Who had to collect Texas tax on taxable property and services sold through 900-number calls, and were the carrier's separately stated telecom charges to sponsors taxable?

Plain-English summary

The telecommunications company connected Texas callers to 900-service sponsors, billed customers for long-distance and 900-related charges, collected the payments, retained its share, and remitted the sponsors' share.

The Comptroller treated a 900 sponsor using that arrangement to make Texas sales as engaged in business in Texas under Tax Code section 151.107(a)(2). Tax was due on the sponsor's sales of tangible property and taxable services. Because the telecommunications company handled billing and collection, it also had to bill and collect the tax from the customer.

For an out-of-state sponsor, only state tax applied. For a sponsor located in Texas, local taxes also applied. Because tax was collected on the sale to the ultimate Texas customer, the carrier did not have to tax its separately stated telecommunications charges to the sponsor.

The letter reserved judgment on separately stated billing-and-collection charges because the company planned to submit that issue separately.

Common questions

Did using the carrier create Texas nexus for the 900 sponsor? Yes, under the stated arrangement.

What sales were taxable? Sales of tangible property and taxable services.

Who billed and collected the tax? The telecommunications company that billed the customer.

Did local tax apply to an out-of-state sponsor's sale? No; the letter applied state tax only.

Were the carrier's separately stated telecom charges to sponsors taxed? No under this arrangement.

Citations and references

• Tex. Tax Code § 151.107(a)(2).

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9005L1025A05

Original ruling text

May 21, 1990

Dear *****:

I wanted to follow-up our phone conversation on Friday with a
letter restating your facts and our position.

• COMPANY A sells telecommunications service to firms providing
  "900 service" and also performs billing and collection services
  for them.

• Texas callers use your facilities to reach the 900 sponsor and
  obtain services and/or tangible property.

• The customer receives a bill from COMPANY A for their long
  distance service including any 900-related charges.

• When COMPANY A receives payment, they retain their portion of
  the funds including any line charges due from the 900 sponsors
  and pay the 900 sponsors their portion.

According to tax code sec. 151.107 (a) (2) "... a retailer is
engaged in business in this state if the retailer: has a
representative, agent, salesman, canvasser, or solicitor
operating in this state under the authority of the retailer or
its subsidiary for the purpose of selling or delivering or taking
of orders for a taxable item." The Sales Tax Statute defines
"Taxable Item" to include taxable services such as telecommunications
services.

It is our position that 900 sponsors who use your services to
make sales into Texas are engaged in business in this state and
that tax is due on their sales. Because your firm is responsible
for billing and collecting from the customer, they are also
responsible for billing and collecting the tax.

Tax is due on both tangible property and taxable services.

If a 900 sponsor is located outside Texas, the charge is subject
to state tax only. But, if the 900 sponsor is in Texas, local
taxes would also be due.

Since we are requiring you to collect tax on the sale to the
ultimate customer in Texas, we will not require you to charge tax
on your separately-stated charges for telecommunications services
provided to the 900 sponsors.

You said that COMPANY A was thinking of separating their charges for
billing and collection and telecommunication services and that
you would send a separate letter on this issue so I will reserve
comment until that time.

This opinion is 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