Which telex and fax membership, intrastate, interstate, incoming-message, and refundable-deposit charges were taxable?

Plain-English summary

The company sent and received telex and fax messages for Texas subscribers who lacked their own equipment. The Comptroller classified its charges item by item:

• The annual membership fee, which provided use of the company's telex number and the right to send and receive messages, was taxable from October 1, 1985.
• Charges to send a telex within Texas, including passed-through carrier fees, were taxable.
• Charges to receive a Texas-originated telex for a subscriber were taxable.
• Charges to send a telex from Texas to another state or country became taxable October 1, 1987. Under Rule 3.344(b)(4), a long-distance service originating in Texas and billed to a Texas telephone number or billing or service address was taxable even if the invoice went out of state.
• A telex received from outside Texas was nontaxable because the service did not originate in Texas.
• The refundable $95 membership deposit was nontaxable unless applied to taxable services.

What this means for you

The historical result depended on message origin, the Texas billing or service address, and whether a refundable deposit was later used as payment.

Common questions

Was the membership fee taxable? Yes.

Were outgoing interstate or foreign messages taxable? Yes, when originating and billed as described by the Texas rule.

Were incoming messages from outside Texas taxable? No.

Was the deposit taxable? Not while refundable; any amount applied to taxable services became taxable.

Citations and references

• 34 Tex. Admin. Code Rule 3.344(b)(4) — historical telecommunications-services sourcing rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8801L0870E11

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

January 29, 1988

Dear ***:

On behalf of Mr. Bullock, I hop you'll accept my apology for the delay in
answering your question involving changes in the sales tax law. This
isn't
the way we normally do business.

Our people were, and still are, swamped by a deluge of inquiries as they
attempted to interpret provisions of the new law and draft rules which
would
not adversely impact businesses. In many instances, an answer to a
question
just wasn't available when the question arrived.

You stated that your client is a telex and fax service company. Messages
and
correspondence are sent and received for subscribers who do not have
their
own equipment. All of the subscribers are based in Texas.

You further stated that the business operates in the following ways:

A. Your client charges each subscriber an annual membership fee which
entitles the subscriber to use the company's telex number on their
stationery. It also entitles the subscriber to send and receive
messages through the service.

B. When a telex message is sent within the State of Texas, a fee is
charged and any additional fee charged by the telex carrier is also
billed to the subscriber.

C. When a telex message is received on behalf of a subscriber from within
the state of Texas, a fee is charged to the subscriber.

D. When a telex message is sent outside of the State of Texas (i.e., to
other states and foreign countries) a fee is charged, and the telex
carrier's fee is also billed to the subscriber.

E. When a telex message is received from outside the State of Texas, a
fee
is charged to the subscriber.

F. Upon becoming a member of the service, the subscriber is required to
make a $95 deposit which is refundable upon the member's resignation,
providing all other amounts owing have been paid.

Items A, B and C have been taxable as telecommunications services since
October 1, 1985. Item D became taxable on October 1, 1987. Section
(b)(4)
of Ruling 3.344, Telecommunications Services states that long-distance
telecommunications services which are both originated from a billed to a
telephone number or billing or service address within Texas are taxable;
therefore, if a call originates in Texas and is billed to a Texas service
address, the charge is taxable even if the invoice, statement, or other
demand for payment is sent to an address in another state.

Item E is nontaxable since the service did not originate within Texas.
Item
F, refundable deposit, is also not taxable, unless a part of the deposit
is
used to pay for taxable services.

Enclosed you will find a copy of Ruling 3.344, Telecommunications
Services,
for your review.

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 our
toll-free
number 1-800-531-5441. The regular number is 512/463-4600. You may
write me
at the Tax Policy Division.

Sincerely,
Julie Pesl
Tax Policy Division