How did Texas tax paging and cellular invoice items including equipment, airtime, installation, repairs, protection, long distance, and resale transactions?

Plain-English summary

The letter applied Rule 3.344 to both paging and cellular-mobile-phone services. A wireline carrier's basic-service charge became taxable when a paging or cellular carrier rebilled it as part of its service.

Installation of customer-owned mobile phones, and separately identified installation of carrier equipment sold or rented to a customer, was not taxable before October 1, 1987. Installation charges became taxable on that date. Late-payment and returned-check fees were not taxable. A separately stated waiver-of-liability fee was also not taxable.

A purchaser reselling taxable paging or cellular service could give the carrier a completed resale certificate and collect tax from its own customers. A reseller could likewise buy equipment tax-free when it transferred the equipment as part of the taxable service, but a separately stated customer charge for that equipment was taxable.

The letter said city and MTA taxes followed state treatment subject to their governing laws. It sourced telecommunications service to the origin location, treated the device location as the place of consummation, and used the billed address if the origin could not be determined.

Monthly invoice classifications

The letter classified these items as taxable: equipment sales and rentals; tone, display, voice, and alphanumeric flat or measured rates; optional features; maintenance contracts; service initiation; peripheral equipment; airtime; access charges; equipment repair; and intrastate roamer airtime, toll, and surcharges.

Long-distance charges were taxable when calls originated in Texas and were billed to a Texas telephone number or billing or service address; interstate calls became taxable October 1, 1987. Equipment-damage insurance was taxable as a rental expense, while separately stated insurance covering only lost or stolen equipment was not.

What this means for you

The historical letter treated most core service and equipment charges as taxable, allowed resale treatment only with proper documentation, and made separate statement important for installation and protection charges. Its own closing warned that Rule 3.344 and the law had not yet been updated for the October 1987 changes.

Common questions

Were late fees and NSF-check charges taxable? No.

When did installation become taxable? October 1, 1987.

Could a telecommunications reseller issue a resale certificate? Yes, then collect tax when reselling the service.

Was all equipment insurance taxable? No. Damage-repair coverage was taxable, but separately stated lost-or-stolen-only coverage was not.

How did the letter source local tax? Primarily by where the service originated, using the billed address if origin could not be determined.

Citations and references

• Texas Comptroller Rule 3.344, paging and cellular telecommunications services

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8709L0833E04

Original ruling text

September 14, 1987

Dear **:

Thank you for your letter requesting a determination of applicable sales tax on
line items as they appear on your monthly customer invoicing for paging
services and products. We also received your letter requesting a determination
of applicable sales tax on line items as they appear on our monthly customer
invoicing for cellular mobile phone services and products. Because both paging
services and mobile phone services are covered by the same Rule 3.344, we will
respond to both of your requests in this letter.

The wireline telephone company's charge for the dial tone or basic service will
be taxable when it is rebilled by a radio common carrier or cellular carrier to
its customer as part of the mobile telephone or paging service.

Fees for installation of mobile telephones owned by customers are not taxable.
Fees for installing equipment owned by the carrier which is sold or rented to a
customer are not taxable if installation fees are separately identified on an
invoice, billing or contract. However, installation fees will become taxable
effective October 1, 1987.

Late charges on overdue bills and fees for returned (insufficient funds) checks
are not taxable.

Waiver of liability fees are rot taxable. The charge must be separately stated
from other charges.

Carriers will not be required to collect sales tax on telephone paging and
cellular telephone service from a purchaser who will resell the taxable service
to its customers. The purchaser must issue the carrier a properly completed
resale certificate validated with the purchaser's sales tax permit number. The
purchaser will collect sales tax when the service is resold to its customers.
Cellular carriers who sell mobile telephone services (air time) for resale may
accept a resale certificate from the purchaser in lieu of collecting the sales
tax. Sales tax will be collected when the service is resold. The provider of
the mobile telephone service (the reseller) may purchase equipment which is
transferred to its customer as part of the taxable service tax free. A
separately stated charge for the equipment will be taxable.

City and Metropolitan Transit Authority (MTA) taxes will apply in the same
manner as the state sales tax except as modified by the city sales tax act and
the MTA sales tax act. Telecommunication services are exempt from city and MTA
sales and use tax until October 1, 1987, and thereafter unless the governing
body of a city or the board of an MTA adopts an order repealing the application
of the exemption. Such an order repealing the exemption cannot take effect
until October 1, 1987.

City and MTA sales tax will be determined by the location from which the
telecommunications service originates. The location of the telecommunications
device is where the telecommunications service is consummated. If the point of
origin cannot be determined, the sale is consummated at the address to which
the call is billed. I am enclosing a list of cities which will impose local tax
on October 1, 1987.

Below are line items on your monthly bills with our responses:

1) Equipment Sales - Taxable
2) Equipment Rental - Taxable
3) Tone Flat Rate - Taxable
4) Display Flat Rate - Taxable
5) Voice Flat Rate - Taxable
6) Voice Measured Rate - Taxable
7) Alphanumeric Measured Rate - Taxable
8) Alphanumeric Flat Rate - Taxable
9) Optional Service Features - Taxable
10) Installation of Equipment - Not taxable. However, charges for installation
of equipment will become taxable effective October 1, 1987.
11) Maintenance Contract - Taxable
12) Service Initiation - Taxable
13) Peripheral Equipment - Taxable
14) NSF Check Charge - Not taxable
15) Airtime - Taxable
16) Long Distance - Taxable if calls originate in Texas and are billed to a
telephone number or billing or service address in Texas. Interstate calls are
taxable effective October 1, 1987.
17) Equipment Repair - Taxable
18) Insurance - Taxable if the insurance is to repair damaged equipment. This
is an expense in connection with the rental. Separately stated charges for
insurance covering lost or stolen equipment only is not taxable.
19) Access Charge - Taxable
20) Roamer Airtime - Taxable for intrastate calls.
21) Roamer Toll - Taxable for intrastate calls.
22) Roamer Surcharge - Taxable for intrastate calls.

Pagers and cellular mobile telephone equipment which will be transferred to a
customer as part of the taxable telecommunications service may be purchased
tax-free. Tax must be collected from the carrier's customer on the charge for
such equipment.

Please find attached Rule 3.344 and a copy of the Texas Sales and Used Tax Law.
Please note that the rule and law have not yet been updated to reflect changes
in the law effective October 1, 1987. Revisions are presently being made. You
may make a request of the revised law and ruling at a later date.

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

If you have any questions or need more information, please call me at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write me at the Tax Policy Division.

Sincerely,

Jo Ann Dieck
Tax Policy Division