Ezel / Tax Rulings / TX
TX 9104L1106E07 Sales and/or Use Tax (State,Local,MTA) 1991-04-26

Was a one-time fee for setting up a new digital-pager rental account subject to Texas sales tax?

Short answer: Yes. The activation fee was part of the consideration paid for renting the pager and was taxable.

Apply this to your situation

This page answers the general question as of 1991. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1991
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official Texas Comptroller of Public Accounts letter published on the State Tax Automated Research (STAR) system. Letters on STAR can be the basis of a detrimental reliance claim only for the taxpayer to whom the letter was directly issued (see 34 Tex. Admin. Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded. Taxpayer-identifying details are redacted. This summary is informational only and is not legal or tax advice. Consult a licensed Texas tax professional about your specific situation.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

A business rented digital pagers and charged each new account a one-time activation fee for setting up the account.

The Comptroller said the activation fee was taxable because it formed part of the consideration paid for the pager rental. The letter did not separate the setup charge from the taxable rental merely because it was billed once.

What this means for you

A separately described account-setup fee can still be taxable when it is part of what the customer pays to obtain rented equipment. This letter addressed a pager rental and did not analyze a stand-alone setup service unrelated to a rental.

Common questions

Was the activation fee taxable? Yes.

Why? It was part of the consideration paid for renting the pager.

Did the fact that it was charged only once make it exempt? No. The letter identified it as a one-time charge but still treated it as taxable.

Citations and references

The letter did not cite a specific statute or rule.

Source

Original ruling text

April 26, 1991

Dear **:

Thank you for your recent letter regarding the taxability of an
activation fee.

**, rents digital pagers. New accounts are charged
an "activation" fee. This is a one time charge for setting up the
account. You specifically asked if this "activation fee" is
subject to sales tax.

The "activation fee" is a part of the consideration paid for the
rental of the pager and is taxable.

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

If you have any questions or need additional information, you may
call toll free at 1-800-252-5555. The regular number is 512/463-
4600, or write Tax Administration Division.

Sincerely,

Bettie U. Peterson
Tax Administration Division

Get today's answer for your situation

You just read a 1991 ruling on this question. Ezel checks current Texas tax law and answers your specific situation, with citations.

Opens in Ezel Pro. Every answer cites the authority it relies on.