New York Advisory Opinion TSB-A-17(1)C / (18)S: How do sales tax and the section 186-e excise tax apply to an MVNO's prepaid mobile sales through retailers, refills, and wholesale to another MVNO, and how are they sourced?

Plain-English summary

A mobile virtual network operator (MVNO) — a reseller that buys network capacity from another carrier and sells prepaid voice, text and data under its own brand — asked how New York's two telecom taxes apply to three kinds of sales, and how to source them. The two taxes are the sales tax (Tax Law § 1105(b)) and the section 186-e excise tax.

1. Own-brand "clamshell" packages through retailers. For sales tax, the retailer's sale to the customer is the taxable sale of a prepaid mobile calling service; the MVNO's upstream sales to its distributor qualify for the resale exclusion with a Form ST-120. For the § 186-e excise tax, though, the retailer and distributor only sell an intangible contract right, so they are not "providers"; the MVNO is the provider and owes excise tax on its gross receipts to the extent the customer's place of primary use (PPU) is in New York.

2. Refills. The MVNO must collect sales tax and is liable for § 186-e excise tax, because refills are prepaid mobile calling services / mobile telecommunications services it provides. Its own purchase of capacity from the supplier MVNO can be bought for resale (Form CT-120 for the excise tax; ST-120 for sales tax).

3. Wholesale to another MVNO. The sale qualifies for the resale exclusion under both taxes, because the second MVNO resells the service as its own — Form ST-120 for sales tax and Form CT-120 for the excise tax.

Sourcing. Sales tax is sourced to where the sale occurs / the customer's location at purchase (shipping, then billing, then mobile-number location); the § 186-e excise tax is sourced to the customer's place of primary use. Charges expressly for Internet access/data are exempt and can be carved out if reasonably identified under Tax Law § 1111(l)(2).

What this means for you

MVNOs, carriers and prepaid resellers

The same transaction can be sales-tax exempt as a resale yet still trigger § 186-e excise tax for the party that actually provides the service. Identify, for each leg, who is the provider (liable for the excise tax) versus who is merely reselling an intangible right (collects sales tax or resells). Collect the right resale certificate for each tax: ST-120 for sales tax, CT-120 for the § 186-e excise tax.

Accountants and tax professionals

Source sales tax to the customer's location at purchase and the excise tax to place of primary use; if you lack an address, you may rely on the credit-card or activation address. Keep books that let you reasonably identify Internet/data charges under § 1111(l)(2), which stay exempt under the Internet Tax Freedom Act and Tax Law § 1115(v).

Common questions

Q: Can a sale be resale-exempt for sales tax but still owe section 186-e?
A: Yes. The MVNO's own-brand clamshell sales through retailers are resale-excluded for sales tax, yet the MVNO owes the excise tax as the actual provider.

Q: Which resale certificate do I use?
A: Form ST-120 for the sales tax resale exclusion and Form CT-120 for the section 186-e telecommunication excise tax resale exclusion.

Q: How are these sales sourced?
A: Sales tax to the customer's location at the time of sale; the section 186-e excise tax to the customer's place of primary use.

Citations and references

• Tax Law § 1105(b)(1)(D) and § 1101(b)(22)(A)–(B) (prepaid mobile calling services; sourcing)
• Tax Law § 186-e (telecommunication excise tax; "provider"; place of primary use); § 1101(b)(26) (place of primary use)
• Tax Law § 1111(l)(2) (reasonably identifying a nontaxable data charge); Tax Law § 1115(v); 47 U.S.C. § 151 note (Internet Tax Freedom Act)
• Forms ST-120 (sales tax resale) and CT-120 (telecommunication purchases resale)
• TSB-A-16(2)C; TSB-A-02(37)S; Part P of Chapter 59 of the Laws of 2015

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2017.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a17_1c_18s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

TSB-A-17(1)C
Corporation Tax
TSB-A-17(18)S
Sales Tax
August 3, 2017

PETITION NO. Z140827A

The Department of Taxation and Finance received a Petition for Advisory Opinion from
REDACTED REDACTED REDACTED REDACTED REDACTED RE. Petitioner is a mobile
virtual network operator (MVNO) that sells prepaid calling minutes, texting rights, and data
(hereafter “prepaid rights”) through a variety of channels. It asks whether the sales and use tax
and the telecommunication excise tax apply to those sales and, if so, how to source those sales
for purposes of those taxes. We conclude, in general, as follows: (1) with regard to its sales of
prepaid rights under its own brand name through third-party retailers, such sales qualify for the
resale exclusion for sales tax purposes, but are taxable to Petitioner for purposes of the
telecommunication excise tax; (2) with regard to Petitioner’s sales of refills of its prepaid rights,
Petitioner must collect sales tax and is liable for the telecommunication excise tax; (3) with
regard to Petitioner’s sales of prepaid rights under its own brand name to another MVNO,
Petitioner’s sales qualify for the respective resale exclusions in the sales tax and the
telecommunication excise tax; and (4) with regard to sourcing, taxable sales should be sourced
for sales tax purposes based on the location of the customer at the time of the purchase and for
telecommunication excise tax based on the customer’s place of primary use.
Facts
Petitioner is a mobile virtual network operator (“MVNO”). Petitioner is planning on
selling packages of prepaid rights, which consist of voice calling and texting rights and Internet
access rights to customers worldwide directly on the Internet and indirectly through retail stores.
It will buy the telecommunication capacity needed for the prepaid services from another MVNO.
Petitioner states that the package of voice calling and texting rights it sells constitute
“commercial mobile radio service” as that term is defined in Tax Law § 1101(b)(25), and
qualifies as a “prepaid mobile calling service” as defined in Tax Law § 1101(b)(22)(B).
With regard to sales of its prepaid rights through retailers, Petitioner will enclose a
cellphone in a clamshell casing bearing its trade name and trade dress, along with a PIN needed
to activate service (“clamshell package”). It will sell that package to a distributor that will resell
the package to third-party brick and mortar retailers. To activate service, a customer can call
611# on the phone and provide the phone’s serial number, along with the PIN number.
Alternatively, the customer can access Petitioner’s website and input the same information.
Under either way of activating service on the phone, the customer will have to agree to
Petitioner’s terms of service, in order to complete the activation process. Currently, when

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activating service, Petitioner does not intend to ask for the customer’s address and claims that it
would not be able to verify the customer’s address in any case.
With regard to refills of the prepaid rights, when the customer activates the phone,
Petitioner gives the customer the choice of agreeing to an automatic payment process by which
the company's automated system will charge the customer’s credit card and refill the customer’s
account each month. Alternatively, the customer can refill the prepaid services at a third-party
retail location.
Finally, Petitioner also will sell its prepaid rights to smaller MVNOs under its own brand
name. In its contract with the other MVNO, Petitioner will make itself responsible for the
availability of the prepaid rights that the smaller MVNO will sell. The smaller MVNO will
resell those prepaid rights under its own brand name to third-party retailers, who will sell the
same to consumers under the smaller MVNO’s brand name. Petitioner will buy the commercial
mobile radio capacity that it resells from another MVNO, which will have bought the capacity
directly or indirectly from one of the national mobile carriers.
Analysis
The two telecommunication taxes that may apply to the sales of the prepaid rights at issue
herein are the sales taxes imposed under Tax Law § 1105(b) and the telecommunication excise
tax imposed by Tax Law § 186-e. Below we consider how these two taxes apply to Petitioner’s
three types of sales.
Application of the Sales Tax
The Tax Law imposes sales tax on the sale of specified services, except for resale of
those services. See Tax Law § 1105(b), (c). Included in the taxable services are a number of
telecommunication services, including “prepaid telephone calling services.” Tax Law §
1105(b)(1)(D). Prepaid telephone calling service includes, for sales tax purposes, prepaid mobile
calling services. Tax Law § 1101(b)(22)(A). Prepaid mobile calling service is defined as “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 included the transfer to the purchaser of an item of tangible personal
property.” Tax Law § 1101(b)(22)(B).
When sales of prepaid mobile calling services take place at a brick and mortar store, the
sales are taxable at the State and local rate in effect at that location. See Tax Law §§
1101(b)(22)(A); 1213; TSB-M-00(3)S. If the sale does not take place there, the Tax Law
provides:
[the sale] shall be conclusively determined to take place at the purchaser's shipping
address or, if there is no item shipped, at the purchaser's billing address or the location

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associated with the purchaser's mobile telephone number, or, if the vendor does not have
the address or the location associated with the customer's mobile telephone number, at
such address, as approved by the commissioner, that reasonably reflects the customer's
location at the time of the sale or recharge.
Tax Law § 1101(b)(22)(A).
Applying these rules first to the sales of Petitioner’s clamshell packages, when a
customer buys one of Petitioner’s packages at a retail store, the customer is buying the right to
receive a prepaid mobile calling service to be provided by Petitioner, along with a cellphone on
which to receive the service. To get the service, the customer will have to activate the phone,
which involves agreeing to Petitioner’s terms of service. The retailer’s sale of the right to
receive a mobile telecommunications service from Petitioner qualifies as a sale of a prepaid
mobile calling service and the retailer must collect sales tax at the point of sale. See Tax Law §§
1101(b)(22); 1105(b)(1)(D).
A charge that is expressly for Internet access (“data”) is not subject to tax under Federal
or State law. See 47 USCA § 151 n. (“Internet Tax Freedom Act”); Tax Law §§ 179; 1115(v).
If taxable telecommunication services and data are sold together for one price, the entire charge
is subject to sales tax. See 47 USCA § 151 n., at § 1106; Tax Law § 1111(l)(2). However, if
the seller can reasonably identify the portion of its single charge that is attributable to the data
rights provided, using a reasonable, objective, and verifiable standard, from books and records
that it keeps in the regular course of its business, it can exclude that portion of its charge from
sales tax. If the provider separately sells data, then that standard requires the use of the price at
which the provider makes such sales; if the provider does not separately sell data, then it must
use the prevailing retail price of data sold separately by other providers. See Id. Thus, if
Petitioner can reasonably identify the portion of the charge for the clamshell package that is
attributable to the data rights provided, using the § 1111(l)(2) standard, it can exclude that
portion of its charge from sales tax. See 47 USCA § 151 n., at § 1106; Tax Law § 1111(l)(2).
The sales tax resale exclusion applies to both Petitioner’s sale of the clamshell package to
the distributor and the distributor’s sale of the package to the retailer, if those parties timely
receive in good faith properly completed resale certificates (Form ST-120) from their respective
customers, in which case they are not liable for sales tax on those sales. See Tax Law §
1105(b)(1)(D).
Petitioner’s sale of a refill of its prepaid rights also amounts to a sale of a prepaid mobile
calling service and is taxable to the extent that the sale takes place in New York. As discussed
above, the sale is deemed to take place at the address associated with the mobile phone account
or, if the vendor lacks that address, at such other address that reasonably represents the
customer’s location when purchasing the refill. See Tax Law § 1101(b)(22)(A). Under this
standard, Petitioner may rely on the address on the credit card or other instrument used to pay for
the service to determine the customer’s location at the time of sale. If it does not have that
address either, and has not received permission from the Commissioner to use a different

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sourcing method, Petitioner must ask the customer for its address at the time of the refill.
Petitioner may rely on that address in determining the applicable State and local sales tax rate
even though it cannot verify its accuracy. To the extent that Petitioner can reasonably identify
the portion of the charge for the refill that is attributable to the data rights provided, using the
standard in § 1111(l)(2) described above, it can exclude that portion of its charge from the sales
tax. See 47 USCA § 151 n., at § 1; Tax Law § 1111(l)(2). Petitioner’s purchases of the
commercial mobile radio service from a MVNO that it resells in these transactions qualify for
the sales tax resale exclusion if Petitioner provides the MVNO with a properly completed resale
certificate. See Tax Law § 1105(b)(1).
With regard to Petitioner’s third type of sale, whereby Petitioner buys mobile capacity
from a MVNO and sells it to another MVNO that will use it to sell its own branded prepaid
mobile calling services, Petitioner’s sale qualifies for the sales tax resale exclusion. As a result,
Petitioner need not collect tax on such sales if it timely accepts in good faith a properly
completed ST-120 from its MVNO customer. See Tax Law §§ 1105(b)(1); 1132(c)(1).
Application of § 186-e Excise Tax
Tax Law § 186-e(2)(a)(2) imposes an excise tax on the sale of mobile telecommunication
services provided by a home service provider where the mobile telecommunications customer’s
place of primary use is within the State. A “mobile telecommunications service” is defined as a
“commercial mobile radio service” and it excludes a “prepaid telephone calling service.” See
Tax Law §§ 186-e(1)(h); 1101(b)(24).
The gross receipts from the sales of a mobile telecommunications service are taxable to the
extent that the customer’s place of primary use (PPU) is in New York. See Tax Law §
186-e(2)(a)(2). A customer’s PPU, in general, is the street address representative of where the
customer's use of the mobile telecommunications service primarily occurs. Tax Law § 1101(b)(26).

To be liable for the § 186-e tax on gross receipts from telecommunication services, a
person must be a “provider of telecommunication services.” That term is defined in Tax Law §
186-e(1)(e) as 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.”
Turning first to Petitioner’s sales of the clamshell packages, when a customer buys one of
the packages from a retailer, the customer is buying, among other things, the right to obtain
texting and voice minutes from Petitioner. The voice minutes and texting rights rely on a
commercial mobile radio service, but do not constitute a prepaid telephone calling service
because they do not necessitate the use of an authorization code or access number to make a call
or send a text. See TSB-A-16(2)C. Therefore, when a customer uses the voice minutes and
texting rights, the customer is receiving a mobile telecommunications service. See Tax Law §§
186-e(1)(h); 1101(b)(24). The cellphone included in the clamshell package is part of the mobile
telecommunications service because it is ancillary to that service. See Tax Law § 186-e(2)(b)(4);
Tax Law § 1111(l)(1)(A). Importantly, however, in selling a contract right to receive a mobile

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telecommunications service from a third-party (Petitioner), the retailer is not “furnishing or
selling” a mobile telecommunications service, but rather is selling an intangible, that is, a future
contract right. Thus, the retailer is not a telecommunication service provider liable for the
mobile telecommunications services promised by the clamshell package, and does not owe
telecommunication excise tax. See Tax Law § 186-e(2)(a)(2); TSB-A-16(2)C (kiosk owner that
enables recharges of third-party mobile telecommunications services is not a telecommunication
service provider); see also TSB-A-02(37)S (retailer that sells a third-party’s prepaid telephone cards
is not making a taxable sale of telephone services for sales tax purposes with regard to periods
prior to the effective date of Tax Law amendment requiring such retailers to collect tax).1
Petitioner is the party liable for the mobile telecommunications services promised to the
purchaser of the clamshell package. The purchaser must create an account with Petitioner to
receive the mobile telecommunications services and Petitioner has the right to debit the account
upon use by the customer or the expiration of the service period. Therefore, Petitioner is the
telecommunication service provider that owes excise tax on the gross receipt from those services
to the extent the customer’s PPU is in New York State. To determine the customer’s PPU,
Petitioner must ask the customer to provide his or her residential street address or primary
business street address when the customer activates the cellphone and Petitioner may rely on that
address in determining the customer’s PPU. The consideration Petitioner receives from the
distributor for the clamshell package constitutes its gross receipts subject to tax. See Tax Law §§
186-e(1)(a)(1); 186-e(2)(a)(2). To the extent that Petitioner can reasonably identify the portion
of the charge for the clamshell package that is attributable to the data rights provided, using the
standard in § 1111(l)(2) described above, it can exclude that portion of its charge from the excise
tax. See 47 USCA § 151 n., at § 1106; Tax Law § 186-e(2)(b)(4).
Petitioner has a contract with the MVNO under which Petitioner purchased the prepaid
rights included in its clamshell package; that MVNO is referred to in this Advisory Opinion as
the “supplier MVNO.” The supplier MVNO’s liability under that contract for those prepaid
rights will be reduced as Petitioner’s customer uses the underlying voice, text, and data services.
The supplier MVNO, therefore, is making a sale of those rights to Petitioner. However, the
supplier MVNO will not owe § 186-e tax with regard to the amounts Petitioner paid it for those
prepaid rights if Petitioner timely provides the supplier MVNO with a properly completed Form
CT-120, Resale Certificate for Telecommunication Purchases. See Tax Law § 186-e(2)(b)(1).
Petitioner, in turn, sells those clamshell packages to distributors. The distributor is not a
telecommunication service provider for the same reason that the retailer who sells the clamshell
package to the ultimate customer is not a telecommunication service provider: as discussed
above, both the distributor and retailer are selling an intangible in the form of a contract claim
right to receive a mobile telecommunications service from Petitioner and neither the distributor
The retailer’s receipts from the sale of the clamshell package is not subject to the excise tax imposed by § 186-e,
but is subject to sales tax, because in 2015 the Legislature amended the Tax Law to specifically make the retailer’s
sale of the prepaid mobile service taxable for sales tax purposes. However, that legislation does not apply to the §
186-e excise tax. See Part P of Chapter 59 of the Laws of 2015.
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nor the retailer is liable for the mobile telecommunications service promised by the clamshell
package. Because the distributor is not a telecommunication service provider, the distributor
may not present a resale certificate to Petitioner and Petitioner may not, in good faith, accept a
resale certificate from the distributor. See Tax Law § 186-e(2)(b)(1). Therefore, the sales of the
clamshell packages from Petitioner to the distributor do not qualify for the excise tax resale
exclusion.
With regard to Petitioner’s gross receipts from the sale of refills of the prepaid rights,
such gross receipts are taxable under § 186-e because the refills also constitute mobile
telecommunications services to the extent that the customers’ PPUs are in New York. See Tax
Law § 186-e(2)(a)(2). To the extent that Petitioner can reasonably identify the portion of the
charge for the prepaid rights that is attributable to the data rights provided, using the standard in
§ 1111(l)(2) described above, it can exclude that portion of its charge from the
telecommunication services excise tax. See 47 USCA § 151 n., at § 1106; Tax Law § 186e(2)(b)(4).
Finally, with regard to Petitioner’s sale of prepaid rights to a second MVNO, which that
MVNO will resell to consumers through retailers, Petitioner is making a sale for resale of those
prepaid rights to the second MVNO, because the second MVNO will be reselling that
telecommunications service as its own service. Therefore, the sale qualifies for the resale
exclusion and Petitioner will not owe any telecommunications excise tax if it timely accepts a
properly completed CT-120 from the second MVNO. See Tax Law § 186-e(2)(b)(1).

DATED: August 3, 2017

/S/
DEBORAH R. LIEBMAN
Deputy Counsel

NOTE:

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.