Does Texas tax charges to access a foreign company's electronic mailbox, and does the company owe Texas franchise and sales tax?

Plain-English summary

A representative wrote on behalf of a United Kingdom client operating an international electronic mailbox, asking a series of questions about the client's Texas tax obligations. Texas customers made their own arrangements and paid the phone company independently for each international telephone connection to the client's mailbox. The Comptroller answered each question:

• Doing business in Texas for franchise tax? Yes.
• Sales/use tax permit for software licensing? Yes — and the client must collect, report, and remit Texas sales/use tax on the software licensing activities.
• Permit for the electronic mailbox services performed in the UK and solicited by sales representatives? Yes. The Comptroller's staff unanimously viewed the client as providing a telecommunications service, and the charge for accessing the mailbox from a point within Texas is subject to sales tax.
• Taxable if the customer's phone number or billing address is in Texas? The client's charges for access to the mailbox from points within Texas are subject to sales tax.
• Taxable if the customer's billing/service address is not in Texas? If the call is placed from a point within Texas, the access charge is taxable; otherwise it is not.
• Taxable if the accessing calls do not originate in Texas? In that case the charges are not subject to Texas tax.

The through-line: the electronic mailbox is a telecommunications service, and the taxability of the access charge turns on whether the accessing call originates from a point within Texas — not on where the customer's billing address happens to be.

What this means for you

Providers of electronic mailbox / messaging services

Access charges for an electronic mailbox are treated as a telecommunications service. Tax follows the origin of the accessing call: charges for access from a point within Texas are taxable; access from outside Texas is not, even by the same customer.

Foreign and out-of-state operators

Soliciting Texas customers through sales representatives and licensing software into Texas can create Texas obligations — here, franchise-tax "doing business" status and a duty to hold a sales/use permit and collect tax on software licensing. Billing address alone does not control the sales-tax result for access charges; the origin of the call does.

Software licensing

The client's software licensing activities required a Texas sales/use tax permit and collection, reporting, and remittance of the tax.

Common questions

Q: Is accessing an electronic mailbox taxable in Texas?
A: It is treated as a telecommunications service. The access charge is taxable when the accessing call is placed from a point within Texas.

Q: Does it matter where the customer's billing address is?
A: No. Even if the billing/service address is outside Texas, a call placed from within Texas makes the access charge taxable; a call from outside Texas does not.

Q: Does the foreign company owe Texas franchise tax?
A: The Comptroller concluded the client is doing business in Texas for franchise-tax purposes.

Q: What about the company's software licensing?
A: The client must hold a Texas sales/use tax permit and collect, report, and remit tax on its software licensing activities.

Q: Can I rely on this 1988 letter today?
A: Treat it as guidance only. It is based on the facts presented and can change with different facts; on the STAR system it binds the Comptroller only as to the taxpayer it was issued to and may no longer reflect current policy.

Citations and references

Statutes and rules: The letter states the Comptroller's conclusions on franchise-tax nexus, the sales/use permit and collection duty for software licensing, and the telecommunications-service treatment of mailbox access, but does not cite a specific Tax Code section or rule by 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/8808L0894A09

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TX 78774

BOB BULLOCK
Comptroller August 29, 1988

Dear ****:

Thank you for your recent letter on behalf of your client in the
U.K. who is operating an international mailbox.

I called *** and was told that each of the Texas
customers makes his own arrangements for and pays the phone compa-
ny independently for each international telephone connection he
makes with your clients mail box. With this in mind, each of your
questions is restated with response below.

Question: Would our client be regarded as doing business in Texas
for purposes of the Texas franchise tax?
Answer: Yes.

Question: Would our client be required to have a Texas sales/use
tax permit with respect to the software licensing activities?
Answer: Yes.

Question: Would our client be required to collect, report and
remit Texas sales/use tax on the software licensing activities?
Answer: Yes.

Question: Would our client be required to have a Texas sales/use
tax permit with respect to the electronic mailbox services per-
formed in the U.K. and solicited by the sales representatives?
Answer: Yes. I polled my co-workers and their unanimous opinion
was that your client is providing a telecommunications service and
that the charge for accessing your client's mailbox from a point
within of Texas was subject to sales tax.

Question: Would our client's electronic mailbox service performed
in the U.K. be subject to Texas sales/use tax if the customer's
telephone number or billing service address is located in Texas?
If taxable, would our client be required to collect, report, and
remit Texas sales/use tax on the access charges?
Answer: Your clients charges for access to his mailbox from
points within Texas are subject to sales tax.

Question: Would our client's electronic mailbox service performed
in the U.K. be subject to Texas sales/use tax if the customer's
billing/service address is not located in Texas? If taxable,
would our client be required to collect, report, and remit Texas
sales/use tax on the access charges?
Answer: If the call were placed from a point within Texas, the
charge to access the mailbox would be taxable. Otherwise the
access charge would not be subject to Texas sales tax.

Question: Would our client's electronic mailbox service performed
in the U.K. be subject to Texas sales/use tax if telephone calls
accessing that service do not originate in Texas? If taxable,
would our client be required to collect, report, and remit Texas
sales/use tax on the access charges?
Answer: In this instance, your clients charges would not be
subject to Texas tax.

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

If you have any questions or need more information, please write or
call toll free 1-800-531-5441.

Sincerely,
Al Van Allen
Tax Correspondence Division