I'm a regulated telecommunications provider that buys basic local exchange network access so jail inmates can make collect outbound calls -- can I buy that access tax-free?

Subject

Basic Local Exchange Telephone Network Access — Purchased By Service Provider To Allow Jail Inmates To Make Collect Outbound Calls

Plain-English summary

A firm that provides collect-call telephone service for jail inmates asked the Comptroller how its purchases of local exchange telephone service should be taxed. The firm said it was a regulated provider of telecommunications services, but didn't send documentation proving that.

The purchase is exempt. Tax Code Section 151.323(2) exempts from sales tax the access to a local exchange telephone company's network when that access is purchased by a regulated provider of telecommunications services. The Comptroller checked with the Public Utility Commission, which confirmed the firm was registered with it and subject to the rate cap on collect calls -- and the Commission considered the firm to be a regulated provider of telecommunications services on that basis.

Bottom line: Because the firm qualifies as a regulated telecommunications provider, it may purchase basic local exchange telephone service tax-free for resale, by giving exemption certificates to the local exchange companies (its providers).

The letter notes this conclusion is based on the facts presented -- if the facts were different, the answer could change.

What this means for you

Providers of inmate collect-call telephone services

If you are registered with the Public Utility Commission and subject to the rate cap for collect calls (i.e., recognized as a regulated provider of telecommunications services), you can purchase basic local exchange network access tax-free for resale under Tax Code Section 151.323(2). Give the local exchange telephone company an exemption certificate rather than paying sales tax on the access.

Local exchange telephone companies selling network access to resellers

A purchaser's status as a regulated provider of telecommunications services (confirmed, for example, through PUC registration and rate-cap treatment) supports accepting an exemption certificate for network access sold to that purchaser, rather than charging sales tax.

Anyone unsure whether they qualify as a "regulated provider"

This letter's exemption turned on the firm's regulated status being confirmed by the Public Utility Commission -- the firm itself had not provided documentation of that status. If your own regulated status isn't clearly established, that's a fact question the Comptroller may need to verify independently, as it did here.

Common questions

Q: Is buying local exchange network access to resell collect calls to jail inmates taxable or exempt?
A: Exempt. Tax Code Section 151.323(2) exempts a regulated telecommunications provider's purchase of access to a local exchange telephone company's network.

Q: How did the Comptroller confirm the firm was a "regulated provider of telecommunications services"?
A: The firm itself didn't submit documentation, but the Comptroller contacted the Public Utility Commission, which confirmed the firm was registered with it and subject to the rate cap for collect calls, and considered it a regulated provider on that basis.

Q: How does the firm document the tax-free purchase?
A: By giving exemption certificates to its local exchange telephone service providers.

Q: Does this ruling apply regardless of the specific facts?
A: No -- the letter explicitly states the opinion is rendered based on the facts presented, and the outcome may change if the facts are different.

Citations and references

Statutes and rules:

• Tex. Tax Code Section 151.323(2) (exemption for a regulated telecommunications provider's purchase of access to a local exchange telephone company's network)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9612745L

Original ruling text

December 17, 1996

Dear ***:

Thank you for your recent letter regarding the tax treatment of local exchange
service purchased by your firm to allow inmates of jails to make collect
outbound calls. You state that your firm is a regulated provider of
telecommunications services, but provided no documentation to that effect.

Tax Code Section 151.323(2) exempts from sales tax,
access to a local exchange telephone company's network by a regulated provider
of telecommunications services. According to the Public Utility Commission,
your firm is registered with them and is subject to the rate cap for collect
calls. They are of the opinion that your firm is a regulated provider of
telecommunications services.

Accordingly, you may purchase basic local exchange telephone service tax free
for resale by giving exemption certificates to your providers.

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

You may call me toll free at 1-800-531-5441, ext. 3-4680. The direct line is
512/463-4680. You may also write to Tax Policy, Comptroller of Public
Accounts. My Internet address is [email protected].

Sincerely,

Al Van Allen
Tax Policy Division