Was the full $15 Dial 976 charge for merchandise taxable when part was retained as a marketing fee?

Plain-English summary

A marketing company used a Dial 976 line to sell products for $15 per call. The telephone company kept a $0.16 service fee plus tax, the marketer paid $10 to the product supplier, and the marketer kept $5 as a marketing fee.

The Comptroller said sales or use tax was due on the full $15 customer charge. The taxable selling price could not be reduced for materials, labor, services, interest, losses, or other expenses.

The telephone company was therefore correct to charge tax on the entire amount. Labeling the retained $5 as a management or marketing fee did not remove it from the taxable selling price described in the letter.

What this means for you

Splitting a product's proceeds among a supplier, marketer, and billing provider did not reduce the amount paid by the customer for the taxable merchandise.

Common questions

How much of the $15 charge was taxable? All of it.

Could the marketer deduct its $5 fee? No.

Could the supplier payment or telephone-company fee be deducted? No deduction from the selling price was allowed for those expenses.

Was the telephone company correct to collect tax on the full charge? Yes.

Citations and references

The letter referred generally to the Texas sales tax law but did not cite a specific section or administrative rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9011L1057F13

Original ruling text

November 6, 1990

Dear **:

Thank you for your letter dated October 30, 1990 concerning your
"Dial 976 line."

You stated that customers use your 976 line to order various products
that you market. These customers are billed $15.00 by COMPANY A for the
call. COMPANY A then pays you "$15.00 less a $0.16 + sales tax service
fee per call." You remit $10.00 to the product supplier and retain
$5.00 as your "marketing fee." You questioned whether the $15.00
charge to the customer for merchandise ordered is taxable and whether
COMPANY A should collect and remit the tax to the State.

First, according to the sales tax law, tax is due on the total amount
for which a taxable item is sold, without a deduction for "the material
used, labor or service employed, interest, losses or other expenses."
Therefore, sales or use tax is due on the $15.00 charge to customers
for the merchandise.

COMPANY A is correct to charge tax on the entire amount. I have enclosed
a copy of previous correspondence on this subject which outlines the
position of the Comptroller's Office.

This opinion is based upon the facts you presented. If there are
additional or different facts, this opinion may change.

Please feel free to contact me if you have any additional questions.
You may write me, call toll free 1-800-252-5555 (ext.3-4685) from
anywhere in the United States or phone 512/463-4685.

Sincerely,

Julie Pesl
Tax Correspondence

October 30, 1990

Comptroller of Public Accounts

ATTN: Tax Correspondence

Dear Sirs:

I am writing to obtain a formal answer to a sales tax question. I have
a marketing company, COMPANY B. The company owns a Dial 976 line
through COMPANY A.

My Dial 976 line is used to solicit different products for $15.00 per
call. COMPANY A pays me $15.00 less a $0.16 + sales tax service fee per
call. I in turn pay the people who supply the products to the customers
$10.00 per order. I have always written my contracts so that the
$10.00 the supplier receives includes sales tax and the remaining $5.00
is a management fee for my marketing services, (which I understand to be
nontaxable).

The problem is that on the customers' phone bills who have called the
Dial 976 Line to purchase a product, the $15.00 charge reflects sales
tax. When I questioned COMPANY A they said that the sales tax is for the
call itself and therefore is a taxable item.

COMPANY A also tells me that there is not a way to exempt the call from
tax on their billing system. I do not know if this is true.

I am concerned that my customers are "paying" double tax (and extra tax
on the $5.00 as well). Dial 976 was developed as a billing program by
COMPANY A. Therefore, as a marketing company I am paying them to perform
my billing, not collect my sales tax. Please advise my company in this
matter. It is crucial that I have this information as soon as possible.

Thank you very much,