Can a paging company give its local telephone company a resale certificate for the incoming phone lines and numbers it leases and then provides to its paging customers?

Subject

Paging Service — Incoming Lines And Numbers Leased From Telephone Company Provided To Customers As Part Of Service — Resale Certificate Allowed

Plain-English summary

A Texas paging company leased blocks of telephone numbers, along with the incoming lines those numbers rode on, from the local telephone company. It then handed each individual number to a paging customer so the customer could be reached by page — this was part of the basic paging service the company sold, and paging service is a taxable service in Texas.

The company asked the Comptroller's office whether, since its pagers (and paging service) are already subject to sales tax when sold to the end customer, it could avoid paying sales tax on the lines and numbers it leased from the phone company by giving the phone company a resale certificate instead.

The Comptroller's Tax Administration Division said yes. Because the leased incoming lines and numbers are provided to paging customers as part of the taxable paging service — in other words, the company is reselling that phone company product, not consuming it itself — the paging company can give the local exchange telephone company a resale certificate to buy those lines and numbers tax-free. The letter notes this answer is based on the facts described and could change if the facts were different.

What this means for you

Paging and telecommunications resellers

If your business leases phone lines, numbers, or other telecom capacity from a local exchange carrier and then passes that capacity through to your own customers as part of a taxable service you sell (rather than using it yourself), you may be able to buy that leased capacity tax-free with a resale certificate. The tax then applies once, on the sale of your service to the end customer, instead of twice.

Accountants and tax professionals advising telecom-adjacent businesses

This letter is a useful, if dated, example of how the Comptroller applies the general resale-certificate rule (property or a taxable service purchased for resale, without intervening use, can be bought tax-free) to a bundled telecommunications input. Because it is a 1992 letter ruling, confirm current STAR guidance and the applicable resale-certificate rules before relying on it for a live transaction.

Anyone relying on this specific letter

This ruling protects only the taxpayer who received it, and only on the facts described. It is not binding on the Comptroller for any other business, even one with a similar paging or reselling arrangement.

Common questions

Q: Why could the paging company use a resale certificate here?
A: Because it wasn't keeping the leased lines and numbers for its own internal use — it was passing each number and its incoming line directly to a paying customer as part of the paging service it sold. Texas allows a resale certificate when you buy something taxable specifically to resell it, whether alone or as part of a larger taxable service.

Q: Does this mean the paging company never pays sales tax on this arrangement?
A: No. Tax still applies — just once, downstream, when the paging service (including the phone number/line) is sold to the end customer, rather than also being charged upfront when the paging company leases the numbers from the phone company.

Q: Can any business that leases phone lines use a resale certificate?
A: Only if the lines/numbers are being provided to customers as part of a taxable product or service the business sells, without the business itself consuming them first. If the business uses the lines for its own internal operations, a resale certificate would not apply to that portion.

Q: Is this letter still current Texas policy?
A: It's a 1992 letter ruling on STAR and may not reflect current telecommunications tax rules, which have changed significantly since then. It's also binding only on the original recipient. Check current Comptroller guidance or consult a tax professional before relying on it.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9207L1186A12

Original ruling text

July 31, 1992

Dear **:

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

We are a paging company who leases blocks of numbers from the phone company to
resell with our pagers. My question is, since pagers are subject to sales tax,
can we file a resale certificate with the phone company for the block of leased
numbers and possibly the lines the taxable service is provided through.

Response: In our telephone conversation you explained that **
provides each paging customer with a telephone number for receiving incoming
communications as part of the basic service. **** may give the local
exchange telephone company a resale certificate for the purchase of those
incoming lines and numbers provided to customers as part of the paging service.

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

If you have questions or need more information, you may call me toll free at
800-531-5441, extension 3-4680. My direct line is 512-463-4680. The number for
FAX transmissions s 512-475-0900. You may also write to the Tax Administration
Division.

Sincerely,

Al Van Allen
Tax Administration Division