Does Texas sales tax apply to municipal franchise fees passed through on cable TV and garbage collection bills, and to tickets for an amusement event?

Subject

Municipal Franchise Fees on Cable TV and Garbage Collection Billings Are Taxable

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9310L1277G01

Plain-English Summary

A taxpayer wrote to the Comptroller asking whether sales or use tax applies to three separate situations, and the letter answers each one directly.

Franchise fees on cable TV billings. The Comptroller's response quotes Texas Tax Code Sec. 151.007(a)(2), which defines the "sales price" of a taxable item as the total amount for which the item is sold, without any deduction for the cost of materials used, labor or service employed, interest, losses, or other expenses. Applying that definition, the letter states that the municipal franchise fee imposed on cable providers for use of city rights-of-way is subject to sales tax, whether it is separately stated or combined into one charge for the cable service.

Road use tax and franchise fee on garbage collection services. The letter reaches the same conclusion for garbage collection: the municipal road use tax and franchise fee charged to garbage collection service providers, for the right to do business in and use city streets, are taxable — again, whether separately stated or combined into a single charge for the garbage collection service.

Tickets to the 1993 event. The letter also addresses tickets to a named 1993 event, stating that the tickets are subject to sales tax as the sale of an amusement service.

The letter closes by noting that this opinion is based on the facts presented, and that other facts, though similar, may produce a different result.

What This Means For You

If you're a cable television provider: Franchise fees you pay to a municipality for the right to use its rights-of-way, and that you pass through to subscribers, are part of the taxable sales price of the cable service under Sec. 151.007(a)(2) — regardless of whether you list the fee as a separate line item on the bill or fold it into the overall service charge.

If you're a garbage collection service provider: The same reasoning applies to municipal road use taxes and franchise fees charged for the right to use city streets — these amounts are includable in the taxable sales price of your collection services, separately stated or not.

If you sell tickets to an amusement event: Ticket sales are treated as the sale of an amusement service and are subject to sales tax under this letter.

General takeaway: Under Sec. 151.007(a)(2)'s broad definition of "sales price," itemizing a government-imposed fee separately on an invoice does not remove it from the tax base — the full amount charged for the taxable item or service is what gets taxed.

Q&A

Q: Is a municipal franchise fee charged to a cable TV provider subject to sales tax?
A: Yes. The letter states the franchise fee, imposed on cable providers for use of city rights-of-way, is subject to sales tax whether separately stated or combined in one charge for cable service.

Q: Does it matter if the cable company lists the franchise fee as a separate charge on the customer's bill?
A: No. Per the letter, the fee is taxable whether it is separately stated or combined into a single charge for the cable service.

Q: Are municipal road use taxes and franchise fees on garbage collection also taxable?
A: Yes. The letter states that the municipal road use tax and franchise fee on garbage collection service providers, for the right to do business in and use city streets, are taxable whether separately stated or combined for one charge for garbage collection service.

Q: What statute does the Comptroller cite for taxing these fees?
A: Texas Tax Code Sec. 151.007(a)(2), which defines "sales price" of a taxable item as the total amount for which the item is sold, without deduction for costs such as materials, labor, interest, losses, or other expenses.

Q: Are tickets to the 1993 event mentioned in the letter taxable?
A: Yes. The letter states the tickets are subject to sales tax as the sale of an amusement service.

Original ruling text

October 27,1993

Dear *****:

Thank you for your letter requesting clarification on whether sales or
use tax applies to the following situations:

1. Franchise fees on cable TV billings?

RESPONSE: Texas Tax Code Sec. 151.007(a)(2) defines "sales price" of a taxable
item to be the total amount for which a taxable item is sold without a
deduction for the cost of materials used, labor or service employed, interest,
losses or other expenses. The municipal franchise fee, imposed on cable
providers for use of city rights-of-way, is subject to sales tax whether
separately stated or combined in one charge for cable service.

2. Road use tax and franchise fee on garbage collection services?

RESPONSE: The municipal road use tax and franchise fee on garbage collection
service providers, for the right to do business in and use city streets, are
taxable whether separately stated or combined for one charge for garbage
collection service.

3. Tickets to the 1993 ** from the ****

RESPONSE: The tickets are subject to sales tax as the sale of an amusement
service.

This opinion is based on the facts presented. Other facts though similar may
provide a different result. If you have other questions or need more
information, you may call me at 1-800-531-5441, extension 3-4502. The regular
number is 512/463-4502. You may also write to Tax Administration Division at
the above address.

Sincerely

Gilbert Zamora
Tax Administration Division

NOTE: Previous Accession Number 9311190L.2 and/or 9311190L