Did a cable company have to refund Texas sales tax when a customer canceled before a prepaid service period ended?

Plain-English summary

A cable television company collected service fees and Texas sales and use tax in advance, then reported and remitted the tax in the period collected. Some customers canceled before using the entire prepaid period.

The Comptroller said the company was not required to refund the tax. If it voluntarily made a refund, it had to follow Rule 3.325, and neither the customer nor the company could obtain a tax refund unless the unused portion of the service fee was also refunded.

The letter also said the unused portion of the prepayment attributable to cable television service was not due to Texas.

What this means for you

For the prepaid cable arrangement described here, early cancellation did not automatically require a sales-tax refund. A voluntary refund had to pair the tax refund with a refund of the related unused service charge.

Common questions

When did the company report the tax? In the reporting period when the prepaid amount was collected.

Was a tax refund mandatory after cancellation? No.

Could the customer initiate a refund? Yes. The letter said either the customer or the company could initiate one.

Could the tax be refunded while the company kept the unused service fee? No.

Was the unused cable-service amount still due to Texas? No. The letter expressly said it was not due to the state.

Citations and references

• 34 Tex. Admin. Code Rule 3.325 — refund procedure identified by the Comptroller

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9106L1118B01

Original ruling text

June 24, 1991

Dear **:

Thank you for your recent letter regarding whether your company is
required to make tax refunds on prepaid accounts.

As I understand it from our conversation last Friday, your company
has customers who prepay for cable television services. These
prepayments include the service fees and the applicable Texas
sales and use taxes. Your company reports and remits these taxes
in the report period during which they are collected. Sometimes
customers discontinue services before the prepaid periods elapse.

As I explained, your company is not required to refund the taxes.
If it chooses to do so, the refund must be done in accordance with
the guidelines outlined in Rule 3.325, which you were sent in May.
A refund may be initiated by either the customer or your company.
However, a refund of tax may not be made unless the unused portion
of the service fee is also refunded.

Also, as we discussed, the unused portion of the prepayment that
relates to cable television services is not due the State of
Texas.

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

You may call me toll free at 1-800-252-5555, ext. 34697. The
regular number is 512/463-4697. You may also write to Tax
Administration at the above address.

Sincerely,

Sandi Skaggs
Tax Administration Division