Was a separate fee for resold discounted long-distance service taxable to Texas and out-of-state customers?

Plain-English summary

A business bought volume discounts from telephone companies and resold discounted long-distance service, billing customers a separate service fee.

Texas customers had to pay tax on that fee when the calls originated from and were billed to a Texas telephone number or billing, service, or location address. Out-of-state customers were exempt from Texas tax.

The letter also noted that city, county, metropolitan-transit-authority, and city-transit-department taxes applied only when the relevant locality had adopted them.

Common questions

Was the separate service fee taxable to a Texas customer? Yes, when the origin-and-billing conditions were met.

Were customers outside Texas taxable? No.

Did every locality impose telecommunications tax? No. The local taxes were optional.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8905L0943C01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

May 23, 1989

Dear **:

I just want to take a minute to follow up our conversation with
some written material.

Your client ** is purchasing volume discounts from
* and reselling these to their customers. You said this
was in response to * and **** type reduced price
telecommunications marketing.

You said:

"** is starting a new business which sells dis-
counted telephone long distance service primarily to com-
mercial users. At the end of a billing period, their cus-
tomers receive a bill from *, which, of course,
is subject to sales taxation. However, * then
sends the customer a separate bill for it's service fee.
This is where the question is raised. Is ****'s
service free subject to sales taxation? Also, are the
customers who are not in Texas (i.e. a customer in Louisiana)
subject to tax from Texas?"

Response: Texas customers must pay tax on your service while out
of state customers are exempt. For your service fee to be subject
to Texas tax, the calls must originate from and be billed to a
Texas billing or service or location address. City, county, MTA
and CTD taxes are imposed on a local option basis. I am enclosing
our brochures Local Taxes on Telecommunications Services and Sales
Tax Rates in Texas for your reference.

Please feel free to call or come by any time. You can reach me
directly at 463-4680.

Sincerely,
Al Van Allen
Taxability Section
Legal Services Division