Does a company have to collect Texas sales tax on fees it charges retailers for recorded advertising spots played on a pay-per-call lottery-results phone line?

Plain-English summary

A company operated a "Lottery Results Line" — a telephone service that gave callers the most recent numbers drawn in the Texas state lottery. The service was funded by selling recorded advertising spots to retailers; when someone called the line, they heard the advertisement first, and then the lottery numbers were read out.

The company asked the Comptroller's office whether it needed to collect sales tax on the fees it charged retailers for those advertising spots. The Comptroller's answer was short and direct: a fee paid by retailers for advertising space is not taxable.

The letter notes this opinion is based on the facts as presented, and that the answer could change if the facts were different.

What this means for you

Businesses that sell advertising space or airtime

If you charge another business a fee purely for advertising space — for example, a recorded ad spot on a phone line, similar to space in a publication or airtime on a broadcast — this letter indicates the Comptroller did not treat that fee as taxable. This ruling does not address whether the underlying telephone information service itself (the fee, if any, charged to callers for the lottery-results service) is taxable; it only answers the question actually asked, about the advertising fees paid by retailers.

Accountants and tax professionals

This is a short-form, fact-specific 1993 letter ruling with no statutory or rule citations in the text itself. It should be read narrowly, as applying only to fees for pure advertising space sold to retailers, and only for the taxpayer to whom it was issued.

Common questions

Q: Did the company have to charge sales tax on the advertising spots it sold to retailers?
A: No. The Comptroller stated that a fee paid by retailers for advertising space is not taxable.

Q: Does this ruling say anything about tax on the lottery-results phone service itself?
A: No. The letter only answers the question the company asked, which was about the advertising fees charged to retailers, not about any charge to callers for the phone line itself.

Q: Can another business rely on this letter?
A: Under Texas rules, a STAR letter can only be relied on by the taxpayer it was issued to, and even then only to the extent described in 34 Tex. Admin. Code Rules 3.1 and 3.10 (see the disclaimer above). The opinion is also expressly limited to the facts presented and could change on different facts.

Citations and references

No statutes or rules are cited in this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9303L1227F10

Original ruling text

March 1, 1993

Dear **

Thank you for your inquiry regarding sales tax.

You state that your company is offering a service called "The Lottery
Results Line". This telephone service line provides callers the most
recent numbers drawn in the Texas state lottery. Income is generated by
selling recorded advertising spots to ** retailers. When a
caller dials the results line, the caller will first hear the
advertisement recording, then the lottery numbers are revealed.

You asked if you should be collecting taxes from the sale of the
advertising spots to the retailers. A fee paid by retailers for
advertising space is not taxable.

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

If you have any questions, please don't hesitate to write the Tax
Administration Division or call one of our tax specialist toll free
at 1-800-252-5555.

Sincerely,

Joan Hale
Tax Administration Division