Were charges for a computerized telephone weather-and-advertising service taxable when customers did not control the equipment?

Plain-English summary

The service used computer hardware and software connected to a telephone line so callers heard advertising, local weather, and possibly local-activity information. The provider could install the system for one advertiser, place it with a radio station or newspaper that sold ads, or sell advertising directly to several sponsors.

The attached 1990 letter said the charges were nontaxable when customers had no control over the equipment and the provider performed all operating services. Under those facts, advertising charges and flat or revenue-percentage franchise fees were not taxable. The provider paid tax on equipment, supplies, and other taxable items it used.

The December 1991 follow-up added that a radio station or newspaper did not pay tax when purchasing advertising space on the weather line for resale to its own customers, and the media customer did not collect tax on that advertising space.

What this means for you

Equipment control was central to the service classification. The provider's nontaxable fee did not exempt the hardware and supplies it consumed, while media customers could receive resale treatment for advertising inventory.

Common questions

Were advertising and franchise fees taxable? No under the provider-control facts. Who paid tax on the system equipment? The service provider. Did a radio station or newspaper owe tax on ad space bought for resale? No. Did the letter address customer-controlled equipment? It conditioned the answer on customers having no control.

Citations and references

• The letters do not identify a 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/9112L1146B08

Original ruling text

December 6, 1991

Dear ** :

Your letter to Bob Jeffcoat requesting additional information about the weather
information service that you provide was given to me for response.

As Mr. Jeffcoat indicated in his October 3, 1990 letter, you should not charge
tax to a radio station or newspaper for purchasing advertising space on your
weather information line. A radio station or newspaper is not required to
collect tax on advertising space bought for resale to its customers.

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

Please feel free to contact me if you have any additional questions about my
response. You may write me, call toll free 1-800-252-5555, ext. 34685, from
anywhere in the United States or phone (512) 463-4685.

Sincerely,

Julie Pesl
Tax Administration Division

October 3, 1990

Dear ** :

In your letter of September 13, you requested information regarding the
taxability of your services.

You state that you plan to start an "advertising business" using a computerized
weather information service. I understand that you will provide computer
hardware and software which is connected to the telephone system. Persons who
call the number will hear an advertising message, local weather conditions, and
possibly a list of local activities.

You indicate that you will market your services in one or more of the following
ways:

1. You will install the equipment on an advertiser's premises for their sole
   use. You will record and change advertisements and weather forecasts as
   necessary.

2. You will install the equipment on the premises of a radio station or
   newspaper. You will "franchise" the radio station or newspaper to sell
   advertising in return for the payment of a flat fee or a percentage of the
   revenue created by your system.

3. You will install the equipment in a town and swell advertisements directly
   to several unrelated sponsors.

The changes for your services aren't taxable if your customer has no control
over your equipment. That is, if you perform all services relative to the
operation of the equipment, you are providing a non-taxable service. Under
these circumstances, charges for advertising and franchise fees (either flat
fee or percentage of ad revenue) aren't taxable.

If you provide nontaxable services, you should pay tax on all taxable items
used in providing these services (such as equipment and supplies).

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 Correspondence. 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 Correspondence, Comptroller of Public
Accounts.

Sincerely,

Bob Jeffcoat
Tax Correspondence