Did a hotel have to collect Texas sales tax on local and intrastate long-distance telephone charges billed to guests?

Plain-English summary

Rule 3.344 treated a hotel that paid for telecommunications and resold them to guests as a seller. The basic-local-exchange exemption applied only when service was provided by a telephone company operating telephone lines or networks and regulated as a local-exchange provider.

Because the hotel did not meet that telephone-company definition, it had to collect tax on charges to guests for local and intrastate long-distance service. The letter also said city and MTA tax could not be imposed on telecommunications services until October 1, 1987.

Common questions

Were local telephone charges billed to guests taxable? Yes.

Were intrastate long-distance charges taxable? Yes.

Did the hotel's service qualify for the basic-local-exchange exemption? No.

When could local telecommunications tax begin under the letter? October 1, 1987.

Citations and references

• Texas Comptroller Rule 3.344(a)(4), (a)(7), (c), and (h) — seller, telephone-company, exemption, and local-tax provisions discussed in the letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8510L0680A05

Original ruling text

October 21, 1985

Dear ***:

Thank you for your letter of October 15, 1985, concerning the taxability
of charges passed on to guests for local telephone service.

I am enclosing a copy of State Sales and Use Tax Rule 3.344, Telecommunications
Services. Under 3.344 (a)(4), a "seller" includes a hotel that pays for
telecommunications services for resale to guests, and under 3.344 (a)(7),
a "telephone company" includes only those companies operating telephone lines
or networks and regulated by the Public Utility Commission as a provider of
local exchange service.

Telecommunication services are taxable except those listed in 3.344 (c).
This section exempts basic local exchange service provided by a telephone
company.

Since the hotel does not fall within the definition of a "telephone company,"
the hotel is responsible for collecting tax on charges to guests for local and
intra-state long distance phone service.

Please note under 3.344 (h) local tax, i.e. city and MTA, cannot be imposed
on telecommunications services until October 1, 1987.

This reply is based on the facts as presented, other facts although similar
may result in a different conclusion.

Please don't hesitate to call if you have any further questions. The
Texas toll-free number is 1-800-252-5555.

Sincerely,

Tax Policy Section
Tax Administration Division