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
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