Is residential and commercial telephone service — both intrastate and interstate — subject to Kansas retailers' sales tax?

Plain-English summary

A telephone-service provider asked the Kansas Department of Revenue whether it must charge sales tax on residential and commercial telephone service. The Department answered yes. Quoting the statutory definition of taxable telephone service, it concluded that gross receipts from intrastate residential and commercial telephone service, and from interstate residential and commercial telephone service, are subject to Kansas retailers' sales tax.

For interstate service, the tax reaches calls that originate in Kansas and terminate outside the state — or originate outside and terminate in Kansas — when they are billed to a customer's Kansas telephone number or account. The statute then excludes several specific kinds of service from what counts as taxable "interstate telephone or telegraph service."

What this means for you

If you sell local (intrastate) or long-distance (interstate) telephone service to Kansas residential or commercial customers, the charges are generally taxable and you must collect Kansas retailers' sales tax on them.

The ruling also identifies service types that fall outside the taxable interstate category:

• Interstate wide-area telephone service (WATS) or wide-area transmission service giving unlimited communications to or from a specified out-of-state area.
• Interstate private communications service that gives the purchaser exclusive or priority use of a communications channel or group of channels between exchanges.
• Value-added nonvoice service in which computer processing applications act on the form, content, code, or protocol of the information transmitted.
• Telecommunication service sold to another telecom provider that will use it to render telecommunications service, including carrier access services (a resale situation).
• Transactions defined in the section among entities that are members of an affiliated group under federal law (26 U.S.C. § 1504).

Because these carve-outs are narrow and fact-specific, a provider should confirm that a particular charge actually fits one of them before treating it as non-taxable.

Common questions

Is basic residential phone service taxable in Kansas?
Yes. The Department ruled that intrastate residential (and commercial) telephone service is subject to Kansas retailers' sales tax.

What about interstate (long-distance) calls?
Interstate residential and commercial telephone service is taxable when it originates in Kansas and terminates outside the state, or originates outside and terminates in Kansas, and is billed to a customer's Kansas telephone number or account.

Are there any telephone charges that are not taxed as interstate service?
Yes — the ruling lists exclusions such as certain WATS/wide-area service, private communications service, value-added nonvoice (data) service, carrier access or service sold to another provider for resale, and transactions among affiliated-group members.

Does this ruling apply to my company?
Not automatically. A private letter ruling binds the Department only for the taxpayer who requested it and the facts presented. Use it as guidance, but get your own determination for your situation.

Citations and references

• K.S.A. 79-3606(b) — quoted in the ruling as the definition of taxable intrastate and interstate telephone/telegraph service and the specific exclusions from taxable interstate service.

Source

• Original ruling (DOCX): https://www.ksrevenue.gov/pildocs/rulings/P-1998-49.docx
• Kansas Policy Information Library: https://www.ksrevenue.gov/prpil.html

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

May 29, 1998

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Dear XXXXXXXXXXXXXXXXX:

The purpose of this letter is to respond to your letter dated April 30, 1998.

K.S.A. 79-3606(b) states:

(1) the gross receipts from intrastate telephone or telegraph services and (2) the gross receipts received from the sale of interstate telephone or telegraph services, which (A) originate within this state and terminate outside the state and are billed to a customer's telephone number or account in this state; or (B) originate outside this state and terminate within this state and are billed to a customer's telephone number or account in this state except that the sale of interstate telephone or telegraph service does not include:
(A) Any interstate incoming or outgoing wide area telephone service or wide area transmission type service which entitles the subscriber to make or receive an unlimited number of communications to or from persons having telephone service in a specified area which is outside the state in which the station provided this service is located; (B) any interstate private communications service to the persons contracting for the receipt of that service that entitles the purchaser to exclusive or priority use of a communications channel or group of channels between exchanges;
(C) any value-added nonvoice service in which computer processing applications are used to act on the form, content, code or protocol of the information to be transmitted; (D) any telecommunication service to a provider of telecommunication services which will be used to render telecommunications services, including carrier access services; or (E) any service or transaction defined in this section among entities classified as members of an affiliated group as provided by federal law (U.S.C. Section 1504);

Therefore the gross receipts from the sale of intrastate residential and commercial; and interstate residential and commercial telephone service would be subject to Kansas retailers’ sales tax.

Sincerely,

Mark D. Ciardullo

Tax Specialist

Date Composed: 06/02/1998 Date Modified: 10/10/2001

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