Could Southwestern Bell charge Texas, Dallas, and DART sales tax on a separately stated special municipal charge?

Plain-English summary

Southwestern Bell separately passed a Dallas municipal franchise fee through to customers as a “special municipal charge.” The Comptroller said the charge was really part of the basic local exchange service fee paid for dial tone.

Because the Legislature had expanded the sales-tax base to include basic local exchange service, and both Dallas and DART imposed sales tax on telecommunications services, the Comptroller said Bell correctly charged state and local sales tax on the special municipal charge.

What this means for you

Separately stating the municipal charge did not remove it from the taxable telephone-service price. The letter treated the pass-through as part of the basic local exchange service rather than as an independent nontaxable fee.

Common questions

What was the special municipal charge? A franchise-fee cost Bell passed through as a separate line item for its use of city easements.

Was it part of the taxable phone service? Yes. The Comptroller treated it as part of basic local exchange service.

Which taxes did the letter approve? State sales tax and the local telecommunications taxes imposed by Dallas and DART.

Citations and references

The letter referred to the prior legislative session's expansion of the sales-tax base to basic local exchange service but did not cite a bill, statute, or rule number.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8805L0881G13

Original ruling text

Bob Bullock
Comptroller of Public Accounts
512-483-4600 Austin, Texas 78774

L B J
State Office
Building

May 2, 1988

Mr. Paul Purcell
Suite 1026
4343 West Northwest Highway
Dallas, Texas 75220

Dear Paul:

I just want to take a minute to acknowledge your letter asking about
sales
tax on your phone bill.

Most cities charge the phone company a monthly fee for having poles
on city
easements. It's just part of the phone company's cost of doing
business.

Bell passes this charge through to its customers as a separate line
item
called a "special municipal charge." It's really part of the basic
local
exchange service fee you pay for having a dial tone when you pick up
your
phone.

The last session of the Legislature expanded the sales tax base to
include
basic local exchange service. Both the City of Dallas and DART
impose sales
tax on telecommunications services, so Bell is correct in charging
state and
local sales tax on the "special municipal charge."

Please let me know any time I can be of service to you.

Sincerely,

BOB BULLOCK
Comptroller of Public Accounts

BB/msh

April 26, 1988

Mr. Bob Bullock

Capital Station
Austin, Texas 78774

To Whom It May Concern:

I would appreciate a written opinion from your office with regard
to the following:

The city of Dallas has levied a "Special Municipal Charge" of
4.167% on Southwestern Bell who passes this charge as designated
on to the consumer on their monthly telephone bill. The city of
Dallas explained this is a franchise fee they charge the telephone
company who passes it on to the consumer. My question is can
Southwestern Bell charge the consumer state and local tax on this
"Special Municipal Charge"?

Thank you for your prompt reply to this request.

Sincerely,

Paul W. Purcell
4343 W. Northwest Highway, Ste. 1026
Dallas, Texas 75220