Were telemarketing, telephone support, and answering-service fees taxable as telecommunications in Florida?

Subject

Telemarketing Services

Plain-English summary

The customer charges for telemarketing, telephone support, and answering services were not subject to Florida sales or telecommunications gross receipts tax. The companies used phones and toll-free numbers to perform inbound call processing, order capture, support, complaint resolution, collections, lead generation, outbound marketing, appointment scheduling, and data reporting, but they did not sell customers telephone access or communication channels.

The companies remained the customers of record for their telecommunications. They passed telephone costs to clients inside an overall service fee without a separate telecom charge or profit element. Florida therefore classified the customer-facing product as a nontaxable business service rather than a statutory telecommunications service.

The companies themselves had to pay sales tax and separately billed gross receipts tax on the telecommunications they purchased. The ruling also said a single legal entity might qualify for the then-current direct-pay permit and annual cap for specified interstate services if more than half of those services originated outside Florida and terminated inside Florida; the cap could not be shared across an affiliated group.

What this means for you

Using telephone networks to deliver a service does not automatically make the service taxable telecommunications. The analysis turns on what the customer receives: business labor and information processing, or access to telephone service, channels, switching, or toll communications.

Common questions

Q: Did providing toll-free numbers to clients make the companies telecommunications sellers? No. The companies remained the carrier customers and used the numbers as inputs to their teleservices.

Q: Were the companies' own carrier bills exempt? No. They had to pay the sales and gross receipts taxes charged on purchased telecommunications.

Q: Did the ruling treat answering services differently from outbound telemarketing? No. Both, along with support services, were classified as nontaxable business services on the described facts.

Citations and references

• Fla. Stat. §§ 203.01, 203.012(4)-(5), (7) — gross receipts tax and private, toll, and other telecommunications
• Fla. Stat. §§ 212.02(19), 212.05(1)(e) — tangible property and taxable telecommunications
• Fla. Stat. § 212.08(7)(v)1. — professional or personal service transactions
• Fla. Admin. Code r. 12A-1.066 — telecommunications
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98A-052

Original ruling text

SUMMARY

Telemarketing services, telephone support services, and
answering services performed by the taxpayer and its
subsidiaries, are not telecommunication services, but
rather are business services not subject to sales or use
tax. Also, charges to customers for monthly fees or
services are not subject to gross receipts tax.

Jul 08, 1998

Re: TAA 98(A)-052
Sales and Use Tax and Gross Receipts Tax - Telemarketing
Services
Sections 203.01, 203.012, 212.02, 212.05, 212.08, F.S.
Rule 12A-1.066 F.A.C.
XXX (hereinafter Taxpayer)
Taxpayer I.D. # XX
XXX (hereinafter "Sub 1")
XXX (hereinafter "Sub 2")

Dear :

This is a response to your petition dated XXX, for the
Department's issuance of a Technical Assistance Advisement
("TAA") concerning the above referenced matter. Your petition
has been carefully examined and the Department finds it to be in
compliance with the requisite criteria set forth in Chapter 1211, F.A.C. This response to your request constitutes a TAA and
is issued to you under the authority of s. 213.22, F.S.

FACTS

Taxpayer is a large independent teleservices corporation,
maintaining a number of subsidiaries. The corporations are
organized pursuant to the laws of the State of Delaware and
maintain their principal place of business outside the State of
Florida.

Currently, Taxpayer does not conduct business in Florida, but it
is seeking to establish one or more sites in Florida to handle
increased growth in two of its subsidiaries, Sub 1 and Sub 2,
(collectively referred to as "the Companies").

Sub 1

Sub 1 is a provider of operator teleservices (Inbound). Such
services include live operator call-processing services, order
capture and customer service applications. Sub 1 maintains two
divisions.

First Division (Sub 1)

The first division receives incoming calls and is, essentially,
an answering service, as no orders are fulfilled, or products
sold. This division provides large volume inbound callprocessing services. The division utilizes toll-free 800
telephone numbers to provide their advertising service and works
with the client to insure proper use of the 800 numbers. There
is no profit element associated with costs attributed to the
client. The first division also designs custom applications to
meet client specifications for order capture, lead generation,
customer service, dealer referral and other information
processing campaigns.

Specifically, the first division utilizes automatic call
distributors and digital switches to identify the toll-free
number dialed by each caller. The toll-free number specifies
the particular client campaign and designates customer, product
and service information to the division operator, and provides a
highly structured script designed by the client to aid in
processing the transaction. Each division operator may receive
a call for one of hundreds of different client campaigns at any
given time. Furthermore, the division can immediately report
information captured during the call to its client, the client's
advertising agency and the client's designated fulfillment
company.

Second Division (Sub 1)

The second division provides customized teleservices solutions
on a dedicated basis to large business clients. This division
provides a wide range of inbound telephone-based services for
its clients, including: (I) programs designed to enhance or
maximize customer acquisition and retention; (ii) customer
service and support; (iii) product support; (iv) collection
services; (v) customer complaint resolution; and (vi) client
satisfaction information.

Sub 2

Sub 2 is a provider of direct teleservices (Outbound). Sub 2
provides live operator direct marketing services for its
clients. Sub 2 maintains two separate divisions.

First Division (Sub 2)

The first division provides business-to-consumer marketing
services. The division typically initiates contact with
consumers that have been identified by a client as existing or
potential customers. Integrated call management systems
utilizing large-scale predictive dialers systematically call
consumers and transfer successful connections to a designated
division marketing representative. As a call is presented to a
division marketing representative who has been trained for
specific client applications, the consumer's name, address and
other available information are simultaneously presented along
with the client's customized script. The division's proprietary
software systems permit its clients to immediately access online program results and shadow monitors the performance of all
division-designated marketing representatives. The division can
report information captured, summary results and more detailed
statistical analysis in a customized format for each of its
clients.

Second Division (Sub 2)

The second division provides business-to-business marketing
services for clients whose target markets include thousands of
small to medium sized businesses. These applications are

designed to enhance and grow their client's database of
information about their prospects and customers, schedule
appointments for their client's regional and national sales
forces, and enable their clients to sell services to accounts
that may not warrant a face-to-face sales presentation.

You ask the following question:

Whether the activities of the Companies are considered
telecommunication services as defined in s. 203.012,
Florida Statutes, for purposes of the Florida Gross
Receipts Tax and Sales Tax as set forth in s. 203.01, F.S.,
and s. 212.05, F.S., respectively?

TAXPAYER'S POSITION

The taxpayer maintains that the operations of the Companies do
not constitute telecommunication services for purposes of the
Florida Gross Receipts Tax pursuant to s. 203.01, F.S., and for
purposes of the Florida Sales Tax pursuant to s. 212.05, F.S.,
for the following reasons.

The Companies do not provide, specifically, local telephone
service, toll telephone service or private communications
service or any other service as delineated pursuant to s.
203.012, F.S.

You assert that, as the facts demonstrate, at no time do the
Companies' divisions:

• Make available to their customers access to a local telephone
  system;

• Charge a toll charge which varies in amount with the distance
  and elapsed transmission time of each individual or a flat fee
  for unlimited telephone access;

• Provide a private communication service which entitles the
  subscriber or user to exclusive or priority use of a
  communication channel;

* Offer customers a service which is a substitute for any
telephone company switchboard services or is a substitute for
any dedicated facility by which a telephone company provides a
communication path. The switching capacity within the divisions
is limited to division-use in order to accommodate efficiencies
related to the telemarketing and telephone answering services
provided; and,

• Separately state a telephone-related charge on customer
  invoices. The Companies do, however, pass their telephonerelated costs, along with other expenses, to customers as part
  of a total service fee. No profit element is included as part
  of the customer cost attribution.

• Provide 800 telephone numbers to customers in which the charge
  varies in an amount with the distance or any elapsed
  transmission time of each individual or a flat fee for unlimited
  telephone access. The Companies do provide their clients with
  toll-free 800 telephone numbers for use in their advertising
  media and work with them to insure proper use of the 800
  numbers. The Companies are the clients of record with the
  telecommunication providers for the 800 telephone numbers. The
  Companies pass the 800 telephone-related costs to their clients
  as part of a total service fee.

For all the reasons stated, you maintain that the activities of
the Companies are limited to those of telemarketing and
telephone answering. Telemarketing and telephone answering
services, you feel, fall outside the services, identified by
statute, that comprise telecommunication services.

APPLICABLE LAW

A review of pertinent statutory and administrative authority
would be helpful in our discussion of the taxability of the
services provided by your company prior to discussing your
specific questions. Chapter 203, Florida Statutes (F.S.),
imposes the Florida gross receipts tax and Chapter 212, F.S.,
imposes the Florida sales and use tax.

Gross Receipts Tax

Section 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) Beginning July 1, 1992, and thereafter, the rate shall
be 2.5 percent....

Section 203.012, F.S., provides in part:

(5) The term "telecommunication service" means:

(a) Local telephone service, toll telephone service,
telegram or telegraph service, teletypewriter service, or
private communication service;....

Sales and Use Tax

Section 212.02(19), F.S., defines "tangible personal property,"
in pertinent part as:

(19) "Tangible personal property" means and includes
personal property which may be seen, weighed, measured, or
touched or is in any manner perceptible to the senses,....

Section 212.05, F.S., provides in part:

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,... or who... Furnishes any of the...
services taxable under this chapter....

(1) For the exercise of such privilege, a tax is levied on
each taxable transaction or incident,....

(e)1. At the rate of 6 percent on charges for:

(a) All 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), except that
the tax rate for charges for telecommunication service is 7
percent....

4. The tax imposed pursuant to this paragraph shall not
   exceed $50,000 per calendar year on charges to any person
   for interstate telecommunications services defined in s.
   203.012(4) and (7)(b), if the majority of such services
   used by such person are for communications originating
   outside of this state and terminating in this state. This
   exemption shall only be granted to holders of a direct pay
   permit issued pursuant to this subparagraph. No refunds
   shall be given for taxes paid prior to receiving a direct
   pay permit. Upon application, the department may issue a
   direct pay permit to the purchaser of telecommunications
   services authorizing such purchaser to pay tax on such
   services directly to the department. Any vendor furnishing
   telecommunications services to the holder of a valid direct
   pay permit shall be relieved of the obligation to collect
   and remit the tax on such service. Tax payments and
   returns pursuant to a direct pay permit shall be monthly.
   For purposes of this subparagraph, the term "person" shall
   be limited to a single legal entity and shall not be
   construed as meaning a group or combination of affiliated
   entities or entities controlled by one person or group of
   persons. (Emphasis Supplied)

The provisions of section 203.012(4) and (7)(b), F.S., describe
the services for which the direct pay permit may be used and

limit use of the permit to only those services. These services
(commonly known as WATS and private communication services) are
described in the following excerpts from subsection (4) and
paragraph (7)(b), which state as follows:

(4) The term "private communication service" means:

(a) A communication service furnished to a subscriber or
user that entitles the subscriber or user to exclusive or
priority use of a communication channel or groups of
channels, or to the use of an intercommunication system for
the subscriber's stations, regardless of whether such
channel, groups of channels, or intercommunication system
may be connected through switching with a service described
in subsection (3) [local telephone service], subsection (6)
[teletypewriter service], or subsection (7) [toll telephone
service];

(b) Switching capacity, extension lines, and stations, or
other associated services which are provided in connection
with, and which are necessary or unique to the use of,
channels or systems described in paragraph (a); or

(c) The channel mileage which connects a telephone station
located outside a local telephone system area with a
central office in such local telephone system....

(7) The term "toll telephone service" means:...

(b) A service which entitles the subscriber or user, upon
the payment of a periodic charge which is determined as a
flat amount or upon the basis of total elapsed transmission
time, to the privilege of an unlimited number of telephonic
communications to or from all or a substantial portion of
the persons having telephone or radio telephone stations in
a specified area which is outside the local telephone
system area in which the station provided with this service
is located.

The term "toll telephone service" includes interstate and
intrastate wide-area telephone service charges.

Section 212.08(7)(v)1., F.S., provides:

(v) Professional services. -

1. Also exempt are professional, insurance, or personal
   service transactions that involve sales as inconsequential
   elements for which no separate charges are made.

DETERMINATION

The telemarketing services, telephone support services, and the
answering services, which are performed by the Companies, are
not telecommunication services, but rather are business services
not subject to sales or use tax. Charges to customers for
monthly fees or services are not subject to gross receipts tax.

Chapter 212, F.S., imposes a tax on the sale of tangible
personal property and certain services. However, Chapter 212,
F.S., does not currently impose a tax on the activities that are
explained and described in your letter.

The Companies would be required to pay both the Florida sales
tax on the telecommunication services it purchases in providing
the enumerated teleservices, and any separately stated gross
receipts tax which is billed to the Companies by the
telecommunication providers. Also, your company may qualify for
a direct pay permit issued by this department pursuant to s.
212.05(1)(e), F.S. This permit allows a $50,000 cap on sales
tax per calendar year on charges to any person for interstate
telecommunication services as defined in s. 203.012(4) and
(7)(b), F.S., provided that more than 50 percent of such
telecommunication services used by such persons are for
communications originating outside Florida and terminating in
Florida. This exemption will be limited to a single legal
entity and will not be available to a group or combination of
affiliated entities or entities controlled by one person or
group of persons.

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
predicated 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 confidential
information, we request you notify the undersigned in writing
within 15 days of any deletions you wish made to the request or
this response.

If you have further questions with regard to this matter and
wish to discuss them, you may contact Technical Assistance and
Dispute Resolution, Department of Revenue, P.O. Box 7443,
Tallahassee, Florida 32314-7443.

Sincerely,

Bruce H. Williams
Technical Assistance and
Dispute Resolution

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