By Derek Takehara and Andrew Appleby

The Illinois Department of Revenue determined that a wholesale distributor of international telecommunications services could source its long-distance telephone receipts based on its Illinois property factor. The taxpayer, an intermediate international telecommunications carrier, owned and rented equipment in several states, including Illinois. Illinois law provides that a taxpayer must source receipts from the sale of telecommunications services for resale using the same apportionment methodology as sales to end-users (e.g., the location of the service, the billing address, or the location where the call is originated, terminated, inputted or received). However, if the determinative information is not readily available to the taxpayer, the taxpayer may use “any other reasonable and consistent method” to apportion the receipts. Here, the information was not readily available to the taxpayer because the taxpayer had no direct interaction with end-users. Accordingly, the Department permitted the taxpayer to use another reasonable and consistent method. The taxpayer proposed two alternative sourcing methods, including a “property method” (based on a proportion of the net book value of the taxpayer’s total property in Illinois) and a “revenue method” (based on a proportion of gross revenue attributed to the taxpayer’s property in Illinois). However, instead of adopting one of these methods, the Department ruled that the taxpayer could source its receipts using the taxpayer’s Illinois property factor, as long as the taxpayer applied all relevant statutory and regulatory rules, including those requiring property owned to be valued at cost and property rented to be valued at eight times the annual rental rate. Ill. Priv. Ltr. Rul. No. IT 14-0004 (June 4, 2014).