Under Florida's 1995 rules, were prepaid telephone calling cards taxed when sold or when the telephone service was used?

Plain-English summary

The prepaid calling cards generally were taxed when the telephone service was used, not when the card was sold.

For calls that originated or terminated and were billed in Florida, the ruling applied the then-current 7% sales tax and 2.5% gross receipts tax to the amount deducted from the card. The retailer could give the service provider resale certificates. A card sold as a souvenir rather than as telecommunications service was treated differently: the ruling applied tangible-personal-property sales tax at sale and still taxed taxable Florida calls when used.

What this means for you

This is historical guidance tied to the telecommunications products, sourcing rules, and tax rates in effect in 1995. The ruling also said municipalities could impose and enforce their own telecommunications taxes.

Common questions

Q: Was an ordinary prepaid calling card taxed at the retail point of sale?
A: Generally no.

Q: What amount was taxed when the card was used?
A: The total charge deducted from the card for calls that originated or terminated and were billed in Florida.

Q: What if the card was sold as a souvenir?
A: The ruling said the sale could be taxed as tangible personal property, while taxable calls remained subject to telecommunications taxes when used.

Citations and references

• Fla. Stat. ch. 203 and § 203.01 — gross receipts tax on utility services
• Fla. Stat. §§ 203.012 and 212.05 — telecommunications services and sales tax
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95B6-001

Original ruling text

Apr 03, 1995

Re: Technical Assistance Advisement No. 95(B)6-001
Gross Receipts Tax and Sales Tax; Sale and/or Use of Prepaid
Telephone Calling Cards
XXXX (hereinafter "Corporation A")

Dear :

Your letter of December 7, 1994, requested a Technical
Assistance Advisement on the application of the Gross Receipts Tax
to the above referenced business matter. This response to your
request constitutes a Technical Assistance Advisement under Chapter
12-11, Florida Administrative Code, and is issued to you under the
authority of s. 213.22, Florida Statutes.

FACTS

"Corporation A" owns and operates retail stores throughout the
United States. "Corporation A" will be selling "units" of long
distance service provided by registered telephone long distance
providers. Each unit represents one minute of long distance
telephone service. These units will be packaged in the form of
telephone cards, each card having a value of 15, 30, or 60 units
(minutes) of long distance service. The telecommunications service
providers may or may not know the retail selling price of the cards;
however, they will know the value of the units being debited from
the cards. "Corporation A" will not know the originating or
terminating location of the service when used.

QUESTIONS

Your questions concern the sales tax, local sales surtax and
gross receipts tax liability on the sale and/or use of prepaid
telephone calling cards.

Question 1. "Are the sale[s] of prepaid calling cards taxable
at the point-of-sale or at the point and time the prepaid

telephone service is consumed (usage)?"

Question 2. "If the transaction is taxable at the point-ofsale, would `Corporation A' be considered as selling tangible
personal property and thus required to collect all state and
local taxes imposed on the sale of tangible personal property,
or selling telecommunications services and thus required to
collect all state and local taxes imposed on the sale of
telecommunications services?"

Question 3. "If the transaction is taxable at the point-ofsale, does that preclude any subsequent tax based upon usage?"

Question 4. "If the transaction is taxed when the telephone
service is consumed (usage), should the tax base be the amount
charged to `Corporation A' or the amount charged to the card
purchaser?"

DISCUSSION AND ANALYSIS OF LAW

s. 212.05, F.S., provides:

"Sales, Storage, use tax.--It is hereby declared to be the
legislative intent that every person is exercising a taxable
privilege who engages in the business of selling tangible
personal property at retail in this state, including the
business of making mail order sales, or who rents or furnishes
any of the things or services taxable under this chapter,...

"(1) For the exercise of such privilege, a tax is levied on
each taxable transaction or incident, which tax is due and
payable as follows:...

"(e)1. At the rate of [7] percent on charges for... [a]ll
telegraph messages and long distance telephone calls beginning
and terminating in this state, telecommunication service as
defined in s. 203.012 and those services described in s.
203.012(2)(a)....
(Emphasis supplied)

s. 203.01, F.S., provides in part:

"Tax on gross receipts for utility services.--

"(1)(a) Every person that receives payment for any utility
service shall report by the last day of each month to the
Department of Revenue, under oath of the secretary or some
other officer of such person, the total amount of gross
receipts derived from business done within this state, or
between points within this state, for the preceding month and,
at the same time, shall pay into the State Treasury an amount
equal to a percentage of such gross receipts at the rate set
forth in paragraph (b). Such collections shall be certified by
the Comptroller upon the request of the State Board of
Education.

"(b) For the period July 1, 1990, through June 30, 1991, the
rate shall be 2 percent; for the period July 1, 1991, through
June 30, 1992, the rate shall be 2.25 percent; beginning July
1, 1992, and thereafter, the rate shall be 2.5 percent."
(Emphasis supplied)

CONCLUSION

Chapter 203, F.S., provides the gross receipts tax of 2.5
percent will apply to all telecommunications services including
local telephone service, toll telephone service including intrastate
state, interstate and international, pay telephone service, pagers
and beepers, and voice mail. Chapter 212, F.S., provides all
telecommunication services defined or described in Chapter 203,
F.S., are subject to the 7 percent sales tax.

In addition, both Chapter 203, F.S., and Chapter 212, F.S.,
provide all taxable telecommunication services may be purchased
without paying the taxes to the provider, if they are being resold
and a separate resale certificate is given to the provider for the
gross receipts tax and sales tax. The appropriate taxes are due and
must be remitted on their resale, if tax applies.

Therefore, a resale certificate should be given to the local
telephone company or telephone service provider that will allow them
to sell to your client tax exempt. The sale of the card to

customers in Florida will not be subject to either sales tax or
gross receipts tax. The sales tax at 7 percent and the gross
receipts tax at 2.5 percent would be due for the total charge
deducted from the value of the card for all calls that originate or
terminate and are billed in Florida.

The debit cards may be used from any touchtone phone. The company
selling the card to "Corporation A" may not know where the debit
card is eventually sold and cannot control where it will be used.
However, the telecommunications provider of the telephone service
either knows or has the ability of knowing where the call originates
and terminates. In either case, the eventual user of the card will
know how much was deducted from the value of the card.

The questions will be answered in the order in which they were
presented:

Question 1. "Are the sale[s] of prepaid calling cards taxable at the
point-of-sale or at the point and time the prepaid telephone service
is consumed (usage)?"

Answer: At the time the prepaid telephone card is used, the Sales
Tax at 7 percent and the Gross Receipts tax at 2.5 percent would be
due for the total charge deducted from the value of the card for all
calls that originate or terminate and are billed in Florida.

Question 2. "If the transaction is taxable at the point-of-sale,
would `Corporation A' be considered as selling tangible personal
property and thus required to collect all state and local taxes
imposed on the sale tangible personal property, or selling
telecommunications services and thus required to collect all state
and local taxes imposed on the sale of telecommunications services?"

Answer: Generally, selling a prepaid calling card would not be
taxable at the point-of-sale. Chapter 203, F.S., provides that the
gross receipts tax of 2.5 percent will apply to all telecommunications services including local telephone service, toll
telephone service including intrastate, interstate and international, pay telephone service, pagers and beepers, and voice mail.
However, if "Corporation A" sold the debit cards as souvenirs and
not as a telecommunications service, the 6 percent sales tax on

tangible personal property will apply at the point the card is sold
in Florida. If the card is used in Florida, the calls would be
subject to the gross receipts tax and the 7 percent sales tax on
telecommunications service.

A municipality may impose a tax for telecommunications service
provided within the municipality, which would include long distance
service. Each city enforces its tax and should be contacted to
determine the imposition.

Question 3. "If the transaction is taxable at the point-of-sale,
does that preclude any subsequent tax based upon usage?"

Answer: See the answers to question 1 and 2.

Question 4. "If the transaction is taxed when the telephone service
is consumed (usage), should the tax base be the amount charged to
`Corporation A' or the amount charged to the card purchaser?"

Answer: The sales tax at 7 percent and the gross receipts tax at 2.5
percent would be due for the total charge deducted from the value of
the card for all calls that originate or terminate and are billed in
Florida.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the Department only under
the facts and circumstances described in the request for this advice
as specified in s. 213.22, F.S. Our response is based on those
facts and the specific situation summarized above. You are advised
that subsequent statutory or administrative rule changes or judicial
interpretations of the statutes or rules upon which this advice is
based may subject similar future transactions to a different
treatment than expressed in this response.

You are further advised that this response and your request are
public records under Chapter 119, F.S., which are subject to
disclosure to the public under the conditions of s. 213.22, F.S.
Your name, address, and any other details which might lead to
identification of the taxpayer must be deleted by the Department
before disclosure. In an effort to protect the confidentiality of
such information, we request you notify the undersigned in writing

within 15 days of any deletions you wish made to the request or the
response.

Sincerely,

Bruce H. Williams
Technical Assistant
Statutory Compliance Section
Ctrl# 18836
BHW/kk