How did Texas source state and local sales tax for conference-calling services and long-distance calling-card calls?

Plain-English summary

For conference calling, participants dialed a Texas central office where the provider created the multi-party bridge. The Comptroller treated that as a taxable service performed in Texas—not long-distance telecommunications—so state and local tax applied at the Texas service location even when the customer's billing address was in New York.

Calling-card service received different treatment. Long-distance telecommunications were exempt unless both originated from and were billed to a Texas telephone number, billing address, or service address. The provider had to establish the exemption call by call or charge state tax.

An out-of-state caller using the system did not owe Texas tax. Calls placed from Texas owed state tax; if a Texas-originated call also ended in Texas, local tax applied at the rate where the call was placed. The provider's Texas switch location did not supply local-tax situs for those calling-card examples.

What this means for you

The same provider could have different sourcing rules for a Texas-based conference bridge and customer-originated long-distance calls. Billing address alone did not decide either category.

Common questions

Did a New York billing address exempt the Texas conference-call service? No.

Could the provider deem every calling-card call to originate at its Texas switch? No.

Did an out-of-state caller owe Texas tax? No under the stated facts.

When did local tax apply to a long-distance call? When a Texas-originated call also terminated in Texas, based on the rate where the call was placed.

Citations and references

The letter did not cite a statute or 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/9103L1094A01

Original ruling text

March 20, 1991

Dear ****:

Thank you for FAXing me the additional information I requested. I will restate
each of your questions and fact situations adding details you provided during
our phone conversations. My answer will be based on the facts I restate to you.
Would you please examine this letter carefully and if you find my understanding
of the facts to be incorrect, disregard this response and provide me with
correct information?

Conference Calling Service:

A customer pays for the ability to have several individuals from separate
locations talk to each other at the same time.

• You do not know where the calls originate. The only clue you have as to
  location is the customer's billing address which may be in or outside Texas.
• All participants call to your central office at a predetermined time.
• You provide a bridge within your system to make the multiple connection but
  do not provide any service outside your location in **, Texas.

Question:

Is **, Texas deemed the origination point or service address, since
the conferees connect in our central office? If yes, we would apply appropriate
taxes to all usage. Local taxes would be based on ** rates. If no,
we would then look to the billing address, which in this case is New York, and
would apply no state or local taxes.

Response:

This is a taxable service that is performed in **, Texas. It is not
a long distance telecommunications service so it does not matter where the
participants are located or where the bill is sent. The charge is subject to
state and local tax even though the billing address is in New York. You are
correct to charge ** and ** County sales tax. We would
reach the same result if the billing address were in Texas.

Calling Card Special Account:

This involves the provision of long distance telecommunications services to
individuals located both in and outside Texas.

• Customers may obtain either an AT&T credit card or an SB (**)
  long Distance Calling Card from your firm.
• They use their cards to place long distance calls from anywhere in the
  country.
• When calls are placed on an AT&T card, your firm can tell where the calls
  originate but you think it is not practical to tax or exempt the calls on a
  call by call basis. Your firm treats **, Texas as the point of
  origin of all these calls regardless of the callers billing address.
• When calls are placed on an SB card, the caller reaches your switch by
  calling an 800 number and you do not know where the call originates. You
  consider **, Texas to be the point of origin of all calls
  regardless of the callers billing address.

Question:

How should we compute sales tax on these calls? Is the point of origin deemed
to be **, Texas since the calls are all billed by the
** Telephone company? Is the billing address the point determining
sales taxes?

Response:

Long distance telecommunications services that are not both originated from and
billed to a telephone number or billing or service address in Texas are exempt
from sales tax. Your firm is responsible to bring itself clearly within this
exemption (on a case by case basis) or charge state sales tax on these calls.

An out-of-state caller who uses your system will not owe Texas tax. Individuals
who place calls from Texas will owe state tax on their calls. And, if their
call terminates within Texas, they will owe local tax based on the rate in
effect where they place the call. ** local tax does not apply in
any of the examples you submitted.

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

If you have questions or need more information, please call our toll-free
number 1-800-531-5441. My direct line-number is 512-463-4680 [FAX (512)
475-0900). You may write to me in care of Tax Administration Division.

Sincerely,
Al Van Allen
Tax Administration Division