How did Texas tax a provider's hotel calling-card service, purchased transmission time, customer billing, and installed equipment?

Plain-English summary

The provider installed its own equipment in hotels to capture calling-card and operator-assisted long-distance call data. Because the equipment was neither sold nor leased to the hotel, its installation was not itself a sale or rental to the hotel.

The provider bought carrier transmission time for resale to hotel guests and could give the long-distance carriers a resale certificate. The telephone companies that billed customers were responsible for remitting the sales tax they collected on the calls.

Equipment and other tangible property installed at hotels or otherwise used in Texas were taxable to the provider. Property brought from another state was subject to Texas use tax on purchase price, with credit for legally due tax paid to another state.

Common questions

Could the provider buy transmission tax-free for resale? Yes.

Who remitted tax billed to the end customer? The billing telephone companies.

Was hotel-installed equipment taxable? Yes to the provider, even though it was not sold or leased to the hotel.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8811L0937F05

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

November 8, 1988

Dear ****:

Thank you for your letter concerning your Texas sales and use tax
liabilities on long distance telecommunications service. The facts in your
letter are restated below with response:

* contracts with hotels to handle the hotel's calling-card and
operator-assisted long distance communications. * installs equipment
in the hotel's communications room to intercept and record call data. This
equipment is owned by *** and is not sold or leased to the hotel and
therefore is not a taxable transaction.

When guests make a calling-card call, our equipment captures the call
data and redials the call on our long distance carrier's transmission lines.
At this point, *** has purchased the transmission time from the carrier
for resale to the guest. We receive billings directly from the carrier for the
transmission costs associated with these calls. Currently, our carriers are
charging sales tax on these calls because we have not provided them with a
wholesaler's exemption certificate.

Daily, we poll each hotel electronically to gather call data. The data is
processed and transmitted to a third-party clearing house, * ().
sorts the data from * and other similar companies and
redistributes the information to the * ('s) an several independent phone
companies with which it has billing agreements. The 's and independents use
the data from * to bill their customers for these calls.

As in the case of any credit card call, the state and local sales taxes
appear on the customer's phone bills from their long distance carrier. As the
customers remit monies to the 's and independents, the taxes are collected.
After the phone companies deduct their billing charges and profits, the
remittances are sent to to be sorted and disbursed to ** and other
similar companies.

In our membership agreement with *, they have agreed to remit the
applicable federal, state and local sales and excise taxes collected from the
end user. Also, * will file the appropriate tax returns on behalf of their
members.

You may issue a completed resale certificate to the long distance
carriers in lieu of sales tax on the telecommunication service that you
purchase to handle the hotel's calling-card and operator assisted long distance
calls.

The ***'s and independent phone companies are responsible for remitting
the sales tax that they bill and collect from their customers on these calls.

The equipment and any other tangible personal property installed at the
hotels or used in Texas in providing your service are taxable to you at
purchase. If the items are brought into Texas from out-of-state, Texas use tax
is due based on the purchase price. You would be allowed credit against the
Texas use tax for the amount of sales or use tax legally due and paid to
another state.

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
1-800-252-5555, extension 34666. The regular number is 512/463-4666.
You may write to me at Tax Correspondence Comptroller of Public Accounts.

Sincerely,
Jo Ann Dieck
Tax Correspondence