Could an exempt religious college buy basic local telephone service for student rooms tax-free when included in room and board?

Plain-English summary

An exempt nonprofit religious college included basic local telephone service in student room-and-board charges. The Comptroller said exempt organizations could buy telecommunications tax-free only when the service related to their exempt purposes, and student-room phone service did not qualify.

The college could pay tax to the telephone company and include the service in room rent. Alternatively, it could give a resale certificate, separately charge students, and collect tax from them.

What this means for you

Exempt status did not cover every telecommunications purchase. The service needed to relate to the organization's exempt purpose.

Common questions

Could the college buy the service tax-free for its own use? No.

Could it resell the service? Yes, with separate charges and tax collection.

Citations and references

The letter cited no numbered statute 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/9107L1122B11

Original ruling text

July 26, 1991

Dear **:

Thank you for your recent letter which is restated in part with
response below.

Facts: Local telephone service is provided for students along
with other services like water, electricity and food. This
constitutes room and board. My question is should a non-profit
religious college in Texas be required to pay sales tax on local
(not long distance) service provided to the students in their
rooms? If sales taxes are required, how should the amount be
calculated? The cost of the phone service is "buried" in the
total cost of room and board.

Response: Exempt religious or educational organizations may
purchase telecommunications services tax free if the services
relate to their exempt purposes. However, the provision of basic
local exchange telephone service to students does not qualify for
exemption. The college may at its option either:

• pay tax on the service and give it to the students as
  part of their room rental or,

• separate their charges to the students and collect tax on the
  charge for the basic local exchange telephone service. In the
  later case, they would give the telephone company a resale
  certificate in lieu of tax for the services purchased for resale.

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

If you have any questions or need more information, please call or
write. You may reach me by calling toll-free (800) 531-5441.
My direct line number is 512/463-4680. You may write to me in care of
Tax Administration Division.

Sincerely,

Al Van Allen
Tax Administration Division