Is a cable company's "Technical Access Fee" taxable, and should local sales tax on cable service be based on the provider's business location or the customer's service location?

Subject

Municipal Franchise Fee/Access Fee — Cable Television Services — To Use City Rights — Of — Way/Easements

Plain-English summary

A cable customer wrote to the Comptroller asking about a "Technical Access Fee" that their local cable television provider had started adding to the monthly bill. The provider described the charge as similar to a municipal franchise fee, while the customer thought it was really just an ordinary cost of doing business passed on to customers.

The Comptroller's answer: it doesn't matter what the fee is called. Whether it's framed as a franchise fee or a cost of doing business, the charge is made in connection with the taxable cable television service, so it's taxable under Section 151.007(a) of the Texas Tax Code. The taxable amount is the total amount charged for the taxable service, and that total includes this fee.

The letter also addressed a second problem the customer had raised: the provider had been collecting local (city/local) sales tax based on the provider's own business location instead of the customer's service location. The Comptroller confirmed the customer was right -- cable television service is sold, for local tax purposes, at the point of delivery to the customer. The Comptroller noted the provider had since corrected its local tax collection, and that the customer could ask the provider directly for a refund of the local tax it had over-collected. The provider, in turn, could request a refund from the Comptroller's office for any taxes it refunds to the customer. The letter states the Comptroller's Tax Policy Division would separately contact the service provider to make sure it applied the correct sales tax treatment going forward.

What this means for you

Cable and similar service providers

If you add a separate line-item charge to a customer's bill for a taxable service -- even if you frame it as a pass-through of a municipal fee or cost of doing business -- that charge is still part of the taxable sales price under Section 151.007(a). You can't carve it out of the tax base just by giving it a different name. Also, local sales tax on cable television service must be sourced to where the service is delivered to the customer, not to your business address.

Cable customers who believe they were overcharged tax

If your provider collected local tax based on the wrong location (for example, its office location instead of your service address), you can ask the provider directly for a refund of the excess local tax. The provider can then seek reimbursement from the Comptroller for taxes it refunds to you.

Accountants and tax professionals

This letter is a reminder that the label a business puts on a charge doesn't control its tax treatment -- what matters is whether the charge is made in connection with a taxable service. It also illustrates the local-tax sourcing rule for cable television service: local tax follows the point of delivery to the customer, not the seller's place of business.

Common questions

Q: Is a "Technical Access Fee" added to a cable bill taxable?
A: Yes. Regardless of how it's classified (franchise fee vs. cost of doing business), the charge is made in connection with the taxable cable television service and is taxable under Section 151.007(a) of the Texas Tax Code.

Q: Should local sales tax on cable television service be based on the provider's business location or the customer's service location?
A: The customer's service location. The letter states that the sale of cable television service takes place at the point of delivery to the customer.

Q: What can a customer do if local tax was collected based on the wrong location?
A: The customer may ask the service provider to refund the taxes incorrectly collected. The service provider may then request a refund from the Comptroller's office for any taxes it refunds to the customer.

Q: Did the Comptroller take any further action in this case?
A: Yes. The letter states that Kevin Koller of the Tax Policy Division would contact the service provider to inform it of the proper sales tax treatment.

Citations and references

Statutes:

• Section 151.007(a), Texas Tax Code (taxable "sales price" includes charges made in connection with the sale of a taxable service)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9611896L

Original ruling text

November 6, 1996

Dear ***:

Thank you for your recent letter concerning the taxability of charges in
connection with cable television service and local tax collection.

Your local cable television service provider is adding
a charge to its monthly cable bill that it calls a "Technical Access Fee." The
service provider likens this charge to a municipal franchise fee whereas you
are of the opinion that the charge is simply a cost of doing business.
Regardless of the classification, the charge is made in connection with the
taxable cable television service and is taxable per Section 151.007 (a) of the
Texas Tax Code. The taxable amount is the total amount for which the taxable
service is sold, which includes this fee.

Your letter also stated that the service provider had
been incorrectly collecting additional local taxes based upon its business
location and not the service location. You are correct in that the sale of
cable television service takes place at the point of delivery to the customer.
I am glad to hear that the service provider is now collecting the local taxes
correctly. Please note that you may ask the service provider to refund taxes
incorrectly collected from you. Your cable service provider may request a
refund from our office if it refunds taxes collected in error to the customer.

I have asked Kevin Koller in my Tax Policy Division to
contact the seller of these services and inform the service provider of the
proper sales tax treatment. Please feel free to show this letter to your cable
service provider to obtain a refund of the sales tax that was collected from
you in error.

I appreciate your bringing this to my attention. Should you require additional
information, please contact Kevin Koller toll free at 1-800-531-5441, extension
5-0613.

Sincerely,

JOHN SHARP
Comptroller of Public Accounts