How did Texas tax telecommunications, local-network access, answering services, and free telephone directories?

Plain-English summary

Texas sales tax applied to telecommunications services that originated from and were billed to a Texas telephone number or billing or service address. City, county, and transit-authority taxes were optional locally and applied only to intrastate telecommunications services.

One telephone company could buy access to a local exchange network tax-free for resale by giving the seller a resale certificate. The final consumer was taxed on the full service charge, including the network-access component.

The letter did not finally decide telephone-answering services because that issue was before an administrative law judge. It reported the Comptroller's then-existing position that mechanized answering was taxable telecommunications service while human-operator answering was not.

A third-party directory distributor that gave directories away and earned advertising revenue paid tax to the printer and had no further liability. A basic local exchange company could provide directories as part of basic exchange service without tax on production cost; if it gave them away separately, it owed tax on production cost.

Common questions

Was intercompany local-network access always taxable? No. It could be bought for resale with a resale certificate, while the final customer paid tax on the total service charge.

Did the letter settle answering-service taxability? No. It identified the agency's position but said the issue was pending before an administrative law judge.

Who paid tax on advertising-supported free directories? The distributor paid the printer's tax and had no further liability on the described model.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8906L0944C04

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

June 9, 1989

Dear ***

I just want to take a minute acknowledge your letter about tax
on telecommunications services.

Sales tax is due on telecommunications services that originate
from and are billed to a telephone number or billing or service
address in Texas. City, county, and transit authority sales taxes
are imposed on a local option basis and apply only to intrastate
telecommunications services.

Sales tax is not due on the charge by one telephone company to
another for providing access to a local exchange network if the
purchaser gives the seller a resale certificate. Sales tax must
be collected from the final consumer on the total charge for the
service including the charge for access.

The issue of telephone answering services is currently before an
administrative law judge. Our position has been that mechanized
answering services were providing taxable telecommunications
services while those using human operators were not taxable. I'll
let you know when this issue is resolved.

Telephone directories are normally printed for and distributed by
a company other than the basic local exchange provider. These
directories are normally printed and given away free of charge
with the distributor making his profit on the sale of advertising.
In this case, the distributor would simply pay tax to the printer
on his charge for producing the directories. He would have no
further liability.

A basic local exchange company could at its option, have telephone
directories printed and give them away as part of the basic local
exchange services without incurring a tax liability on the cost of
production. If the directories were given away apart from the
provision of a telecommunications service, the telephone company
would owe tax on their costs to produce those directories only.

Don't hesitate to call or write me any time. My toll-free number
is 800-531-5441 or FAX (512) 463-4606.

Sincerely,
Martin Cherry
Assistant Director
Legal Services Division