How did Texas tax hotel guest phone charges, complimentary calls, supplier-tax credits, and mixed interstate and intrastate long-distance billing?

Plain-English summary

The Texas Comptroller said tax was due on the amount the lodging business charged its guest for local or intrastate calls, not merely the amount paid to the telephone company.

For complimentary local calls, the business still paid tax to the phone company but did not charge the guest. It could take credit for supplier tax under Rule 3.338.

The letter said local tax could not be imposed on telecommunications until October 1987. Taxable and nontaxable telephone charges had to be separately stated; otherwise tax applied to the total charge. The state rate was scheduled to increase to 5.25% on January 1, 1987.

What this means for you

Customer billing, supplier tax, credits, and call classification were separate parts of the calculation. An averaging method could not replace the stated separate-charge requirement.

Common questions

What amount was taxed for guest calls? The amount charged to the guest.

Were complimentary calls taxed to the guest? No.

Could supplier tax be credited? Yes.

What if interstate and intrastate charges were not separated? Tax applied to the total.

Citations and references

• Comptroller Rule 3.338 — credit for tax paid to suppliers.
• Comptroller Rule 3.344(d) — separate statement of taxable and nontaxable telecommunications.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8610L0767A05

Original ruling text

October 24, 1986

Dear ***:

I have received your letter of September 30, 1986, concerning tax on
local and intrastate phone calls.

Below are your questions and our answers:

1. Does the tax apply to the amount the guest is charged or to the
   amount we pay for the calls?

Tax is due on the amount you charge the guest.

2. If local calls are provided on a complimentary basis, does this mean
   they are not taxable?

You still need to pay tax to the phone company; you do not need to
charge your customers tax on complimentary calls.

3. Does the tax we pay on our phone bill partially offset our liability
   for the sales tax? If not, why not? (It would appear we are paying tax
   on both the purchase and sale of the telephone service.)

Yes, you may take credit for the tax you pay on the phone service. See
enclosed Rule 3.338, Allowance of Credit for Tax Paid to Suppliers.

4. In CITY, our sales tax rate is 6 1/8%, of which 4 1/8% is attributable
   to the state. Are local taxes due on these telecommunications
   charges as well?

Local tax may not be imposed on telecommunication services until
October, 1987.

5. We have no way of differentiating between interstate long distance
   calls in the revenue we collect. We can, however, differentiate between
   them on the bills we pay. Can we use the bills we pay to figure an aver-
   age percentage of long distance cost applicable to intrastate calls and
   multiply this percentage by our total long distance revenue to arrive at
   an approximation of our taxable long distance revenue?

Please note under 3.344(d), the taxable and nontaxable telecommunications
service charges must be separately stated. If the taxable and nontaxable
charges are not separately stated, then tax is due on the total charge.

6. If the tax legislation now being considered by the legislature is
   passed, will this tax increase? If yes, by how much and when would the
   increase become effective?

The state tax rate will increase to 5.25% on January 1, 1987.

This opinion is based upon the facts 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, call 1-800-252-5555 toll free from anywhere in Texas, or
telephone 512/463-4600.

Sincerely,

Tax Policy
Tax Administration Division