New York Advisory Opinion TSB-A-96(14)S: Is a telephone answering service's markup for long-distance calls it makes to forward messages to out-of-area clients taxable as a resale of telephone service, or as part of the taxable answering-service charge -- and does it matter where the client is located?

Plain-English summary

Total Recall Message Center is a telephone answering service operating in New York State and several surrounding states. For customers whose office is located outside Petitioner's local calling area, Petitioner provides a toll-free number on its own telephone trunks so the customer can forward its business line to Petitioner; those out-of-area customers are charged an extra fee for calls on the toll-free number and for any long-distance call Petitioner makes back to relay messages. Petitioner already collects and remits New York sales tax on these fees, but asked whether it should instead be treated as reselling inbound and outbound long-distance telephone service -- which would let it exclude the underlying carrier cost as a resale rather than treat the fee as part of its own taxable service.

The Department ruled Petitioner is providing a "telephone answering service" as defined by Tax Law § 1101(b)(13) -- a service that takes messages by telephone and transmits them to the customer -- which is taxed under § 1105(b), separately from ordinary telephony/telegraph service. Petitioner isn't reselling long-distance telephone service to its customers; it's simply incurring long-distance expenses as a cost of delivering its own taxable answering service, and under Tax Law § 1101(b)(3), expenses incurred in making a taxable sale aren't deductible from the receipts subject to tax. That said, the Department's TSB-M-91(13)S guidance establishes that an answering service's taxability and applicable local tax rate depend on the physical location of the customer's business (or, for an individual customer, the customer's personal residence) -- not on the location of the phone being answered or of the answering service itself. So where Petitioner provides its service to a customer located outside New York State, no New York sales tax applies to the charges for that service (including the long-distance fees at issue); where the customer is located in New York, the receipts -- long-distance fees included -- are taxable at the combined state and local rate of the customer's business or residence location.

What this means for you

Telephone answering services

Long-distance or toll-free-call charges you pass through to customers as part of your answering service are generally treated as part of your own taxable service receipts, not as a separate resale of long-distance telephone service -- so you can't exclude those charges from tax as a "cost of the service you're reselling."

Multi-state or remote answering services

The taxability and rate of your service depends on your CUSTOMER's location (their business address, or personal residence for an individual), not on where you or your equipment are physically located, or where the calls being answered originate. Track each customer's actual location to correctly apply -- or correctly not apply -- New York sales tax.

Common questions

Q: Why doesn't Petitioner get to treat its long-distance charges as a tax-free pass-through, the way a reseller would?
A: Because Petitioner isn't selling long-distance telephone service itself -- it's selling a distinct taxable service (answering/message-taking) that happens to require Petitioner to place long-distance calls as part of performing it. Those calls are Petitioner's own cost of doing business, not a separately taxable transmission service being resold to the customer.

Q: If Petitioner is based in New York and the answering service equipment is in New York, does that make the charges taxable regardless of the customer's location?
A: No -- the ruling is explicit that the LOCATION OF THE ANSWERING SERVICE BUSINESS doesn't control; what matters is where the customer's own business or personal residence is located, per the Department's TSB-M-91(13)S guidance and its illustrative examples.

Q: Does the customer's tax rate depend on where they physically are when they receive their messages (e.g., via pager)?
A: No -- per the guidance's own example of a nonresident who receives messages via pager while traveling in New York, the relevant location is still the customer's personal residence (or business address), not wherever they happen to be when the message is actually delivered.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(3) (definition of receipt)
• Tax Law § 1101(b)(13) (definition of telephone answering service)
• Tax Law § 1105(b) (tax on telephony/telegraphy and telephone answering service)

Prior guidance referenced:

• TSB-M-91(13)S, "Telephone Answering Services Subject to Sales Tax Effective September 1, 1991"

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a96_14s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (14)S
Sales Tax
February 28, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S951019A

On October 19, 1995, a Petition for Advisory Opinion was received from Total Recall
Message Center, 703-C S. Main Street, Horseheads, New York 14845.
The issue raised by Petitioner, Total Recall Message Center, is whether sales tax is applicable
to certain long distance fees charged to clients as part of Petitioner's telephone answering service.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner is a telephone answering service that provides service to customers throughout
New York State and several surrounding states. For each customer with an office located outside of
Petitioner's local calling area, Petitioner provides a toll-free number, on Petitioner's telephone trunks,
to be used by the customer to forward its business line to Petitioner. The customer is charged an
additional fee by Petitioner for any call on the toll-free number and for any long distance call that
Petitioner makes back to the customer. Petitioner collects and remits New York State sales tax on
these fees but contends that it is basically reselling inbound and outbound long distance telephone
service to these customers. Customers that are located within Petitioner's local calling area are not
charged the additional fees.
Section 1101(b)(3) of the Tax Law defines "receipt" in part as follows:
(3) Receipt. The amount of the sale price of any property and the charge for
any service taxable under this article, valued in money, whether received in money
or otherwise, including any amount for which credit is allowed by the vendor to the
purchaser, without any deduction for expenses ....
Section 1101(b)(13) of the Tax Law defines a telephone answering service as follows:
(13) Telephone answering service. A service that consists of taking messages
by telephone and transmitting such messages to the purchaser of the service or at the
purchaser's direction, but not including such service if it is merely an incidental
element of a different or other service purchased by the customer.
Section 1105(b) of the Tax Law imposes tax upon:
(b) 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 and from every sale, other than sales for resale, of a telephone answering
service.

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Sales Tax
February 28, 1996

Technical Services Bureau Memorandum TSB-M-91(13)S, entitled Telephone Answering
Services Subject to Sales Tax Effective September 1. 1991, provides the following guidance as to
when the sales tax is imposed upon receipts from telephone answering services.
In general, it is the location for which the telephone answering service is being
provided (the customer's business or the customer's personal residence) that will
determine whether the service is subject to tax in New York State and the rate (local
jurisdiction) at which tax is to be computed.
The rate of tax to charge with respect to telephone answering services is
determined as follows:
If telephone answering service is being provided to a business, the physical location
(address) of that business determines the tax rate, regardless of the physical location
of the phone that is being answered.
Example (1): Mr. Smith, doing business as County Realty, purchases an
answering service for calls which would normally ring through the number
of the real estate business. Mr. Smith's personal residence is in County A
which has a 7 percent tax rate and the answering service is also located in
County A; but Mr. Smith's real estate office is located in County B, which has
a tax rate of 6 percent. The telephone answering service is required to collect
sales tax at 6 percent and report such sale as a sale in County B.
Example (2): A major bank, headquartered in County A, with branches in
other counties throughout the state, contracts with a telephone answering
service located outside the state to answer a special "800" phone number the
bank advertises to receive comments, compliments, or complaints about any
of its tellers and service representatives. These messages are then provided
to the customer service department located at the headquarters in County A,
for processing. Since the telephone answering service is being provided for
the service department located in County A, the answering service must add
to its charges the combined New York State and local sales tax in effect in
county A.
If a telephone answering service is being provided for an individual, the physical
location of the individual's personal residence determines the tax rate.
Example (3): Ms. Jones, a nonresident of New York State, purchases an
answering service from a service located in New York State. Ms. Jones is
frequently away from her home. When Ms. Jones leaves her personal
residence (which is located outside New York State), her personal calls are
answered by the service in this state. Ms. Jones is made aware of her

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Sales Tax
February 28, 1996

calls through a pager. Virtually all Ms. Jones' personal messages from the
service are received by her while she is in New York. The telephone
answering service rendered for Ms. Jones' personal residence located outside
New York State is not subject to this state's sales tax even though the
answering service business providing the service is located in this state, and
even though Ms. Jones may receive her messages while she is in New York.
In this case, Petitioner is providing a telephone answering service, as defined in Section
1101(b)(13) of the Tax Law. The receipts from the sale of that service are taxable under Section
1105(b) of the Tax Law. Petitioner is not providing its customers with telephony, telegraphy, or
telephone or telegraph services. Accordingly, Petitioner is not reselling long distance telephone
services to customers, but is merely incurring long distance expenses in conducting its telephone
answering service. These expenses are not deductible in determining taxable receipts. However, as
indicated in Technical Services Bureau Memorandum TSB-M-91(13)S, supra, the location for which
the telephone answering service is being provided (i.e., the customer's business or the customer's
personal residence) determines whether receipts from the sale of the service are subject to tax and
the rate at which the tax is to be computed. Thus, where Petitioner provides telephone answering
services for locations of customers outside of New York State, no New York sales tax is due on these
services.

DATED: February 28, 1996

/s/
DORIS S. BAUMAN
Director
Technical Services Bureau

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