How did Texas tax a provider's cross-border telecommunications services between Texas and Mexico?

Plain-English summary

The Comptroller applied Texas's broad telecommunications definition to a provider routing calls between Texas and Mexico. The provider did not need to be regulated as a telephone company; charging to transmit, route, receive, or retransmit signals while represented in Texas was enough.

Charges for calls received in El Paso and routed or retransmitted to Mexico were taxable because that portion originated in Texas. Calls originating in Mexico, including calls using a direct microwave link, were not taxable. Telecommunications wholly between points in Mexico were also not taxable. For 800 or 900 service, the provider was told to use carrier call-detail records and collect tax on Texas-origin calls and associated retransmission or routing charges.

Services bought in Texas to support resales to Mexican customers were taxable to the provider because the quoted resale definition required a resale in the United States. Private-line service between Texas and Mexico followed Rule 3.344's formula. Equipment handed to the customer in Texas for export required tax or export documents, though the seller could accept a Maquiladora Exemption Certificate.

Common questions

Were Texas-origin calls routed to Mexico taxable? Yes.

Were Mexico-origin calls taxable? No, under the facts described.

Could the provider buy Texas telecommunications services tax-free for resale to Mexican customers? No. The letter treated those supporting purchases as taxable to the provider.

What documentation applied to equipment exported to Mexico? The seller had to collect tax or obtain export documents, and could accept a Maquiladora Exemption Certificate.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9004L0999E05

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller April 20, 1990

Dear *:

Thank you for your recent letter on telecommunications services.
I will attempt to respond to each of the issues you raised either
specifically or by providing principles that you can apply. If
you find that I have missed an area of concern, please bring it to
my attention.

As you know from our earlier conversations, the definition of
telecommunications services in the sales tax law is quite broad.
The law specifically says:

"For the purposes of this title only, telecommunications
services means the electronic or electrical transmission,
conveyance, routing, or reception of sounds, signals,
data, or information utilizing wires, cable, radio waves,
microwaves, satellites, fiber optics, or any other
method now in existence or that may be devised,
including but not limited to long-distance telephone
service..."

It is not necessary that any governmental entity view your firm as
a telephone company in order for your services to be taxed as
telecommunications services. It is sufficient that your firm is
represented in Texas and that you transmit, convey, route, or
receive signals etc. for a fee.

Long-distance service is treated differently. "Long-distance"
telecommunications services;are exempt unless they are both:

. originated in Texas and
. billed to a telephone number, or billing or service
address within Texas.

It is not necessary for the service be billed to a Texas telephone
number, and billing and service address. The presence of any one
of these three criteria is enough to establish the tax.

One of the services you provide involves receiving incoming calls
using Feature Group A (FGA) service and routing those calls to
Mexican customers. As part of this service, you provide your
customers with a telephone number that is local to the El Paso
LATA (i.e., a caller in El Paso is not charged a toll for connecting
with the number you provide your customer). You say, "The
customer in Mexico has the same access, service, area code, dial
tone, etc., as any TELEPHONE CO. A customer in El Paso...."
... "The typical billing address will be a U.S. address, while the
service address will always be in Mexico." That the customer is
or is not listed with El Paso directory assistance does not affect
the taxability.

Your charges for receiving, routing and re-transmitting these
calls are subject to tax. Charges for the incoming call and for
any applicable tax are borne by the caller. Your customer agrees
to bear the costs connected with the call from El Paso on. So,
that portion of the telecommunication is viewed as originating in
Texas.

Calls that originate in Mexico using CORP A facilities are
not subject to tax. However, purchases of FGA, long-distance and
directory assistance service for resale to Mexican nationals are
taxable to your firm. You point out that calls coming in from
Mexico constitute Mexican sales. I agree. And that is the reason
you will not be able to buy the supporting telecommunications
services in Texas tax free. Texas law defines a sale for resale
as a sale of "... a taxable service to a purchaser who acquires
the property or service for the purpose of reselling it in the
United States..."

If a customer subscribes to an 800 or 900 telephone number for
receiving calls, tax is due unless the incoming call originates
outside Texas. You should obtain a call detail schedule from your
long-distance carrier and collect tax from your customer on those
calls including the associated charges for re-transmission and
call routing.

In a recent phone conversation, you said you were installing a
microwave link so a customer could talk directly to their Mexican
plant without using TELEPHONE CO. A's FGA service. As in the
previous situations, the charge for calls originating in Mexico is
not taxable. And, since you are not buying additional services to
complete the connection, you incur no further tax liability.
calls originating in Texas are subject to tax just as if they had
been routed through a telephone circuit.

You said there would be instances where customers would privately
own their network and join your system at the El Paso facility.
Again, your charges for routing calls that originate in Mexico are
not taxable. Your charges for receiving calls in El Paso, routing
and re-transmitting them to Mexico would be taxable.

Private line service between Texas and Mexico is taxable based on
the formula given in the enclosed rule 3.344.

Service connection and access fees are taxable either to your firm
or to your customers to the extent that you are required to either
charge or pay tax on a specific service. For example, if FGA
service is taxable to a specific customer, any associated service
connection fee is also taxable.

Equipment that is purchased for resale in the U.S. may be obtained
tax free on a resale certificate. If the equipment is conveyed to
the customer in Texas for export to Mexico, you must collect the
tax or obtain export documents. You may also accept a Maquiladora
Exemption Certificate in-lieu-of tax. I am enclosing copies of
rules 3.323 and 3.358 for your reference.

Tax is not due on telecommunications services between points in
Mexico. In addition, deposits from customers on equipment located
in Mexico are not subject to 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