Were charges for an interstate private-line data system subject to Texas state and local sales tax when no channel terminated in Texas?

Plain-English summary

The proposed private-line system transmitted data from one computer to another and did not let customers contact each other. The provider owned its cables, wires, and other physical plant, while customers leased long-distance lines and used the provider's lines to reach those carriers.

Because the facts stated that no channel termination points were in Texas, the Comptroller treated the service as interstate long-distance telecommunications. Rule 3.344 made the charges subject to Texas state sales tax, but the letter said no city, county, or MTA/CTD local sales tax could be imposed on the interstate circuit.

What this means for you

Under this 1991 letter, the circuit's termination points controlled the local-tax result. Interstate classification did not remove state sales tax, but it did remove the listed local sales taxes.

Common questions

Was the private-line service subject to Texas state sales tax? Yes.

Were local sales taxes imposed? No, because the circuit was interstate on the stated facts.

What factual condition supported interstate treatment? The absence of channel termination points in Texas.

Could customers use the system to contact each other? No. The system was designed for computer-to-computer data transmission.

Citations and references

• Comptroller Rule 3.344 (telecommunications services)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9102L1078B09

Original ruling text

February 20, 1991

Dear ***:

In your letter of January 29 you requested information regarding the taxability
of private-line telecommunications.

In your previous letter you indicated that your client plans to establish a
private-line telecommunications system designed to transmit data from one
computer to another. The system isn't designed so that customers can use the
system to contact each other. You also stated that your client will own the
physical plant such as cables, wire, etc.

In your previous letter you also indicated that your client would lease lines
from long-distance carriers to transmit signals to interstate destinations.
However, in your January 29 letter, you state that your client's customers will
lease lines from long-distance carriers to transmit the signals. Your client's
customers will use your client's lines to transmit to and from the
long-distance carriers.

If there are no channel termination points in Texas (as indicated in your
letter), the telecommunications service would qualify as interstate long
distance service. Accordingly, the charges for the service are subject to
state sales tax as indicated in Rule 3.344 (which I previously sent to you).
However, no local (i.e. city, county, or MTA/CTD) sales tax may be imposed on
the charges if the circuit is interstate.

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

If you have any questions, please contact Tax Administration Division. You may
call toll free 1-800-252-5555, or our regular number is 512/463-4600. My
extension is 3-4662. You may write me at Tax Administration Division,
Comptroller of Public Accounts.

Sincerely,

Bob Jeffcoat
Tax Administration Division