How did Texas apply sales tax to paging service, long-distance inputs, switching equipment, and related charges?

Plain-English summary

The Comptroller said the provider had Texas sales-and-use-tax responsibilities and that paging service sold to local subscribers was taxable. For an intrastate page, the local rate was determined by the location of the local paging company where the message originated. A page sent from Texas to another state was subject to the then-stated 6% state tax but not city, county, or transit tax; a message originating outside Texas was not subject to Texas state or local tax under the letter.

Because long-distance calls were an integral part of the paging service, the provider could give its carrier a resale certificate. The local paging companies that billed subscribers would collect tax, and the provider could accept resale certificates from them.

The letter also addressed switching equipment. Employee installation meant tax was due only on the provider's cost of the switches, while contract technicians made the installation labor taxable because it remodeled telephone circuitry. It also said the provider would be subject to corporate franchise tax and would need authority to do business in Texas.

Common questions

Could the provider buy long-distance service for resale? Yes, because the calls were an integral component of the taxable paging service.

Who collected tax from subscribers? The local paging company that billed the customer.

Was switch-installation labor taxable? Not when the provider's own employees performed it under the stated facts; contract installation labor was taxable.

Are the rates in this 1989 letter current? The page reports the letter's historical treatment. STAR warns that older documents may no longer reflect current policy.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8902L0921G07

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

February 2, 1989

Dear **:

Thank you for your recent letter and description of the **
Service. Each of your questions are restated with responses below.

Question 1:
Will the activities of ** subject **** to sales/use tax
responsibilities in Texas?

Answer 1: Yes.

Question 2:
If the answer to 1 above is yes, then is the providing of **
services to the local subscriber subject to sales/use tax?

Answer 2: Yes.

Question 3:
If the answer to 2 above is yes, and since ** does not
provide any service to the local subscriber until after the page
message reaches the local paging company, we assume that the rate
of tax is the rate applicable at the location of the local paging
company. Is that assumption correct?

Answer 3:
This is correct for intrastate paging. When a page message is
transmitted from a point within Texas to another point in state,
the tax rate is determined by the location of the local paging
company where the message originates. In addition to state
sales tax, city, county, and/or mass transit taxes may be due.

If the page message is transmitted to a point outside Texas, it is
subject to 6% state tax but is exempt from city, county and mass
transit authority taxes. If the message originates at a local
paging company located in another state, neither state nor local
taxes are due.

Question 4:
Are telephone services for business use subject to sales/use tax
in Texas?

Answer 4: Yes.

Question 5:
If the answer to questions 2 and 4 are yes, may such telephone
services be purchased tax exempt by ** as a component part
of a taxable service?

Answer 5:
Since the long distance call is an integral part of the
telecommunications service that ** provides, they may issue
their long distance carrier a resale certificate in lieu of tax.

Question 6:
**'s local switches will be installed and owned by
*.
Will *** owe use tax on such switches? If use tax is owed,
what is the basis, original cost or installed cost?

Answer 6:
In our phone conversation you said that ** would
send their own employees into Texas to install the switches. On
that basis, **** would owe tax only on their cost of the
switches. However, if they use contract technicians to make the
connections, they will owe tax on the labor component also. The
reason for this is that while installation charges are not in and
of themselves taxable events, in this instance, the installation
constitutes remodeling the paging companies telephone circuitry.
The remodeling function is taxable when done by contract labor but
not when done by employees of the company.

Question 7:
Are there any other sales/use taxes, communication or occupation
taxes to which ** will be subject? If yes, how do we
register to further comply?

Answer 7:
Both state and local sales and use taxes are remitted
to this agency on a consolidated return. Since local tax on
telecommunications service is imposed on a local option basis, it
is not applicable in all areas. I am enclosing a brochure for
your reference and will up date the material quarterly.

The switches are not subject to the local option election and are
taxed at the full prevailing rate for tangible personal property.
I am enclosing a brochure listing tax rates in areas throughout
Texas. I do not know what, if any, other local taxes may be due.

Question 8:
Other than income and ad valorem taxes, are there any other state
taxes to which ** will be subject?

Answer 8:
** will be subject to the corporate franchise tax
and will need a certificate of authority to do business in Texas.
You will receive the appropriate forms under separate cover.

As we discussed, sales tax is normally collected by the company
that bills the customer. Since your services are billed through
the local paging company, they would collect and remit tax on the
long distance paging service. You may accept a resale certificate
from the individual paging companies in lieu of tax.

This opinion is rendered based on the facts you presented. Other
facts, though similar, may yield different results.

Please feel free to call or write me any time. You can reach me
by calling toll free 800-531-5441, FAX (512) 475-0900.

Sincerely,
Al Van Allen
Taxability Section
Legal Services Division