Is a telemessaging company's purchase of voice mail equipment, used to interface with the telephone network and provide voice recording/storage to its customers, exempt from sales tax as telephone central office equipment?

Subject

Is whether the purchase of voice mail equipment used to interface with a telephone switching network and provide voice record and storage services to telemessaging customers is exempt from sales tax under Section 1115(a)(12) of the Tax Law.

What this means for you

A telemessaging company (a beeper/answering-service business) buys voice mail equipment solely to provide voice-recording and storage services to its customers, interfacing with the telephone switching network at both the initiation and destination points of calls.

Voice mail service itself is taxable in New York as a form of telephone service under Tax Law § 1105(b) (an earlier 1989 opinion, Tigon Corp., already established that). Separately, Tax Law § 1115(a)(12) exempts "telephone central office equipment or station apparatus" used directly and predominantly in receiving, initiating, or switching telephone communications -- when bought by the vendor of that taxable telephone service. Because the telemessaging company is itself the vendor of a service that's subject to sales tax (voice mail), its purchase of the interfacing equipment falls within that manufacturing/production-style exemption for telephone equipment, so long as the equipment is used directly and predominantly for receiving, initiating, or switching the communications (not, for example, primarily for unrelated back-office functions).

Q&A

Q: We provide a taxable telephone/voice-mail service and need to buy specialized switching-interface equipment -- can we buy it tax-free?
A: Yes, per this opinion -- equipment used directly and predominantly to initiate, switch, or receive telephone communications, purchased by a vendor of taxable telephone/telegraph service, qualifies for the exemption in Tax Law § 1115(a)(12) and 20 NYCRR § 528.13(f).

Q: Does the exemption depend on our own voice mail service being taxable in the first place?
A: Yes -- per this opinion, the exemption is available because the equipment is used in providing a service (voice mail) that's itself subject to tax under Section 1105(b); it's tied to the vendor's role in a taxable telephone service chain.

Q: What if the equipment is used mostly for something other than initiating/switching/receiving calls?
A: This opinion conditions the exemption on the equipment being used "directly and predominantly" for those specific functions -- equipment used mainly for other purposes wouldn't qualify on these facts.

Citations

• Tax Law § 1105(b) -- imposes sales tax on telephony and telephone service receipts (other than interstate/international service).
• Tax Law § 1115(a)(12) -- exempts machinery/equipment used directly and predominantly in production, or telephone central office equipment/station apparatus used directly and predominantly in initiating, switching, or receiving telephone or telegraph communication.
• 20 NYCRR § 528.13(c), (f) -- defines "directly and predominantly" and confirms the central-office-equipment exemption applies when purchased or leased by the vendor of the taxable telephone service.
• Tigon Corp., Adv. Op. Comm. T&F, July 28, 1989, TSB-A-89(25)S -- prior opinion holding voice mail service is subject to sales tax under Section 1105(b); relied on here.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1994.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a94_20s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-94 (20)S
Sales Tax
April 25, 1994

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S931130C

On November 30, 1993, a Petition for Advisory Opinion was received from The Beeper
People, Inc., 310 State Street, Albany, New York 12210.
The issue raised by Petitioner, The Beeper People, Inc., is whether the purchase of voice mail
equipment used to interface with a telephone switching network and provide voice record and
storage services to telemessaging customers is exempt from sales tax under Section 1115(a)(12) of
the Tax Law.
Petitioner purchases voice mail equipment solely for the purpose of providing voice record
and storage services to its telemessaging customers. This equipment is used to interface with the
telephone switching network. The equipment is used at the initiation and destination of telephone
communication.
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."
Section 1115(a)(12) of the Tax Law provides an exemption for:
Machinery and equipment for use or consumption directly and predominantly in the
production of tangible personal property, gas, electricity, refrigeration or steam for
sale, by manufacturing, processing, generating, assembling, refining, mining, or
extracting, or telephone central office equipment or station apparatus or comparable
telegraph equipment for use directly and predominantly in receiving at destination
or initiating and switching telephone or telegraph communication.
Section 528.13(f) of the Sales and Use Tax regulations provides:
(f) Telephone and Telegraph equipment. (1) Telephone and telegraph central office
equipment and station apparatus, used directly and predominantly in receiving at
destination, initiating or switching telephone and telegraph communication is
exempt, when such equipment and apparatus is purchased or leased by the vendor of
such service for sale.
Section 528.13(c) of the Sales and Use Tax Regulations defines directly and predominantly:
Directly and predominantly. (1) Directly means the machinery or equipment must, during
the production phase of a process:

-2­
TSB-A-94 (20)S
Sales Tax
April 25, 1994
(i) act upon or effect a change in material to form the product to be sold, or
(ii) have an active causal relationship in the production of the product to be sold, or
(iii) be used in the handling, storage, or conveyance of materials or the product to be
sold, or
(iv) be used to place the product to be sold in the package in which it will enter the
stream of commerce.
Voice mail is subject to the sales tax imposed under Section 1105(b) of the Tax Law. Tigon
Corp., Adv Op Comm T & F, July 28, 1989, TSB-A-89(25)S.
Since Petitioner is providing a service that is subject to sales tax under Section 1105(b) of
the Tax Law, equipment purchased by Petitioner that is used to interface with a telephone switching
network and provide voice record and storage services to telemessaging customers, qualifies for
exemption from sales tax in accordance with Section 1115(a)(12) of the Tax Law and Sections
528.13(c) and (f) of the Sales and Use Tax Regulations, provided such equipment is for use directly
and predominantly in receiving at destination or initiating or switching telephone or telegraph
communications.

DATED: April 25, 1994

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

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