly liability is equal to or greater than $100; however, if the average monthly liability is less than $100, Forms RT-10 can be filed on a quarterly basis. The IDOR distributes notification letters if a taxpayer qualifies to file on a quarterly basis.
State telecommunications infrastructure maintenance fees are assessed on the same services as state telecommunications excise tax, with the exception of wireless services and features. Wireless services and features are not subject to state telecommunications infrastructure maintenance fees. Gross charges billed for wireless telecommunications are deducted on Form RT-10.
Also, services provided to state governments, including the University, are subject to state telecommunications infrastructure maintenance fees. Part of the University's departmental use of state telecommunications infrastructure maintenance fees is paid directly to the telecommunications service provider, AT&T. Gross charges where tax has already been paid are deducted on Form RT-10.
See State Telecommunications Excise Tax , the Telecommunications Matrix, and the IDOR website for additional information.
The Telecommunications Tax Return Schedule contains information pertaining to the frequency of filing Form RT-10, return and payment due dates, and filing and payment methods.
Please send questions regarding this policy manual to OBFSPolicies@uillinois.edu.
Last Updated: March 23, 2011