How did Texas's October 1, 1985 telecom change affect packet-switching and data-processing charges?

Plain-English summary

The September 1985 letter amended a November 1984 response because of new legislation effective October 1, 1985. Charges for actual data processing remained nontaxable, but any portion attributable to intrastate long-distance telecommunications had to be separately stated and taxed.

The underlying service transferred data between incompatibly programmed remote computers through modems, phone lines, and the provider's mainframes. The original letter had treated network-access and network-traffic charges as nontaxable and required the provider to pay tax when buying modems furnished incidentally to dedicated-access customers.

Common questions

Were actual data-processing charges taxable? No.

Was the intrastate long-distance portion taxable? Yes, effective October 1, 1985.

Did it have to be separately stated? Yes.

Who paid tax on incidental dedicated-access modems? The service provider.

Citations and references

The reproduced letter cites no numbered statute or rule; it says a proposed rule was enclosed.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8509L0663C06

Original ruling text

September 16, 1985

Dear ***:

I wish to amend my letter of November 8, 1984 in light of recent legislative action.
Effective October 1, 1985, charges for "Intrastate" long distance service will become
subject to sales tax.

While charges for actual data processing are not subject to sales tax, any portion of
those charges attributable to intrastate long-distance telecommunication must be
separately stated and taxed.

I am enclosing a proposed rule for your reference.

If you have any questions or need more information, please call us at
1-800-252-5555 toll free from anywhere in Texas. You may write us at the Tax
Administration Division.

Sincerely,

Tax Policy Section
Tax Administration Division

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

November 8, 1984

Dear ***:

Thank you for your recent letter regarding "packet switching."

As I understand it, you provide a method of data transfer between
incompatibly programmed remote computers using modems and phone lines
to access your main frames. You offer three levels of service depending
on the degree of access desired.

The user provides all of his own equipment for the two lower levels of
access. The highest level user, dedicated access facility (DAF) is given
the use of a modem as an incidental part of the service. I understand that
there is no separate charge made for the modem.

The amounts paid by your customers for network access and network traffic
charges are not subject to sales tax. You would pay tax when purchasing
modems for DAF customers use.

This opinion is based upon the facts you presented. If there are additional
or different facts, this opinion may change.

Please feel free to contact us if you have additional questions. You may
write us, or call toll free 1-800-252-5555 from anywhere in Texas.

Sincerely,

Tax Policy Section
Tax Administration Division