New York Advisory Opinion TSB-A-09(9)C/(24)S: Are telecom services a reseller sells to offshore call centers (calls always originating or terminating offshore) subject to New York sales tax or the section 186-e excise tax?
Plain-English summary
NovaTel, a Texas telecom reseller with no New York presence and no New York customers, buys transmission from Verizon Business and resells it to offshore call centers abroad. The calls route through a New York collocation facility, but every call either originates at, or terminates at, the offshore call center in a foreign country. The New York residents on the other end are never billed by NovaTel. It asked whether its services were subject to New York sales tax or the section 186-e excise tax.
The Department concluded neither applies. Sales tax under Tax Law section 1105(b)(1)(B) reaches only intrastate telephony -- interstate and international telephony is excluded. Following Southern Pacific Communications and Commonwealth Long Distance, when an intrastate leg is merely a component part of an overall interstate/international call, it is not separately taxable. Here, because each call originates or terminates at the offshore call center, the entire service is interstate/international regardless of routing through New York -- so it is not subject to sales tax. For the section 186-e excise tax, NovaTel is a "provider of telecommunication services" (reselling counts), but the excise tax reaches intrastate service and interstate service only when charged to a New York service address. The customer's service address (Tax Law section 186-e.1(f)) is the offshore call center outside New York, so the service is not subject to the section 186-e tax either -- for the audit period (Aug. 1, 2004-Sept. 30, 2006) or under current law.
What this means for you
Telecom resellers and carriers serving offshore customers
If your customer is offshore and every call originates or terminates abroad, the service is interstate/international -- New York sales tax doesn't reach it, and the section 186-e tax follows the customer's service address, which is offshore. Routing through New York equipment doesn't make it intrastate.
Accountants and tax professionals
Identify the customer and the service address. Reselling makes you a section 186-e provider, but the tax still turns on intrastate-vs-interstate character and the New York service-address test. An intrastate segment that is just a component of an interstate/international call is not separately taxable.
Common questions
Q: Is telecom service to an offshore call center taxable in New York?
A: No. Because the calls originate or terminate abroad, the service is interstate/international -- outside New York sales tax and outside section 186-e (the service address is offshore).
Q: Does routing a call through New York equipment make it intrastate?
A: No. An intrastate leg that is merely a component of an overall interstate/international call is not separately taxable.
Citations and references
- Tax Law § 1105(b)(1)(B) (sales tax on intrastate telephony/telegraphy; interstate/international excluded)
- Tax Law § 186-e (telecommunications excise tax); Tax Law § 186-e.1(f) (service address)
- Southern Pacific Communications, DTA No. 800275; Commonwealth Long Distance, TSB-A-94(33)S
Source
- Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2009.htm
- Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a09_9c_24s.pdf
Original ruling text
New York State Department of Taxation and Finance
TSB-A-09(9)C
Corporation Tax
TSB-A-09(24)S
Sales Tax
June 17, 2009
Office of Tax Policy Analysis
Taxpayer Guidance Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
PETITION NO. Z071207A
On December 7, 2007, the Department of Taxation and Finance received a Petition for
Advisory Opinion from NovaTel, Ltd., 11550 1H-10 West, Suite 110, San Antonio, TX 78230.
The issue raised by Petitioner, NovaTel, Ltd, is whether the telecommunications services
sold by Petitioner to its customers, as described below, were subject to State and local sales tax
and the excise tax imposed by section 186-e of the Tax Law, during the period from August 1,
2004 to September 30, 2006, or are subject to tax under current law.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner is a telecommunications reseller located solely in San Antonio, Texas.
Petitioner has no physical presence in the state of New York and does not have any customers
within the state of New York. Petitioner utilizes certain traditional landline services and
facilities supplied by Verizon Business to transmit calls placed by Petitioner’s customers, which
are offshore Call Centers within foreign countries, to residents within the state of New York and
nationwide. Petitioner also transmits calls that originate in New York and terminate at the
offshore Call Centers within foreign countries, by reselling toll free services and facilities
purchased from Verizon Business.
In both cases, Petitioner’s customer is the offshore Call Center and not the resident within
the state of New York. The New York resident is never billed by Petitioner for any portion of
the call. Petitioner is billed in Texas by Verizon for Petitioner’s use of Verizon’s facilities in the
provision of service to its offshore customers. Verizon also bills Petitioner for certain New York
taxes and surcharges. The following is a description of the services that Petitioner provides to its
customers.
Offshore callers
Petitioner’s customer, an offshore Call Center, dials a U.S. number using its private
branch exchange (PBX). The call goes through the Call Center’s Customer Premises Equipment
(“CPE”) to an International Private Line circuit (“IPLC”) which is provided by a licensed
offshore telecommunications provider contracted by the Call Center. The call passes through the
IPLC to the Call Center’s CPE in a collocation facility located in New York and contracted by
the Call Center. The call is cross-connected from the collocated Call Center’s CPE to a circuit
contracted from Verizon Business by Petitioner at the same collocation facility. The call is
transported across the circuit contracted from Verizon Business by Petitioner to a Verizon
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Business Public Switched Telephone Network (PSTN) switch. Verizon Business receives the
call at its PSTN switch and through a contractual arrangement with Petitioner transports the call
across Verizon Business long distance network to a Local Exchange Carrier (“LEC”) or a cell
phone provider. The LEC or cell phone provider completes the call which is answered by a U.S.
end user.
U.S. Callers
Callers in the United States dial a toll free number which passes to the LEC. The call is
cross-connected from the LEC’s switch to Verizon Business’s long distance point of presence
(POP). Verizon Business receives the call and through a contractual arrangement with Petitioner
transmits the call over its network to Verizon Business’s PSTN switch. The call is crossconnected from Verizon Business’s PSTN switch to a circuit contracted from Verizon Business
by Petitioner for outbound 800 service and then the call is transported to the Call Center’s CPE
in a U.S. collocation facility contracted by the Call Center. The call is cross-connected from the
Call Center’s CPE to an IPLC contracted by the Call Center. The call goes across the IPLC to the
Call Center’s offshore CPE. The call passes from the CPE to the Call Center’s PBX and is
answered by the offshore Call Center agent.
In all of the processes described above, the call is not touched or handled by any network,
operator, Voice Response Unit (“VRU”), Automated Call Distribution equipment (“ACD”), or
other equipment or process of Petitioner. Petitioner bills its customers for the services that are
purchased by Petitioner from Verizon Business and resold.
Applicable law and regulations
Section 186-e of the Tax Law provides, in part:
1. Definitions. As used in this section, where not otherwise specifically defined
and unless a different meaning is clearly required:
(a)(1) “Gross receipt” means the amount received in or by reason of any
sale, conditional or otherwise, of telecommunication services or in or by reason
of the furnishing of telecommunication services….Gross receipt is expressed in
money, whether paid in cash, credit or property of any kind or nature, and shall be
determined without any deduction therefrom on account of the cost of the service
sold or the cost of materials, labor or services used or other costs, interest or
discount paid, or any other expenses whatsoever except that there shall, however,
be allowed a deduction for bad debts with respect to charges previously subjected
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to the tax hereunder when the debt has become worthless in accordance with
generally accepted accounting principles consistently applied by the taxpayer.
“Amount received” for the purpose of the definition of gross receipt, as the term
gross receipt is used throughout this article, means the amount charged for the
provision of a telecommunication service.
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(b)(1) “Interexchange carrier” means any provider of telecommunication
services between two or more exchanges that qualifies as a common carrier.
Common carrier means any person engaged as a common carrier for hire in
intrastate, interstate or foreign telecommunication services.
(2) “Local carrier” means any provider of telecommunication services for hire to
the public, which is subject to the supervision of the public service commission and is
engaged in providing carrier access service to a switched network. For the sole purpose
of the application of the sale for resale exclusion under paragraph (b) of subdivision two
of this section, a reference to an “interexchange carrier” or “local carrier” shall include a
cellular common carrier which is a facilities-based cellular common carrier without
regard to a determination of whether such carrier is providing local or interexchange
service as such.
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(e) “Provider of telecommunication services” means any person who furnishes or
sells telecommunications services regardless of whether such activities are the main
business of such person or are only incidental thereto. Where a reference is made to a
“utility” in this chapter in regard to the tax imposed by this section or by this section and
section one hundred eighty-six-a of this article, such reference to “utility” shall be
deemed to include a reference to a provider of telecommunication services.
(f) “Service address” means the location of the telecommunication equipment
from which the telecommunication is originated or at which the telecommunication is
received from the provider of telecommunication services. The foregoing rule is
amplified, but not limited, by the following special provisions, which are listed in order
of priority of application so that only the first applicable special provision will apply, if
more than one potentially applies: (i) if the telecommunication originates or terminates in
this state and the service is charged to telecommunication equipment which is not
associated with the origination or termination of the telecommunication (for example, by
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the use of a calling card or third party billing) and the location of such equipment is in
this state, the service address of the telecommunication will be deemed to be in this state;
(ii) if the service is obtained through the use of a credit or payment mechanism such as a
bank, travel, credit or debit card or if the service is obtained by charging
telecommunication equipment which is not associated with the origination or termination
of the telecommunication (for example, by the use of a calling card or third party billing)
and the equipment is not located in the state of origination or termination, then the service
address is deemed to be the location of the origination of the telecommunication; and (iii)
if the service address is not a defined location, as in the case of mobile telephones, paging
systems, maritime systems, air-to-ground systems and the like, service address shall mean
the location of the subscriber’s primary use of the telecommunication equipment as
defined by telephone number, authorization code, or location in this state where bills are
sent, provided, however, the location of the mobile telephone switching office or similar
facility in this state that receives and transmits the signals of the telecommunication will
be deemed the service address where the mobile telephone switching office or similar
facility is outside the subscriber’s assigned service area.
(g) “Telecommunication services” means telephony or telegraphy, or telephone or
telegraph service, including, but not limited to, any transmission of voice, image, data,
information and paging, through the use of wire, cable, fiber-optic, laser, microwave,
radio wave, satellite or similar media or any combination thereof and shall include
services that are ancillary to the provision of telephone service (such as, but not limited
to, dial tone, basic service, directory information, call forwarding, caller-identification,
call-waiting and the like) and also include any equipment and services provided
therewith. Provided, the definition of telecommunication services shall not apply to
separately stated charges for any service which alters the substantive content of the
message received by the recipient from that sent.
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- Imposition. (a) There is hereby imposed an excise tax on the sale of7 services
by any person which is a provider of telecommunication services, to be paid by such
person, at the rate of…two and one-half percent on and after January first, two thousand
of gross receipt from: (1) any intrastate telecommunication services, except any
telecommunication services the gross receipt from which is subject to tax under
subparagraph four of this paragraph; (2) any interstate and international
telecommunication services (other than interstate and international private
telecommunication services and any telecommunication services the gross receipt from
which is subject to tax under subparagraph four of this paragraph) which originate or
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terminate in this state and which telecommunication services are charged to a service
address in this state, regardless of where the amounts charged for such services are billed
or ultimately paid; (3) interstate and international private telecommunication services, the
gross receipt to which the tax shall apply shall be determined as prescribed in subdivision
three of this section, except any telecommunication services the gross receipt from which
is subject to tax under subparagraph four of this paragraph; and (4) mobile
telecommunications service provided by a home service provider where the mobile
telecommunications customer’s place of primary use is within this state.
Section 1105(b)(1) of the Tax Law imposes a tax upon:
The receipts from every sale, other than sales for resale, of the following: (A) gas,
electricity, refrigeration andsteam, and gas, electric, refrigeration and steam service of
whatever nature; (B) telephony and telegraphy and telephone and telegraph service of
whatever nature except interstate and international telephony and telegraphy and
telephone and telegraph service . . . (C) a telephone answering service; and (D) a prepaid
telephone calling service.
Section 527.2 of the Sales and Use Tax Regulations provides, in part:
Sale of utility and similar services. (Tax Law, Section 1105(b))
(a) Imposition. (1) Section 1105(b) of the Tax Law imposes a tax on the
receipts from every sale, except a sale for resale or a sale specifically exempt
under section 1115(b)(i) and (ii), (c) or (e) of the Tax Law, of
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(ii) telephony and telegraphy and telephone and telegraph service of
whatever nature, except interstate and international telephony and telegraphy and
telephone and telegraph service.
(2) Although this tax is generally known as the “consumer’s utility tax,” the
intention of the statute is to tax the enumerated sales and services whether or not rendered
by a company subject to regulation as a utility company. The words “of whatever nature”
indicate that a broad construction is to be given the terms describing the items taxed. The
inclusion of the word “service” indicates an intent to tax, under this provision, items that
are furnished as a continuous supply while the vendor-vendee relationship exists.
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(d) Telephony and telegraphy; telephone and telegraph service.
(1) The provisions of section 1105(b) of the Tax Law with respect to
telephony and telegraphy and telephone and telegraph service impose a tax on
receipts from intrastate communication by means of devices employing the
principles of telephony and telegraphy.
(2) The term “telephony and telegraphy” includes use or operation of any
apparatus for transmission of sound, sound reproduction or coded or other signals.
Opinion
Petitioner is located solely in San Antonio, Texas with no physical presence in New York
State. Petitioner’s customers are offshore Call Centers located within foreign countries.
Petitioner is buying and reselling telecommunication services from Verizon Business to transmit
calls placed by Petitioner’s customers. Petitioner’s customers, the offshore Call Centers,
contract with a licensed offshore telecommunications provider to switch calls through the
provider’s International Private Line Circuit (IPLC).
Incoming calls from an offshore Call Center connect over the IPLC to the Call Center’s
CPE in a telecommunications collocation facility which is located within New York State.
Petitioner contracts with Verizon Business to route these calls through the Verizon network
across the PSTN to the local exchange carrier or cellular phone carrier to complete the calls. In
the case of U.S. callers making outbound calls, Petitioner contracts with Verizon Business to
route these calls from the Verizon Business POP to the Call Center’s CPE located at the
collocation facility within New York State. Petitioner bills its customers for the services that are
purchased by Petitioner from Verizon Business and resold.
Sales of telephony and telegraphy and telephone and telegraph service of whatever nature
except for interstate and international telephony and telegraphy and telephone and telegraph
service are subject to sales tax. See section 1105(b)(1)(B) of the Tax Law.
In the matter of Southern Pacific Communications Co., Det Tax App Trib, May 14, 1991,
DTA No. 800275, the Tribunal held that while components of the telephone services provided by
the taxpayer included long distance service between points within New York State, the
components were clearly part of the overall interstate service provided by the taxpayer.
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Accordingly, the intrastate portion of the interstate service was deemed to be a component part or
adjunct to the overall interstate services and not subject to sales tax.
Similarly, in the present case, Petitioner’s telecommunications service is an integral
component part of the interstate or international calls placed by its customers (the offshore Call
Centers). Petitioner states that all calls placed by Petitioner’s customers either originate or
terminate at an offshore Call Center located in a foreign country. Accordingly, regardless of
whether these calls are routed to or from a New York address, they are interstate or international
in nature. See Commonwealth Long Distance, Inc., Adv Opn Comm T & F, July 29, 1994, TSBA-94(33)S. Petitioner’s service is an integral component part of these interstate or international
calls, and it appears from the facts in this Opinion that Petitioner’s service is only provided to its
customers in connection with these calls. Therefore, Petitioner is providing an interstate or
international telecommunications service that is not subject to sales tax. The service was not
subject to sales tax for the period from August 1, 2004 to September 30, 2006, or under current
law.
Section 186-e of the Tax Law imposes an excise tax on all providers of
telecommunication services with receipts from intrastate telecommunication services, or receipts
from any interstate telecommunication services which originate or terminate in New York State
when the services are charged to a service address in New York. A provider of
telecommunications services is any person who furnishes or sells telecommunication services
regardless of whether such activities are the main business of such person or are only incidental
thereto.
Petitioner is purchasing telecommunications services from Verizon Business and
reselling those services to its customers and is therefore a provider of telecommunication
services within the meaning of section 186-e.
As a provider of telecommunication services, Petitioner is subject to tax on intrastate
telecommunication services and interstate telecommunication services when either the
origination or termination point is within New York State and the interstate telecommunication
service is billed to a service address in New York. “Service address” means the location of the
telecommunication equipment from which the telecommunication is originated or at which the
telecommunication is received from the provider of telecommunication services. See section
186-e.1(f) of the Tax Law.
Petitioner’s telecommunication service is interstate or international in nature for purposes
of the excise tax under section 186-e of the Tax Law, as well as for sales tax purposes.
Accordingly, the service is not subject to tax under section 186-e when the service is charged to a
service address outside New York, regardless of where the charges are ultimately billed or paid.
In the present case, based on the facts in this Opinion, the service address is the offshore Call
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Center which is located outside New York. Therefore, Petitioner’s telecommunication service is
not subject to tax under section 186-e. The service was not subject to tax for the period from
August 1, 2004 to September 30, 2006, or under current law.
DATED: June 17, 2009
NOTE:
/s/
Jonathan Pessen
Director of Advisory Opinions
Office of Counsel
An Advisory Opinion is issued at the request of a person or entity. It is
limited to the facts set forth therein and is binding on the Department only
with respect to the person or entity to whom it is issued and only if the
person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific
time period at issue in the Opinion.