Was sales tax due on a municipal franchise fee itemized on cable-television and telephone bills?

Plain-English summary

Cable-television and telephone services were taxable services. Their sales price included the total amount charged without a deduction for labor, service, losses, or other business expenses.

The municipality imposed the franchise fee on the cable and telephone companies for the right to do business there. Passing that expense through as an itemized customer charge did not remove it from the taxable sales price, so sales tax applied to the fee.

Common questions

Did separately itemizing the franchise fee make it nontaxable? No.

Why was the fee included in the tax base? It was the provider's business expense passed through as part of the service's sales price.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8904L0934F09

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

April 18, 1989

Dear ***:

Thank you for your letter of April 12, 1989, concerning whether
sales tax should be charged on the municipal franchise fee that
is an itemized charge on your cable television and telephone
bills.

Cable television services and telephone (telecommunications) ser-
vices are taxable services. The sales tax law defines taxable
items as tangible personal property and taxable services. The
sales tax law imposes a sales and use tax on the sales price of
a taxable item.

The sales tax law defines the sales price of a taxable item as the
total amount for which the item is sold, valued in money, without
a deduction for the cost of materials used, labor or service em-
ployed, losses, or other expenses. The municipal franchise fee
is an expense imposed by the municipality on the cable televi-
sion and telephone companies for the right to conduct business in
the municipality.

As with any prudent business, the cable television company is
passing along this incurred expense on to the customer as a part
of the sales price of the service provided. The cable television
company is correctly charging sales tax on the municipal franchise
fee.

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, you may call
toll-free 1-800-252-5555, ext. 3-4683. The regular number is
512/463-4600. You may write me at Tax Correspondence, Comptroller
of Public Accounts.

Sincerely,
Eddie C. Washington
Tax Correspondence