How did Texas tax public fax transmissions, receive fees, dedicated lines, and mixed-use memberships in 1989?

Plain-English summary

Public fax transmission charges were taxable telecommunications services. An intrastate transmission bore state and applicable origin-city tax; an interstate transmission bore state tax but no local tax under the 1989 rules described. Separately billed long-distance amounts were also taxable.

A fax provider could buy local and long-distance telephone service tax-free for resale when it used a line dedicated to fax service. It could also buy transferred fax paper for resale. If it used the resale-purchased line for its own business call or correspondence, it owed tax based on its call cost.

A fee for receiving a fax was taxable when the transmission originated in Texas and exempt when it originated outside Texas. Tax paid by the sender did not exempt the receiver's separate charge.

For a membership offering discounted transmissions and free receptions, the provider could tax a documented taxable-use percentage. If it could not establish the percentage, the entire membership fee was taxable.

Common questions

Were interstate fax charges free from all Texas tax? No. The letter applied state tax but no local tax.

Could a dedicated fax line be bought for resale? Yes.

Was an incoming out-of-state fax charge taxable? No, under the stated sourcing rule.

What happened if a membership's taxable percentage could not be supported? The entire fee was taxable.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8904L0931G02

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TX 78774

April 25, 1989

Dear *:

I just want to take a minute to acknowledge our conversation and
your follow-up letter on facsimile services. Your questions are
restated with responses below:

Question 1: A customer comes into my place of business and asks
me to send 3 pages within the state of Texas (say Abilene to
Houston). I charge him $8.00. I include the phone charges
incurred in my rates. Taxable? How much?

Answer 1: The total charge is taxable as a telecommunications
service. Since the transmission is intrastate, and since the City
of Abilene imposes local tax on telecommunications services, you
should collect 7% sales tax on the sale.

Question 2: This is a multi-part question. A customer sends 3
pages to a city outside of Texas. I charge him $8.00. Again I've
figured my long distance into these rates. Taxable? How Much?

Answer 2: The $8.00 charge is taxable. But, since it's for an
interstate transmission, it's only subject to state tax. Inter-
state telecommunications services are not subject to local tax.

Question 2A: Is there any difference if in addition to a per page
charge I also charge $.90 per minute for long distance charges?

Answer 2A: The $.90 per minute charge would also be subject to
tax. If the charge were for an intrastate FAX transmission then
Abilene local tax would also apply.

Question 2B: Are there any circumstances under which I can get a
sales tax exemption from the long distance carrier?

Answer 2B: You may purchase both your basic local exchange
service and your long distance service tax free if you have a line
dedicated to FAX service. You will issue your supplier a resale
certificate in lieu of tax. I'm sending you a copy of rule 3.285]
under separate cover.

Question 2C: What if we are calling an 800 number or using the
customers "calling card?"

Answer 2C: The person who paid the carrier for the call would pay
the tax on the call. You would charge tax for the FAX service you
provide.

Question 3: A customer has a FAX sent to him at our FAX machine.
We charge him $1.50 per page. The FAX originated in Texas. Is
this taxable? What if the point of origin was another public FAX
service and the sender has paid tax? Is there any difference if
it originates out-of-state?

Answer 3: Your charge is taxable if the transmission originates
in Texas but is exempt if it originates out-of-state. The fact
that the sender paid tax on the transmission would not cause your
charge for FAX reception to be exempt. You may purchase the paper
you use in your FAX machine tax-free by giving your supplier a
resale certificate.

Question 4: We offer a membership program whereby the customer
pays $50 and for a period of one year gets all transmission at a
20% discount and all receptions are free. Is the $50. taxable?

Answer 4: The membership fee entitles the purchaser to free or
discounted telecommunications services some of which might be tax-
exempt if purchased separately. At the outset of membership you
would not be able to determine what percentage of receptions would
be subject to tax. You would also not be able to accurately tell
the percentage of transmissions that would be subject to both state
and city tax and those that were subject to state tax only. If you
established a percentage of your service that is taxable and can
demonstrate that percentage in your books, you may use that figure
as a multiple of the $50 membership fee to use as the base against
which tax is applied. You may do the same in computing the local
tax. If you are unable to establish this percentage the entire $50
membership fee will be considered to be subject to tax.

Question 5: Finally, if I give a resale certificate for my phone
charges and then use the FAX to place an order for my business or
to correspond with another person, what tax is due?

Answer 5: You would owe tax based on your cost of the calls.

Feel free to call or write me if you have questions. You can
reach me by calling toll free 800-531-5441 or FAX (512) 475-0900.

Sincerely,
Al Van Allen
Taxability Section
Legal Services Division