Is an electronic voice-messaging and telephone-answering service taxable as a telephone or telegraph service?

Plain-English summary

Tigon Corporation runs a computer-based voice-messaging and telephone-answering service. Customers access Tigon's computer to leave personalized voice messages for a designated person or group and to retrieve messages left for them; a customer can also let outside callers leave messages that the customer retrieves later. Everything is oral — there is no written or tangible report. Tigon asked whether this is a taxable telephone or telegraph service under Tax Law § 1105(b).

The Department held that it is taxable:

• The essence is electronic transmission of intelligence. Taxable "telephony and telegraphy" covers "use or operation of any apparatus for transmission of sound, sound reproduction or coded or other signals" (20 NYCRR § 527.2(d)(2)). The heart of Tigon's service is customers communicating electronically by entering and retrieving messages.
• Tigon is a "mere conduit." Critical to taxable telephony is the provider acting as "a mere conduit, transmitting to third-party recipients messages given it by various originators" (Quotron Systems v. Gallman). It doesn't matter whether the sender or the receiver buys the service.
• Not like cable TV. A service is not taxable telephony where transmission is only an incidental element and the essential object is something else — cable television is exempt because its object is "entertainment or enjoyment" (§ 527.2(d)(4); New York State Cable Television Association v. State Tax Commission). Tigon is the opposite: its object is the electronic communication.
• Not like a manual answering service. Unlike a conventional answering service where a person writes down messages, every element of Tigon's service is performed by electronic means.
• Interstate/international is exempt. Receipts are taxable under § 1105(b), but messages that are interstate or international are exempt.

What this means for you

If you sell voice mail, messaging, or an electronic answering platform: When the substance of what you sell is moving a customer's message electronically from one point to another, New York treats you as a taxable telephone/telegraph service — even if you never issue a bill labeled "telephone" and never provide a written report. Charge § 1105(b) tax on the intrastate portion.

The dividing line is "what is the essential object?" If electronic transmission is only incidental to some other essential service (entertainment, or a service where a person actually processes the content), you may fall outside § 1105(b). If transmission is the service, you're in it. A human-staffed answering service that writes down and relays messages is analyzed differently from a fully electronic platform.

Separate out interstate and international traffic. Those messages are exempt, so your systems need to distinguish intrastate from interstate/international usage.

Common questions

Q: We only move voice messages electronically — is that really "telephone service"?
A: Yes. The Department looks at the essence of the service. Electronic transmission of a customer's message to a distant point is taxable telephony under § 1105(b), regardless of what you call it.

Q: Cable TV involves signal transmission but isn't taxed this way — why are we different?
A: Cable TV's essential object is entertainment, with transmission only incidental. For a messaging service, the transmission itself is the object, so § 1105(b) applies.

Q: Are any of our charges exempt?
A: Yes — messages that are interstate or international are exempt from the § 1105(b) tax.

Citations and references

Statute and regulations:

• Tax Law § 1105(b) — tax on telephony, telegraphy, and telephone/telegraph service (excluding interstate and international)
• 20 NYCRR § 527.2(a)(2) — broad construction; "service" taxed as a continuous supply during the vendor-vendee relationship
• 20 NYCRR § 527.2(d)(2) — "telephony and telegraphy" includes operation of apparatus for transmission of sound or signals
• 20 NYCRR § 527.2(d)(4) — service is not telephony where telephony is only an incidental element

Cases cited:

• Quotron Systems v. Gallman, 39 NY2d 428 (provider as "mere conduit")
• New York State Cable Television Association v. State Tax Commission, 88 Misc 2d 601, aff'd 59 AD2d 81 (cable TV not taxable telephony)
• New York Quotation Co. v. Bragalini, 7 AD2d (sender or receiver may be the purchaser)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1989.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a89_25s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-89(25)S
Sales Tax
July 28, 1989

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITIONER NO. S890202A

On February 2, 1989 a Petition for Advisory Opinion was received from the Tigon
Corporation, 17085 Knoll Trail Drive, Dallas, Texas 75248.
The issue raised is whether the voice messaging and telephone answering services offered
by Petitioner are subject to sales or use tax pursuant to Section 1105(b) of the Tax Law.
Petitioner provides its customers with access to its computer through a program which it has
designed. The customer may access the computer and leave a personalized message directed to a
particular individual or group of individuals. Control of transferring this information to the designee
is maintained and accomplished via Petitioner's computer. The customer may also access the
computer to receive personalized messages designated to his attention.
Petitioner maintains that no rental of equipment occurs, rather the customer has purchased
the right to access a computer through which he may provide and maintain information. In all cases
the information that is deposited and/or retrieved is oral. There is no written or tangible report.
Regarding Petitioner's answering service, Petitioner's customer may, for a flat monthly fee,
have outside callers access its system to leave a message. This message may later be retrieved by
Petitioner's customer.
Section 1105(b) of the Tax Law imposes a sales tax upon: "The receipts from every sale,
other than sales for resale. . . .of telephony and telegraphy and telephone and telegraph service of
whatever nature except interstate and international telephony and telegraphy and telephone and
telegraph service."
The Sales and Use Tax Regulations define the term "telephony and telegraphy" to include
"use or operation of any apparatus for transmission of sound, sound reproduction or coded or other
signals." 20 NYCRR 527.2(d)(2). The term does not apply to a service which is essentially
something other than telephony and telegraphy, although telephony and telegraphy may figure as an
incidental element of the service. 20 NYCRR 527.2(d)(4). The tax on the sale of telephony and
telegraphy is thus not applicable to the receipts of cable television companies, because, while as an
incident to the service provided there may be telegraphic or telephonic transmission of a signal, the
essential object of the service is to provide "entertainment or enjoyment." New York State Cable
Television Association v. State Tax Commission, 88 Misc 2d 601, aff'd 59 AD2d 81. (It is to be
noted that in the discussion of cable television in 20 NYCRR 527.2(d)(3), the reference to the
exempt distribution of cable television programs is a reference to distribution to the ultimate
consumer.)
TP-9 (9/88)

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TSB-A-89(25)S
Sales Tax
July 28, 1989

As suggested by the regulation provision cited above, the essence of telephony and telegraphy
is the transmission of "intelligence to a distant point by means of electricity." 74 AM Jur 2d,
Telecommunications §1. Also critical to the concept is the role of the purveyor of telephony and
telegraphy as "a mere conduit, transmitting to third-party recipients messages given it by various
originators." Quotron Systems v. Gallman, 39 NY2d 428; Technical Services Bureau Memorandum,
TSB-M-80(18)S. Further, it makes no difference to the question whether the sender or receiver of
the transmission purchases the service. New York Quotation Co. v. Bragalini, 7 AD2d.
Section 527.2(a)(2) of the sales tax regulation state:
"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 continous supply while the vendor-vendee relationship
exists." (Emphasis supplied)
Section 527.2(d)(2) provides, in part, as follows:
"The term `telephony and telegraphy' includes use or operation of any
apparatus for transmission of sound, sound reproduction or coded or other signals.
Example 3:

Message switching services, transmitted to a computer are lines
leased from a communication carrier are telegraph services subject to
the tax imposed under section 1105(b) of the Tax Law.

Petitioner is providing, inter alia, a network upon which its customers can communicate by
computer or electronically with one another by entering and retrieving messages. Petitioner does not
provide any additional information to its customers nor does it manipulate or otherwise process it's
customers information into another form; rather, Petitioner stores its customer's information so that
its customer or someone designated by the customer may later retrieve the same information.
Sales tax could not be imposed upon "Cable TV" subscriptions merely because the charge
for such contained an element of telephony or telegraphy. Here, the opposite is true. The essential
element of petitioner's service is for its customers to electronically communicate with each other
"Transmission of intelligence to a distant point by means of electricity." Unlike a conventional
telephone answering service where a person actually writes down messages for the person
purchasing the service, every element of petitioner's service is performed by electronic means.
Therefore, Petitioner is providing a "telephone or telegraph service the receipts from which are

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TSB-A-89(25)S
Sales Tax
July 28, 1989

subject to the tax imposed under section 1105 (b) of the Tax Law. Those messages that are interstate
or international are exempt from sales tax.

DATED: July 28, 1989

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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