Are a telephone company's receipts from private line circuits taxable as intrastate telephone service, or excluded from sales tax as interstate telephone service?

Plain-English summary

A local telephone company offered "private line circuits" — dedicated lines, sometimes called tie-lines, reserved for a single customer's use, such as a bank connecting its branches or linking an ATM to its processing center. Some of these circuits stay entirely within New York; others run through the company's territory and continue on to a location outside the state. The company asked whether its receipts from these circuits are taxable intrastate telephone service or exempt interstate service.

New York's utility sales tax (Tax Law § 1105(b)) taxes telephone service "of whatever nature except interstate and international" service. The Department's answer follows the geography of each circuit:

• Entirely within New York → taxable intrastate service, unless the customer buys it for resale (with a Form ST-120 resale certificate).
• Crossing the state line → interstate service, exempt from tax.

The Department added two refinements. First, if the company buys interstate service from another carrier, couples it with its own, and sells the combined service to a customer, that combined service is interstate and exempt. But if the company provides an in-state circuit alongside an out-of-state carrier and bills the customer directly for only its own in-state share, that is treated as two separate sales, and the company's in-state portion is taxable. Second, for ATM clearing-and-sorting circuits: if the ATM and the bank's processing center are both in New York, the transmission is intrastate and taxable; if one end is outside New York, it is interstate and not taxable.

What this means for you

Telephone companies and telecom carriers

Tax each private line or tie-line by where it actually runs, not by how it is labeled. A circuit wholly inside New York is taxable; one that crosses the state line is exempt interstate service. Watch the billing structure: if you bill a customer only for your in-state leg of a circuit that another carrier extends out of state, the Department treats your leg as a separate, taxable intrastate sale rather than part of one exempt interstate service.

Businesses that buy dedicated lines (banks, multi-site operators)

Whether you pay sales tax on a private line turns on the endpoints. Branch-to-branch or ATM-to-processing-center circuits that stay within New York carry tax; circuits that terminate out of state do not. If you resell the telephone service, you can buy it for resale using Form ST-120 and collect tax when you resell it.

Accountants and telecom tax specialists

The controlling distinction is intrastate vs interstate under § 1105(b), applied circuit-by-circuit and, critically, by how the service is billed. Direct billing for only the New York segment breaks a would-be interstate service into a taxable in-state sale plus a separate carrier's leg. Document the endpoints and the interstate-use designations (the Access Service Request) to support the treatment.

Common questions

Q: Is a private line circuit taxable in New York?
A: If it begins and ends within New York, yes — it is taxable intrastate telephone service under § 1105(b), unless purchased for resale. If it crosses the state line, it is interstate service and exempt.

Q: What if part of the circuit is in New York and part is out of state?
A: If the company couples another carrier's interstate service with its own and sells the whole thing, the service is interstate and exempt. But if the company bills the customer directly for only its own in-state portion, that portion is a separate, taxable intrastate sale.

Q: How are ATM circuits treated?
A: An ATM-to-processing-center circuit with both ends in New York is intrastate and taxable. If either end is outside New York, the transmission is interstate and not taxable.

Q: Can the service be bought tax-free for resale?
A: Yes. A purchaser buying the telephone service for resale may buy it without tax using a resale certificate (Form ST-120) and must then collect tax when it resells the service.

Q: Can another carrier rely on this opinion?
A: No. An advisory opinion binds the Department only as to the petitioner and the facts described. It shows the Department's reasoning, but your facts may differ.

Citations and references

Statutes and regulations:

• Tax Law § 1105(b) (tax on telephone and telegraph service of whatever nature, except interstate and international service)
• 20 NYCRR § 527.2(d) (intrastate telephone and telegraph service; tie-lines; sales for resale)

Forms:

• Form ST-120, Resale Certificate

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1993.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a93_26s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (26)S
Sales Tax
April 12, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S921123A

On November 23, 1992 a Petition for Advisory Opinion was received from Dunkirk and
Fredonia Telephone Company, 40 Temple Street, P.O. Box 209, Fredonia, New York 14063-0209.
The issue raised by Petitioner, Dunkirk and Fredonia Telephone Company, is whether it's
receipts from the sale of private line circuits are subject to sales tax under Section 1105(b) of the Tax
Law as the sale of an intrastate telephone service or are they excluded from sales tax as an interstate
telephone service.
Petitioner is a telephone company which provides telephone service to its customers. Among
the types of services which Petitioner offers to its customers is the furnishing of private line circuits.
A private line circuit is a specific circuit dedicated to the sole use of a particular customer.
Private line circuits are sometimes referred to as "tie-lines" and may be established between the
separate office locations of a single customer. Banks are among Petitioner's customers which use
private line circuits to communicate between branch locations. In addition, a private line circuit
maybe set up between and automated teller machine (ATM) and the office of a bank.
Each time a customer requests the establishment of a private line circuit that will run, in part,
in or through the Dunkirk and Fredonia, New York area, Petitioner receives an Access Service
Request (ASR) form from its customer or another telephone carrier. On the ASR, the customer or
the other telephone carrier indicates whether the private line circuit requested is for intrastate or
interstate use. If the customer or other telephone carrier indicates that the private line circuit is for
interstate use, it must also indicate the percentage of interstate use of the private line circuit.
Petitioner establishes and charges a customer for the portion of the customer's private line
circuit in the Dunkirk and Fredonia, New York area. An intrastate private line circuit begins and
ends within New York State, but may be continued by one or more other telephone companies from
the Dunkirk and Fredonia area to another location in the State. An interstate private line circuit will
be continued by one or more other telephone companies from the Dunkirk and Fredonia area to a
location outside of New York State. If the ASR given to Petitioner indicates that the private line
circuit requested is for interstate use, the private line circuit will run through the Dunkirk and
Fredonia area and then on to a location outside of New York State.
If a private line circuit is designated as an intrastate circuit, Petitioner is required to charge
the customer at the intrastate tariff rate approved by the New York State Public Service Commission.
If a private line circuit is designated as an interstate circuit, Petitioner is required to charge the

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TSB-A-93 (26)S
Sales Tax
April 12, 1993
customer at the interstate tariff rate approved by the Federal Communications Commission.
Section 1105(b) of the Tax Law imposes 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."
Section 527.2(d) of the Sales and Use Tax Regulations provides in part that:
Telephone 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 telephone
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.
*

*

*

(5) The tax on utility services applies to every charge for any telephone and
telegraph service. Among these charges are monthly message rate and intrastate toll
charges and charges for special services, such as installation, change of location,
conference connections, tie-lines, WATS line and the furnishing of equipment.
(Emphasis supplied)
Example 7:

A telephone company installs station apparatus, owned by it, on the premises
of a customer. The installation is a service taxable under section 1105(b) of
the Tax Law.

(6) Where a customer has telephones at a single location connected to
exchanges in different localities, and a tie-line to a locality in which he is not located,
the tax applicable for each service is the tax rate in effect in the locality to which the
exchange is assigned.
Example 8:

A business located in Nassau County has two telephone numbers, one with
a Nassau exchange and one with a Queens exchange. This enables his
Queens customers to phone him toll free. Service on the Queens exchange
is considered to be purchased in Queens County even though the telephone
is physically located in Nassau County.

(e) Sales for resale. Purchases of utility services by a utility for resale as such
may be made without payment of the sales tax. The purchaser must furnish the
supplier of the utility to be resold with a resale certificate (Form ST-120). When the
utility services are resold by the purchaser he must collect the sales tax on the
receipts from his sales as imposed under section 1105(b) of the Tax Law. A purchase

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Sales Tax
April 12, 1993
of a utility service which is not resold is subject to tax as a purchase at retail.
Example:

A utility company purchases excess power from an industrial
organization or through a power pool for resale to its customers.
Such purchase may be made without payment of tax upon the
presentation of a properly completed resale certificate.

Sales tax on telephone service is imposed upon all telephone service except interstate service
and sales for resale in accordance with section 1105(b) of the Tax Law and Section 527.2(d) of the
Sales and Use Regulations. Thus, where Petitioner's sales, including sales of private line circuits,
occur totally within New York State, they are subject to sales tax unless they are purchased for
resale. If Petitioner purchases telephone service from another interstate carrier and couples that
service with its own, and then sells the service to its client, such service would be considered
interstate and exempt. However, if Petitioner provides a private line circuit totally within New York
State in conjunction with an out of state carrier but bills the retail purchaser directly for Petitioner's
share of the service, such service is considered as two separate sales and since Petitioner's service
is totally within New York State it is subject to tax.
In those cases where the private line circuit used for clearing and sorting ATM transactions
originates at an ATM located in New York State and terminates at a bank's central processing center
located in New York State or vice versa, then the transmission will be considered to be an intrastate
transaction subject to sales tax.
On the other hand, in those cases where the private line circuit used for clearing and sorting
ATM transactions originates at an ATM located in New York State and terminates at a bank's central
processing center located outside New York State or vice versa, then the transmission will be
considered to be an interstate transaction that is not subject to sales tax.

DATED: April 12, 1993

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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