How did Texas tax access fees, calls, private lines, equipment, and other telecommunications charges between Texas and Mexican facilities?

Plain-English summary

Telecommunications were taxable when they originated in Texas and were billed to a Texas billing, service, or location address. Texas-origin system access, outbound service, 800/900 number fees, and call-detail services were taxable to the extent tied to taxable Texas service. Calls originating in Mexico were not taxable, while calls received in Texas and sent to Mexico were taxable under the listed examples.

Private lines between Mexico and Texas were apportioned by Texas mileage versus total mileage because a switchless circuit did not reveal call origin. The provider could use resale certificates for telecommunications bought for resale.

Mexico equipment installation and maintenance were not taxable. Equipment exported to Mexico could be bought tax-free only under the seller-delivery or freight-forwarder/customs-broker procedures described; Texas possession generally required tax followed by any supported export refund. Equipment used in El Paso was taxable or subject to Texas use tax.

The sales-tax amount had to be separately shown. The Comptroller preferred monthly itemization of taxable charges but accepted detailed identification at service start, annually, and upon service changes.

Common questions

Were calls originating in Mexico taxable? No under the listed scenarios.

Were calls originating in Texas taxable? Yes when the address condition was met.

How were private lines sourced? By Texas mileage over total mileage.

Could telecom service bought for resale use a certificate? Yes.

Citations and references

• 34 Tex. Admin. Code Rule 3.344(b)(10)
• 34 Tex. Admin. Code Rule 3.323

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8911L0962D07

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller November 6, 1989

Dear *:

Thank you for your recent letter regarding telecommunications
services provided between U.S. and Mexican companies.

Telecommunications services are subject to Texas sales tax if:

• they originate in Texas and
• they are billed to a Texas, billing or service or location
  address.

That means if you have a customer with facilities in Texas that
accesses your system to make a call, the charge is subject to
Texas tax. In addition, a pro-rata portion of the system access
fee would also be subject to Texas tax.

The term private line is defined as a telephone circuit dedicated
for use between specific locations. Because private lines are
switchless circuits, it is not possible to determine where a call
originates. For administrative purposes, the taxability of
private line service is apportioned on the basis of mileage in
Texas to mileage outside Texas. You'll find more information in
section (b)(10) of the enclosed rule 3.344.

Concerning separation of charges, it is our position that the
amount of sales tax must be a separate item on the bill, and that
no other tax of fee my be included in this item. We prefer that
the bill itemize the charges subject to sales tax, or specify the
amount subject to sales tax. However, in lieu of such a monthly
itemization, we will accept a procedure under which a detailed
itemization of all charges, identifying those subject to sales
tax, is provided to the customer annually and upon initiation of
service, and at each change of service.

With the foregoing information in mind, your list of services and
situations is restated with the taxability of each.

Access Fees and Advance Billings to Customers -

1. System access -- Taxable to the extent it provides for
   telecommunications services originating in Texas.
2. Advance billed out-bound telephone service -- (assuming
   that out-bound means from the U.S.) -- Taxable to the extent
   that the telecommunications services originate in Texas.
3. Advance billed in-bound telephone service --- (assuming
   that in-bound means to the US from Mexico)-- Not taxable
4. Monthly fees for 800 telephone numbers (flat fee) -Taxable
   to the extent it provides for telecommunications services origi-
   nating in Texas.
5. Monthly fees for 900 telephone numbers (flat fee)-Taxable
   to the extent it provides for telecommunications services origi-
   nating in Texas.
6. Leased (private) lines from points in Mexico to points in
   Texas. Taxable, allocated based on the formula given earlier in
   this letter.

Long Distance/Usage Sensitive Services Billed to Customer-

1. Calls from plant in Mexico to parties within El Paso. Not
   taxable.
2. Calls from plant in Mexico to parties within Texas, but
   long distance from El Paso. Not taxable.
3. Calls from plant in Mexico to parties outside Texas. Not
   taxable.
4. Calls to plant in Mexico from parties within El Paso.
   Taxable.
5. Calls to plant in Mexico from parties within Texas.
   Taxable.
6. Calls to plant in Mexico from parties outside Texas. Not
   taxable.

Other billings -

1. Deposits from customers on equipment located in Mexico.
   Not taxable.
2. Deposits from customers on telecommunications services.
   Deposits that do not represent consideration for the provision
   of taxable telecommunications services are not taxable. This
   would include deposits on equipment that is provided to custom-
   ers as part of a telecommunications service.
3. Installation of equipment and service in Mexico. ---Not
   taxable.
4. Telephone numbers/line charges (one-time fee).
   Taxable for Texas numbers. Otherwise, not taxable.
5. Charges for providing customers with call detail and
   traffic analysis. Taxable tot he extent it relates to taxable
   telecommunications services.
6. Charges for maintenance in Mexico. Not taxable.

Services/Equipment purchased for resale -

1. Per minute charges for services from local telephone
   company in El Paso resold to customer for calls to/from
   Mexico. You may issue a resale certificate in-lieu-of tax.
2. Per minute charges from long distance carrier for out-
   bound services resold to customers. Same as for #1 above.
3. Per minute charges from long distance carrier for in-
   bound services resold to customers. Same as for #1 above.
4. Monthly fees for service from local telephone company in
   El Paso resold to customers. Same as for #1 above.
5. Monthly fees for services from long distance carriers for
   in-bound 800 services resold to customers. Same as for #1 above.
6. Equipment purchased in Texas but used in Mexico for provid-
   ing telecommunications service. --Equipment that is purchased for
   export to Mexico may be purchased tax fee if it is exported by the
   seller or if the seller delivers it directly to a freight forwarder
   or customs house broker for export to Mexico. The seller would need
   to retain copies of the export documents as part of their records to
   prove the goods were exported. If your firm takes possession of the
   equipment in Texas, you must pay Texas tax. However you may export
   the equipment immediately after purchase and request a refund from
   the seller. You should refer to rule 3.323 for further information.
7. Equipment purchased in Texas and used in El Paso for
   providing telecommunication services to customer.-- Taxable.
8. Equipment purchased outside Texas used in El Paso for
   providing telecommunications services to customer.--Subject
   to Texas use tax.

This opinion is rendered based on the facts you presented. Other
facts, though similar, may yield different results.

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