New York Advisory Opinion TSB-A-16(2)C / (15)S: Must a kiosk operator that lets customers buy prepaid airtime, texts and data collect sales tax, and does it owe the section 186-e telecommunication excise tax?

Plain-English summary

A company ran payment kiosks in retail stores where customers could top up prepaid phone plans — buying extra minutes, texts and data on accounts they already held with a carrier. It asked whether any tax applied.

Sales tax. Prepaid landline calling rights (which require dialing an access number) have long been taxable "prepaid telephone calling services" under Tax Law §§ 1101(b)(22)(A) and 1105(b)(1)(D), taxed where the kiosk sits when the money is collected. For prepaid wireless top-ups, a 2015 law (Part V of Chapter 59 of the Laws of 2015) added "prepaid mobile calling service" to the definition effective April 13, 2015. So on and after that date the kiosk operator must collect sales tax on the wireless top-ups; before that date the wireless plans (which used no access number) were not prepaid calling services, the sale was treated as occurring when the carrier debited the account on use, and the kiosk operator was not the seller and did not collect tax. Charges expressly for Internet access are exempt under the federal Internet Tax Freedom Act and Tax Law § 1115(v).

Section 186-e excise tax. To owe the § 186-e telecommunication excise tax you must be a "provider of telecommunication services." The kiosk operator does not transmit anything; it merely facilitates a sale between the carrier (which is responsible for the service) and the customer. So it is not a provider and owes no § 186-e tax.

What this means for you

Retailers, kiosk operators and prepaid resellers

Selling top-ups makes you a sales-tax vendor on prepaid mobile calling services from April 13, 2015 onward — collect at the rate where the sale happens. But facilitating a third party's service does not make you a § 186-e "provider," which turns on who is responsible for transmitting the service, not who takes the money.

Accountants and tax professionals

Mind the two effective dates and the access-number distinction. Pre-4/13/2015 wireless top-ups were not "prepaid telephone calling services" because they used no access number, shifting both the taxable event and the identity of the seller. Keep books that let you separately identify Internet-access charges, which stay exempt.

Common questions

Q: When did prepaid wireless top-ups become sales-taxable at the kiosk?
A: April 13, 2015, when Part V of Chapter 59 of the Laws of 2015 added prepaid mobile calling services to Tax Law § 1101(b)(22).

Q: Does the kiosk owe the section 186-e excise tax?
A: No. It is a facilitator, not a provider of telecommunication services, so § 186-e does not apply to it.

Q: Is the data/Internet portion taxable?
A: No. A charge expressly for Internet access is exempt; if it is bundled, you must reasonably identify it from your records to exclude it.

Citations and references

• Tax Law § 1105(b)(1)(D) and § 1101(b)(22)(A) (prepaid telephone calling services; sourcing)
• Tax Law § 1101(b)(22)(B) (prepaid mobile calling service, added by Part V of Chapter 59 of the Laws of 2015, eff. 4/13/2015)
• Tax Law § 1105(b)(1)(B) (telephony/telegraphy other than interstate/international)
• Tax Law § 186-e (telecommunication excise tax; "provider of telecommunication services")
• Tax Law § 1115(v); 47 U.S.C. § 151 note (Internet Tax Freedom Act)
• TSB-M-00(3)S; TSB-A-02(37)S; TSB-A-98(34)S (prior guidance applied)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2016.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a16_2c_15s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-16(2)C
Corporation Tax
TSB-A-16(15)S
Sales Tax
April 25, 2016

Office of Counsel

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE

ADVISORY OPINION

PETITION NO. Z130603A

The Department of Taxation and Finance received a Petition for Advisory Opinion from
Petitioner REDACTED (“Petitioner”). Petitioner asks whether any taxes apply to the purchase
of minutes of airtime, texts, and megabytes of Internet access that may be purchased through its
kiosks (hereafter “additional telecommunication rights”). We conclude that, as detailed below,
Petitioner must collect the sales tax due on the sales of the additional telecommunication rights
made on or after April 13, 2015, but not before that date, and Petitioner is not liable for the §
186-e excise tax due.
Facts
Petitioner operates kiosks in many retail locations in the State, at which customers may
enter into contracts for various prepaid telecommunication plans or purchase additional
telecommunication rights on their existing plans. Many of the plans include texting and Internet
access services. In most cases, the customer already has a prepaid account with a carrier or with
a distributor who has purchased the telecommunication capacity from the carrier and is
responsible for performance of the telecommunication service (collectively referred to as the
“carrier”). However, customers can enter into a contract with the carrier through Petitioner’s
kiosks. Petitioner’s terms and conditions for the use of its kiosks include the following:
•

This payment kiosk is provided as a convenience by [Petitioner] to the customers
of various entities that provide prepaid calling products and services using those
entities’ own or resold telecommunication networks. These entities are referred to
here as “Companies” or “Company.” . . .

•

The Company from which you are purchasing of [sic] prepaid products through
this payment kiosk is solely responsible for the products and services you
purchase. [Petitioner] shall not be responsible for any defects or other problems
with the products or services purchased using this payment kiosk.

Customers can purchase additional telecommunication rights in regard to three main
types of prepaid plans at Petitioner’s kiosks, as detailed below.
Prepaid Long-Distance Landline Calling Plans

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Corporation Tax
TSB-A-16(15)S
Sales Tax
April 25, 2016

At Petitioner’s kiosks, customers can buy additional rights for the above plans, which
permit a customer to make long-distance landline calls by calling an access number, followed by
the number that the customer wants to call. To add minutes to such plans, the customer must
have an account with a long-distance carrier, which the customer can enter into at Petitioner’s
kiosk. After the customer pays cash at one of its kiosks, Petitioner is able to communicate with
the carrier’s computer to have the additional service time added to the account. Generally, the
carrier’s system will be able to automatically recognize the customer’s telephone number
(landline or cell) used to open the account and will decrement the available balance for the cost
of all calls made and any other charges incurred. Once the balance of the account has been
exhausted, no further use of the services is allowed. Most of the prepaid long-distance landline
calling rights obtainable through Petitioner’s kiosks are for international long distance landline
calls only. All the prepaid long-distance landline calling rights are for voice services only, i.e.,
they do not provide the customer with Internet access.
Domestic Prepaid Wireless Plan Rights
Customers use Petitioner’s kiosks to buy prepaid wireless calling plan rights, i.e., buy
additional calling minutes, text-sending rights, or data megabytes, for a wireless account with a
United States carrier. In the mobile phone industry, “prepaid” refers to a type of mobile phone
account that requires the customer to purchase service credit before the service can be used. In
general, there are two types of prepaid arrangements. “Unlimited plans” are those prepaid plans
through which the customer buys the right to an unlimited amount of specified
telecommunication services, such as calling, texting, and Internet access, for a specified time,
e.g., daily, weekly, or monthly. “Pay-as-you-go” plans require the customer to buy specified
amounts of the above-mentioned telecommunication services to be used over a specified length
of time. A variant pay-as-you-go plan type does not require the customer to buy any certain
quantity of telecommunication services; rather, the carrier merely specifies the cost per minute of
calling, per text, or per megabyte of data. These variant pay-as-you-go plans require customers
to use the purchased telecommunication rights within a specified period of time.
There are two ways to top-up a prepaid cellphone account at Petitioner’s kiosks. The
customer can pay for the amount of the top-up at the kiosk, choose the correct service provider
plan, and then enter the phone number the customer wishes to replenish. Petitioner’s kiosk is
able to communicate with the carrier for the customer’s plan and request it to add minutes.
Alternatively, a customer can top up by purchasing a card at the kiosk in a specified
denomination (e.g., $50) for a specified amount of calling, texting and Internet access rights and
then calling the toll-free number on the card and entering the PIN on the card when prompted to
have the additional telecommunication services embodied in the card added to the customer’s
pre-existing account with the carrier. A customer can also use a cellphone’s Unstructured
Supplementary Service Data (USSD) protocol command to send the PIN number to the cell
phone operator, which then is able to add the additional dollar amount purchased by the customer
to the customer’s account.

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TSB-A-16(2)C
Corporation Tax
TSB-A-16(15)S
Sales Tax
April 25, 2016

Most of the accounts that customers can top up using Petitioner’s kiosks include Internet
access, but a few include only voice and texting services. These plans do not require the
customer to dial an access number to make a call.

Foreign Prepaid Wireless Plan Rights
Petitioner also offers a method for topping up cellphones for individuals who live abroad
and have contracts for wireless service with a carrier in their country. The cellphone must have a
non-U.S. number, although the cellphone may be in the United States at the time of the top up.
The end-user of the cellphone may have an unlimited plan or a plan that has a fixed per minute
charge. Any telecommunication rights purchased expire after a specified period of time. The
plans do not require the customer to dial an access number to make a call. The plans could
include Internet access. Once credit is added to the account, the cellphone could be used in the
United States (if the end-user’s carrier has roaming enabled on the phone), but the vast majority
of the time customers add minutes to a phone that is not in the United States. Petitioner
maintains that it is not able to monitor the terminal points of phone calls or texts made using the
minutes it sells.
Petitioner was unable to provide complete descriptions of all the domestic and foreign
prepaid wireless plans sold through its kiosks, but from the information provided they all appear
to qualify as “commercial mobile radio service[s]” within the meaning of Tax Law §
1101(b)(25), which this Advisory Opinion will assume to be the case.
Analysis
The Tax Law includes two taxes that apply to telecommunication services, namely the
sales taxes imposed under § 1105(b) and the excise tax imposed by § 186-e. Below we consider
how these taxes apply to the additional telecommunication rights that can be purchased through
Petitioner’s kiosks.
Application of the Sales and Use Tax to the Prepaid Services Obtained at Petitioner’s Kiosks
The Tax Law imposes sales tax on a number of telecommunication services, including
“telephony and telegraphy and telephone and telegraph service of whatever nature except
interstate and international telephony and telegraphy and telephone and telegraph service.” Tax
Law § 1105(b)(1)(B).
Another category of taxable telecommunication services are prepaid
telephone calling services. See Tax Law § 1105(b)(1)(D). The term “prepaid telephone calling
service” is defined in Tax Law § 1101(b)(22)(A) as follows:
the right to exclusively purchase telecommunication services, that must be paid for
in advance and enable the origination of one or more intrastate, interstate or
international telephone calls using an access number (such as a toll free network
access number) and/or authorization code, whether manually or electronically

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dialed, for which payment to a vendor must be made in advance, whether or not
that right is represented by the transfer by the vendor to the purchaser of an item of
tangible personal property. Such term, except with respect to the tax imposed by
section one hundred eighty-six-e of article nine of this chapter, includes a prepaid
mobile calling service.
Prepaid telephone calling services are taxable when the consideration for the service is collected.
See Tax Law § 1101(b)(22)(A); TSB-M-00(3)S. The person collecting the consideration is
deemed the vendor of the service and must collect tax at the combined State and local rate in
effect where the sale is made. See Id. 1
The long-distance landline calling service plan rights available through Petitioner’s
kiosks are prepaid. Those rights can be used only to make phone calls, and require the dialing of
an access number. Thus, they qualify as prepaid telephone calling services. Accordingly,
Petitioner should collect tax on the sale of those rights at the combined State and local tax rate in
effect at the location of the kiosk where the sale occurred. See Tax Law §§ 1101(b)(22),
1105(b)(1)(D).
With regard to the domestic and foreign wireless plan rights available at Petitioner’s
kiosks, the definition of prepaid telephone calling services, as shown above, includes prepaid
mobile calling services, which was added by Part V of Chapter 59 of the Laws of 2015, effective
on and after April 13, 2015. That law defined prepaid mobile calling services as follows:
the right to use a commercial mobile radio service, whether or not sold with other
property or services, that must be paid for in advance and is sold for use over a
specified period of time or in predetermined units or dollars that decline with use in
a known amount, whether or not that right is represented by or includes the transfer
to the purchaser of an item of tangible personal property.
Tax Law § 1101(b)(22)(B). The domestic and foreign wireless plan rights that can be purchased
through Petitioner’s kiosks qualify as prepaid mobile calling services on or after the April 13,
2015 effective date of Part V because the rights consist of commercial mobile radio service, are
paid for in advance, and are sold for use over a specified period of time or in predetermined units
or dollars that decline with use in a known amount. Accordingly, Petitioner should likewise
collect tax on sales of those rights at the combined State and local tax rate in effect at the kiosk
where they are sold.
If the charge for the additional telecommunication rights available through Petitioner’s
kiosks includes a charge that is expressly for Internet access, that charge would not be subject to
tax under Federal or State law. See 47 U.S.C.A. § 151 n. (“Internet Tax Freedom Act”); Tax
1

A third category of telecommunication services subject to sales tax is certain mobile
telecommunications services that are “sold for a fixed periodic charge.” Tax Law § 1105(b)(2).
This category is not relevant to the services sold through Petitioner’s kiosks, which are all
prepaid services and thus are not sold for a “fixed periodic charge.”

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Corporation Tax
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Sales Tax
April 25, 2016

Law § 1115(v). If the top-up includes Internet access, but the charge for the Internet access is
not broken out separately, Petitioner must collect tax on that portion of its charges unless it can
reasonably identify the charges for Internet access from its books and records that it keeps in the
regular course of its business. See 47 USCA § 151 n., at § 1106.
The domestic and foreign prepaid wireless plan rights purchased before the April 13,
2015 effective date of Part V do not qualify as prepaid telephone calling services for sales tax
purposes because they do not use access numbers or authorization codes to make a call. See
former Tax Law § 1101(b)(22). Thus, such sales were taxable under Tax Law § 1105(b)(1)(B)
to the extent that the plans were used for intra-state calls or other intra-state telecommunication
services. Petitioner is not the party required to provide the telecommunication services, as the
customer’s account is with the carrier, which the carrier debits upon the customer’s use of the
plan’s minutes. Under these circumstances, the sale occurs when the carrier debits the account
upon the customer’s use of the plan’s minutes and not when Petitioner accepts the consideration
from the customer. Accordingly, for sales occurring prior to April 13, 2015, Petitioner was not
the seller of the domestic and foreign prepaid wireless plans purchased through its kiosks and
was not required to collect tax on the monies paid to it by its customers. See TSB-A-02(37)S;
TSB-A-98(34)S; TSB-M-00(3)S.
Application of § 186-e Excise Tax to the Prepaid Services Obtained at Petitioner’s Kiosks
Tax Law § 186-e.2(a)(1) imposes an excise tax on the sale of telecommunication
services, except a mobile telecommunication service taxable under § 186-e.2(a)(2), by any
person who is a provider of telecommunication services, based on its gross receipts from, as
pertinent here, “(i) any intrastate telecommunication services; (ii) any interstate and international
telecommunication services (other than interstate and international private telecommunication
services) which originate or 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.” Tax Law § 186-e.2(a)(2) imposes an excise tax on the
sale of mobile telecommunication services by a provider of telecommunication services on the
gross receipts from any mobile telecommunications service provided by a home service provider
where the mobile telecommunications customer’s place of primary use is within the State.
“Provider of telecommunication services” is defined in Tax Law § 186-e.1(e) as any person who
furnishes or sells telecommunication services; telecommunication service is defined in Tax Law
§ 186-e.1(g) as “telephone 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 . . . .” The term “mobile telecommunication service” for § 186-e tax
purposes is defined in pertinent part as “commercial radio service” and it excludes “prepaid
telephone calling services,” as set forth above. See Tax Law §§ 186-e.1(h); 186-e.2(a)(2);
1101(b)(24).
Thus, to be liable for the § 186-e excise tax, whether the service is a telecommunication
service taxable under Tax Law § 186-e.2(a)(1) or mobile telecommunication service taxable

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Corporation Tax
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Sales Tax
April 25, 2016

under Tax Law § 186-e.2(a)(2), it is necessary to be a provider of telecommunication services.
Here, Petitioner is not the provider of any of the telecommunication services obtainable at its
kiosks, because Petitioner is not liable for the transmission of the service to the customer.
Petitioner is not furnishing or selling the transmission of the telecommunication service, but,
rather, is merely facilitating the sale of the telecommunication service between the carrier liable
for the telecommunication services being sold, and the customer. 2 Therefore, Petitioner is not
liable for the tax imposed by § 186-e.

DATED: April 25, 2016

NOTE:

2

/S/
DEBORAH R. LIEBMAN
Deputy 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. The information provided in this
document does not cover every situation and is not intended to replace the law or
change its meaning.

This is true for sales of the additional telecommunication rights obtained through Petitioner’s kiosks both before
and after the May 1, 2015 effective date of Part P of Chapter 59 of the Laws of 2015, which did not make a
substantive change in the scope of the tax. See TSB-M-15(5)C.