Were customer charges for an electronic toll-account service taxable when each customer also received an in-car counting device?

Plain-English summary

A company planned to provide electronic toll service to Dallas North Tollway users. Its computer would count each customer's car at the toll gate and debit a prepaid toll account. Customers also paid a monthly charge for the counting device placed in the car and could pay extra for an itemized usage statement.

The Comptroller treated the essence of the transaction as a nontaxable service, analogous to a credit-card company providing a card and charging an annual fee. Transferring the Tolltag to the customer did not turn the overall service into a taxable property sale.

The provider was the taxable consumer of the Tolltags and had to pay tax when buying them. The separate charge for an itemized monthly statement was not taxable.

The STAR body contains two substantially identical October 6, 1989 versions. Both reach the same result.

Common questions

Did giving customers a Tolltag make the service taxable? No.

Who paid tax on the Tolltags? The service provider when purchasing them.

Was the optional itemized-statement charge taxable? No.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8910L0957A06

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN 78774

October 6, 1989

Dear ***:

I'd just like to take a minute to respond to your questions about
your charges to customers of the Texas Turnpike Authority.

You state that CORP X will provide an electronic toll service to
folks who use the Dallas North Tollway. Your computer will
automatically count each client's car as it goes through the toll
gate and debit their pre-paid toll account. You make a monthly
charge for the counting device placed in each client's car as well
as a debit to their account for each trip. If the client desires
a monthly statement of their usage, you make an additional charge.

While it is true that CORP X is transferring tangible property to
their customers, the essence of the transaction is a non-taxable
service somewhat analogous to a credit card company providing each
customer a card and charging an annual fee. CORP X should pay tax
on the Tolltags at the time of purchase. The charge for itemized
monthly statements is not taxable.

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

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN 78774

October 6, 1989

Dear ***:

I'd just like to take a minute to thank you for your comments on
charges by CORP X to customers of the Texas Turnpike Authority.

CORP X will provide an electronic toll service to folks who use
the Dallas North Tollway. When drivers subscribe to CORP X's
service, CORP X's computer will automatically count each client's
car as it goes through the toll gate and debit their pre-paid toll
account. CORP X will make a monthly charge for the counting
device placed in each client's car as well as a debit to their
account for each trip. If the client desires a monthly statement
of their usage, there is an additional charge.

While it is true that CORP X is transferring tangible property to
their customers, the essence of the transaction is a non-taxable
service somewhat analogous to a credit card company providing each
customer a card and charging an annual fee. CORP X should pay tax
on the Tolltags at the time of purchase. The charge for itemized
monthly statement is not taxable.

Feel free to call or write me if you have any 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