Is the flat monthly End-User Common Line (EUCL) charge on a phone bill subject to New York sales tax, or is it an exempt interstate charge?

Plain-English summary

New York Telephone Company is a local exchange carrier. As part of basic service, it gives every subscriber an access line and a dial tone that can originate and receive local calls and long-distance (intrastate and interstate) calls. To recover part of its cost of providing interstate access — under an FCC "Access Charge" plan — it bills every subscriber a flat monthly fee called the End-User Common Line ("EUCL") charge. It asked whether that EUCL charge is subject to sales tax under Tax Law § 1105(b), or whether it is an exempt interstate charge.

The Department held the EUCL charge is taxable as part of basic local service.

• What § 1105(b) taxes. It taxes receipts from telephony and telephone service of whatever nature, except interstate and international service. And § 1101(b)(3) defines a "receipt" as the charge for the service without any deduction for the provider's expenses.
• The single-sale rule. Under § 1101(b)(3), when the components of a sale cannot be purchased separately, they are treated as one sale (Penfold v. State Tax Commission). A subscriber cannot buy local telephone service without also getting the ability to reach long-distance services — so the EUCL charge is merely an adjunct or component of the charge for basic local service.
• A flat fee, not an interstate call charge. The EUCL is billed to every subscriber regardless of whether or how many interstate calls they make. It is not transactionally based; it is essentially an accounting device to segregate an item of the company's expense, and § 1101(b)(3) does not let the company subtract out its costs when figuring taxable receipts. The access it pays for is local — the subscriber and the central office are in the same area.
• Result. The EUCL charge is part of basic (local) telephone service and cannot be carved out as exempt interstate service; it is subject to sales tax under § 1105(b).

What this means for you

A separately labeled line item can still be taxable if it can't be bought on its own. New York applies a single-sale rule: if a charge is a component of a taxable service that the customer cannot purchase separately, it is taxed along with that service — even if it is broken out on the bill and even if it is styled as recovering an "interstate" cost.

"Interstate" labeling doesn't automatically make a charge exempt. The interstate exemption in § 1105(b) turns on the nature of the service, not on how the provider labels or accounts for a fee. A flat access charge tied to local service, billed whether or not the customer makes interstate calls, is taxable local service.

Providers can't back out their costs. Under § 1101(b)(3), taxable receipts are figured without deducting the provider's expenses, so an accounting charge designed to recover a cost is still part of the taxable receipt.

Common questions

Q: Is the flat End-User Common Line charge on a New York phone bill taxable?
A: Yes. The Department held it is part of taxable basic local telephone service under § 1105(b), not exempt interstate service.

Q: It recovers an "interstate access" cost — why isn't it exempt as interstate service?
A: Because it is a flat charge billed to every subscriber regardless of interstate calling and cannot be bought apart from local service. Under the single-sale rule it is treated as a component of taxable local service, and § 1105(b)'s interstate exemption doesn't reach it.

Q: Can the phone company deduct its costs before charging tax?
A: No. Section 1101(b)(3) defines the taxable receipt without any deduction for the provider's expenses.

Citations and references

Statute and case:

• Tax Law § 1105(b) — taxes receipts from telephony and telephone service of whatever nature, except interstate and international telephone service
• Tax Law § 1101(b)(3) — defines "receipt" as the charge for the service without deduction for expenses, and treats components that cannot be purchased separately as a single sale
• Penfold v. State Tax Commission, 114 A.D.2d 696 (1985) — supports treating inseparable components as one taxable sale

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1988.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a88_8s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-88(8)S
Sales Tax
January 5, 1988

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S861003B

On October 3, 1986, a Petition for Advisory Opinion was received from New York
Telephone Company, 1095 Avenue of the Americas (Room 3707) New York, New York 10036.
The issue raised is whether the flat rate End-User Common Line charges ("EUCL") New
York Telephone Company assesses its customers in partial recovery of its costs of providing
telephone service in New York are subject to the sales tax imposed by section 1105(b) of the Tax
Law Petitioner is a local exchange company which provides telecommunication services to
various parts of New York State. Petitioner furnishes each of its subscribers with an access line,
directly connecting each subscriber's premises with Petitioner's central office. Through this
access line, passes all of a subscriber's local and intrastate and interstate toll messages. Petitioner
provides local exchange telephone service and limited toll service within its franchised service
territory.
As part of the basic telephone service, Petitioner provides to all of its subscribers a dial
tone which gives such subscribers the ability to originate and receive local telephone calls and
toll calls across the state and across the nation. When, for instance, a subscriber makes a long­
distance intrastate call, the transmission passes over the subscriber's access line, through
Petitioner's central office facilities, to the point of interconnection in New York with an
interexchange carrier. The interexchange carrier would transmit the call to the appropriate local
exchange telephone company, whereupon such local exchange company would route the call
over its facilities to the access line of the called party. In the case of a long distance interstate
call, the transmission is accomplished in the same manner except that a different interexchange
or local carrier is involved in completing the call.
Like a subscriber's individual access line, Petitioner's central office facilities are used in
the provision of local and intrastate and interstate toll calling. Interstate investment devoted to
interstate calling is determined through an accounting procedure termed "Separations". 47 C.F.R.

67. Separations is "The process by which telephone property, costs, revenues, expenses, taxes
    and other revenues are apportioned among operations." 47 C.F.R. 67.701.
    Petitioner stated that the FCC has fashioned a system of "Access Charges" to compensate
    local exchange companies for their participation in the origination and termination of interstate
    toll calling. The FCC has mandated that local exchange companies, such as Petitioner, recover
    some of its costs in providing interstate access service through charges levied on both its end­
    user subscribers, as well as on interexchange carriers which use Petitioner's facilities for the
    origination and/or termination of interstate calls made by the customers of such interexchange
    carriers.

RODERICK G. W. CHU, COMMISSIONER
GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (3/83)

-2­
TSB-A-88(8)S
Sales Tax
January 5, 1988

Pursuant to the FCC's Access Charge plan, local exchange telephone companies have
submitted tariffs for filing with the FCC designed to recover from their subscribers some of the
accounting separated costs of providing service with respect to interstate calling. A portion of
Petitioner's separated costs are assessed on a per minute of use basis against interexchange
carriers which incorporate these charges into their tariffed rates for interstate service. The
balance of Petitioner's separated costs are recovered by assessing all of their subscribers a flat
fee, the EUCL charge. Thus, this accounting separated cost is born by the local subscriber and
paid as part of the monthly charges for basic telephone service.
An example of the accounting nature of cost separation is shown by the following federal
regulation with respect to a purely local activity.
(a)
If end user common line charges for intrastate toll access are assessed in a
particular state, one-half of the end user common line access charge billing expense shall
be apportioned to the interstate operations. If no end user common line charge is assessed
for intrastate toll access, all of the end user common line access charge billing expense
shall be assigned to interstate operations. (47 C.F.R. 67.385)
The EUCL charges are billed to each subscriber whether or not the subscriber makes or
receives any long-distance interstate telephone calls and regardless of how many such calls may
be made. Thus, the charge is not transactionally based. Furthermore, the service of providing its
subscribers with the ability to access petitioner's central office in New York and there connect
with an interstate carrier is local in that the Petitioner and the subscriber are both located in the
Rochester area.
Section 1105(b) of the Tax Law imposes a tax on "the receipts from every sale . . . of
telephony and telegraphy and telephone and telegraph service of whatever nature except
interstate and international telephony and telegraphy and telephone and telegraph service."
Section 1101(b)(3) defines receipt as "the amount of the sale price of any property and the
charge for any service taxable under this article . . . without any deductions for expenses . . .".
The effect of 1101(b)(3) of the Tax Law is to treat as a single sale any sale in which any
of the components cannot be singly purchased. Thus, even though the components of a particular
sale can be separately stated, calculated or estimated, if they cannot be separately purchased, the
combination of the items listed must be considered as one. Penfold v. State Tax Commission,
114 AD 2d 696 (1985). Because Petitioner's subscribers simply cannot purchase local service
without also receiving the ability to access long-distance services, it must be concluded that
EUCL charges are nothing more than an adjunct or component of the charges for local service.
This access service is part and parcel of basic telephone service supplied by petitioner to its
customers.

-3­
TSB-A-88(8)S
Sales Tax
January 5, 1988

Moreover, it is also clear that section 1101(b)(3) does not permit Petitioner to subtract out
its costs of providing services when calculating taxable receipts from the provision of basic
telephone service.
The EUCL charges are billed to each subscriber without regard to the actual long-distance
interstate calls, if any, made by each subscriber. Although charged pursuant to an FCC tariff, the
EUCL charges are nothing more than a accounting procedure used in an attempt to segregate and
calculate from its basic charge, an item of expense incurred by Petitioner in providing each of its
subscribers with access to an interstate long-distance carrier. The EUCL charges do not
necessarily represent actual expenses incurred by Petitioner to provide interstate access to a
particular subscriber nor is the activity represented by such charges any more interstate than any
other component of the charges for basic telephone service.
Accordingly, it must be concluded that the access charge is a part of the basic service and
thus subject to the sales tax imposed under 1105(b) of the Tax Law.

DATED: January 5, 1988

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.