Ezel / Tax Rulings / TX
TX 9202L1158B10 Sales and/or Use Tax (State,Local,MTA) 1992-02-28

Were corporate sponsorship fees for a free recycling hotline taxable when sponsors also received callers' messages?

Short answer: Partly. Institutional advertising was nontaxable, but receiving and relaying callers' electronic messages was a taxable telecommunications service. Without separately stated charges, the entire fee was taxable.

Apply this to your situation

This page answers the general question as of 1992. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1992
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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded.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 company operated a free computerized telephone hotline that gave the public information about recycling and environmental activities. Corporate and media sponsors paid monthly fees. In return, they could promote their environmental work on a bulletin board and receive messages left by callers.

The Comptroller separated the arrangement into two services. Institutional advertising was nontaxable. Electronic reception and relay of callers' messages was a taxable telecommunications service.

If the company separately stated the advertising charge and the message-service charge, only the message portion was taxable. If it billed one combined sponsorship fee, the entire charge was taxable as telecommunications service.

What this means for you

Hotline and communications businesses

A free public-facing service can still generate taxable business-to-business charges. Here, the sponsors' ability to receive caller messages changed the transaction from advertising alone to a mixed advertising and telecommunications service.

Accountants and tax professionals

Separate invoicing mattered. The letter permitted nontaxable treatment only for a separately stated institutional-advertising amount; an undivided fee became fully taxable.

Common questions

Was the sponsorship fee nontaxable because callers used the hotline for free? No. The tax analysis focused on what sponsors received for their fees.

Was the advertising component taxable? No. Institutional advertising was nontaxable.

Why was the message component taxable? The Comptroller characterized electronic reception and relay of callers' messages as telecommunications service.

What if the two charges were not separated? The entire sponsorship fee was taxable.

Citations and references

The letter cited no specific statute or rule.

Source

Original ruling text

February 28, 1992

Dear **:

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

Facts: ** has developed software for a computerized hotline
(telephone number) which allows citizens to call and obtain information
about recycling, environmental activities, and events completely free
of charge to the public. The recycling hotline is sponsored by various
corporate and media partners who pay a monthly sponsorship fee to
* to fund the hotline. In return, each sponsor is given an
exclusive access code to promote its environmental activities on the
corporate bulletin board section of the hotline and/or to receive
messages which callers have left regarding the sponsor's environmental
issues the sponsor has promoted. In this way, the sponsor is able to
promote to the public that it is an environmentally-conscious organization.
*** spoke to a lady from the Comptrollers office who stated that
in a similar situation the state determined that revenues received by a
company which provides information to the public free of charge were not
taxable.

Question: Is the charge for this service taxable?

Response: In the situation described by the Comptrollers employee, the
sponsors were considered to be purchasing a non-taxable advertising
service. Your facts are different because the callers not only receive
information but may also leave messages for the sponsors. Charges for
the electronic reception of messages are subject to sales tax as
telecommunication services.

If you separate charges to the sponsors for institutional advertising
from the charge for receiving and relaying messages from callers, only
the charge for receiving and relaying the messages will be taxable.
Otherwise, your entire charge is subject to tax as a telecommunication
service.

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 or write.
You may reach me by calling toll free, 1 (800) 531-5441. My direct line
number is (512) 463-4680. The number for FAX transmissions is (512)
475-0900. You may write to me in care of Tax Administration Division.

Sincerely,

Al Van Allen
Tax Administration Division

Get today's answer for your situation

You just read a 1992 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.