Which sales-tax rate applied when telecommunications equipment was rented with service, rented alone, or sold outright?

Plain-English summary

The Comptroller explained an administrative rate rule for telecommunications equipment. When a company rented equipment together with telecommunications service, the tax rate applicable to the telecommunications service applied to the transaction.

When the equipment was rented without telecommunications service, or sold outright, the transaction was subject to the full sales-tax rate in that area. State sales tax was due on every transaction.

The distinction addressed a local-tax problem: every sales-tax jurisdiction taxed rentals of tangible property, but not every jurisdiction taxed telecommunications services.

What this means for you

Under the 1988 policy, bundling the equipment rental with telecommunications service changed the applicable combined rate. A standalone rental or outright equipment sale followed the full rate for the location.

Common questions

What rate applied to equipment rented with telecommunications service? The rate applicable to telecommunications services.

What rate applied to equipment rented without service? The full tax rate in that area.

What about an outright equipment sale? It also used the full tax rate in that area.

Was state sales tax due? Yes, on each transaction.

Citations and references

The letter did not cite a rule or statute by number. It enclosed the Comptroller's brochures “Sales Tax Rates in Texas” and “Local Taxes on 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/8805L0868A13

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
COMPTROLLER May 5, 1988

Dear **:

This letter will confirm our policy on telecommunication equipment and
service.

All jurisdictions that impose sales tax, impose it on the rental of
tangible
property. However, not all jurisdictions impose tax on
telecommunications
services.

Because of this, many telecommunications companies would have had to
charge
two different tax rates on each invoice. We solved the problem
administratively by saying that when a company rents telecommunications
equipment along with their provision of the service, the tax rate
applicable
to telecommunications services will be due.

When equipment is rented without the provision of a telecommunications
service, or when the equipment is sold outright, the transaction is
subject
to the full tax rate in that area.

I am enclosing copies of our brochures "Sales Tax Rates in Texas" and
"Local
Taxes on Telecommunications Services" for your reference.

State sales tax will be due on each transaction.

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,
Al Van Allen
Tax Policy Division