Is teleconferencing/audio conferencing a taxable telecommunications service in Texas, and can a provider buy long-distance calls or equipment tax free?

Subject

Teleconferencing/Audio Conference Services — Including Bridging Services And Long Distance Charges

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9403L1288E09

Plain-English Summary

The Comptroller ruled that teleconferencing is a taxable telecommunications service in Texas. However, charges for long-distance telecommunications are exempt unless the call is both originated from and billed to a telephone number or billing/service address within Texas. The state sales tax rate is 6.25%, and local sales taxes (up to a combined 8.25% total) apply on a local-option basis — but interstate telecommunications services are exempt from local sales tax even when they are subject to state tax.

Applying this to the taxpayer's example: a $300 charge to a participant in Austin, Texas would be subject to 6.25% state sales tax only if the call was placed from a point within Texas; otherwise it would not be taxable. A charge to a participant in Louisiana is not subject to Texas sales or use tax either way. If both participants were located in Texas, the total charge would be taxable.

On the purchasing side, a teleconference provider may buy the long-distance call itself tax free for resale, but only if the call is placed from a point in Texas (if it's not taxable to begin with, there's nothing to resell tax free). Separately, teleconference providers are not entitled to purchase their teleconferencing equipment (such as bridging equipment) tax free, because the equipment itself is never transferred into the care, custody, and control of the conference participants — the provider retains custody of the equipment throughout, even when participants have some functional "control" over a call. The letter quotes an Administrative Law Judge's comments from Hearing No. 26,088 explaining that a resale exemption requires the seller to transfer care, custody, and control of the property to the customer — not just temporary use or control.

What This Means For You

If you provide teleconferencing/audio conferencing (including bridging) services in Texas: Charge Texas sales tax on your teleconferencing charges when the call originates from and is billed to a Texas number or address. Do not charge Texas tax on the portion of a call that is genuinely interstate (originated outside Texas or billed outside Texas), and do not apply local sales tax to interstate telecommunications charges even if state tax applies.

If you are a teleconference provider buying long-distance calls: You can purchase the underlying long-distance call tax free under a resale exemption, but only when you place the call from a point in Texas (making it taxable to your customer in the first place).

If you are a teleconference provider buying conferencing/bridging equipment: You cannot buy this equipment tax free. Because you keep care, custody, and control of the equipment at all times — participants only get temporary functional use of it during a call — the resale exemption does not apply to equipment purchases.

Q&A

Q: Is a teleconference or audio conference call subject to Texas sales tax?
A: Yes, teleconferencing is a taxable telecommunications service. But it's only taxable at the Texas state/local rate if the call both originates from and is billed to a telephone number or billing/service address within Texas. A call to or from an out-of-state participant, where the call isn't both originated and billed in Texas, is not subject to Texas sales or use tax.

Q: Can a teleconferencing company buy the long-distance calls it resells to customers tax free?
A: Yes, but only if the call is placed from a point in Texas — in that case the provider may purchase the call tax free under a resale exemption. If the call doesn't originate in Texas, it isn't subject to Texas tax to begin with, so there's no tax to exempt.

Q: Can a teleconferencing company buy its bridging/conferencing equipment tax free for resale?
A: No. The Comptroller held that teleconference providers are not entitled to purchase their equipment tax free because care, custody, and control of the equipment never transfer to the participants — the provider retains custody of the equipment at all times, even when a participant has some control over a call in progress.

Original ruling text

ALERT: For specific guidance relating to the care, custody and control of TPP when providing a taxable service, please see Rule 3.285, Resale Certificates; Sales for Resale (amended 11/01/2017.

March 7, 1994

Dear *:

Thank you for your recent letter regarding the tax treatment of
teleconferencing services. Your facts are included by reference.

Teleconferencing is a taxable telecommunications service. However,
charges for long-distance telecommunications services are exempt
unless they are both originated from and billed to a telephone number
or billing or service address within Texas.

The state tax rate is 6.25%. Local sales taxes are imposed on
telecommunications service on a local option basis with the total
rate not to exceed 8.25%. However, interstate telecommunications
services is exempt from local sales tax.

In your example, the $300 charge to the Austin participant would be
subject to 6.25% sales tax if the call were placed from a point in
Texas. Otherwise, the charge would not be taxable. The charge to the
Louisiana participant is not subject to Texas sales or use tax in
either event. The total charge would be subject to Texas tax if both
participants were located in Texas.

The teleconference provider may purchase the long-distance call tax free
for resale if they place the call from a point in Texas. Otherwise, the
call would not be subject to Texas tax to begin with.

Teleconference providers are not entitled to purchase the teleconference
equipment tax free. The equipment is not transferred to the care custody
and control of the teleconference participants. An Administrative Law
Judge made the following comments on the subject in hearing 26,088:

"...in order for tangible personal property, used in providing
services, to be transferred to it customer, either title to the
property or the complete physical possession of and control over the
property must pass from the seller (or provider of services) to the
customer for the consideration paid. The Legislature did not say
that a customer simply needed to have control of the property
transferred to him in order for there to be a sale of the property.
It said the service provider had to transfer the care, custody, and
control of the property to the customer all three. The Legislature
certainly did not say that a service provider could buy property
tax-free when the control only (and only in the sense of using or
tying up the property, or some part thereof, temporarily) was
transferred to a customer. In this situation, where taxpayer has the
custody of the equipment (and the care thereof) at all times, even
when one or more customers arguably have "control" of the equipment,
the equipment cannot be purchased tax-free."

This opinion is rendered based on the facts you submitted. 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, (800) 531-5441 (ext. 34680). 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

NOTE: Previous Accession Number 9403096L