Is a teleconferencing company's bridging fee taxable in Texas when its bridging equipment is located entirely out of state, even though Texas participants call in?

Plain-English summary

A teleconferencing company asked the Comptroller about the taxability of its bridging services — the labor-intensive back-end work involved in linking audio-conference participants together. To use the service, a conference leader calls the company (using telecommunications purchased from a separate third-party carrier) to reserve a specific date, time, and duration, and receives a phone number and a call-specific passcode for participants. The company's own employees reserve the bridge, program it to verify each participant's passcode, and provide live assistance if someone enters the wrong code or calls at the wrong time. Once a participant enters the correct passcode, the company's "bridge" links them with everyone else already on the call.

The critical fact: the company's bridging equipment exists in several states, but none of them are Texas. So even though some conference participants dial in from Texas, they're linked together at whatever out-of-state location houses the company's bridge — the bridge itself doesn't change the form, content, or composition of the communication, it just connects the calls.

The Comptroller ruled the company's bridging service charges, which occur outside Texas, are not subject to Texas sales tax.

What this means for you

Teleconferencing and bridging service providers

If the actual bridging/connection equipment that links your callers together is located entirely outside Texas, your bridging service charges are not subject to Texas sales tax, even when some participants dial in from Texas — the location of the technical connection point (not the caller's location) controls here. Contrast this with a companion ruling (9806516L) on toll-free dial-in conferences, where charges WERE found taxable to the extent calls originated in Texas — the distinguishing fact in this letter is that the bridge itself sits entirely out of state.

Accountants and tax professionals

This letter illustrates that for services involving a specific piece of connecting/processing equipment (a "bridge"), Texas may look to where that equipment is physically located, not simply where the customers/callers are, when determining if the service occurs "outside Texas."

Common questions

Q: If Texas residents participate in a teleconference, does that automatically make the bridging charge taxable in Texas?
A: Not necessarily, per this letter — if the bridging equipment that links the calls together is located entirely outside Texas, the bridging service is not subject to Texas tax, regardless of where participants call from.

Q: Does this mean all teleconferencing services are untaxed if the vendor is out of state?
A: Not necessarily — a companion 1998 letter (9806516L) found toll-free dial-in charges taxable to the extent calls originate in Texas; the key fact in THIS letter is the physical location of the bridging equipment itself, not just the vendor's out-of-state status.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9805561L

Original ruling text

May 20, 1998

Dear Mr. **:

Thank you for your recent letter which is restated in part with response below.

** requests a ruling regarding the application of Texas sales tax
to **'s charges for bridging services provided for audio
conferences services where a telecommunications company, other than
** (e.g., other telephone companies), provides transport to
**'s bridging equipment ("bridge").

In order to receive audio conferencing services, a customer (conference leader)
calls ** (using telecommunications services the customer purchases
from a third-party carrier) to reserve a specified date, time and duration for
an audio conference. ** provides the conference leader with a
telephone number and a call-specific numeric passcode for participants to use
in order to take part in an audio conference.

Bridging services include much more than merely using **'s bridges
to link participants together on the same audio conference. There are many
elements of the service that are provided by ** employees such as:
(1) reserving a bridge for a conference leader for a scheduled time, duration
and number of participants;
(2) providing the conference leader with a telephone number in order to reach
an ** bridge and a conference-specific passcode;
(3) programming the appropriate bridge to verify each participant's passcode at
the proper date and time;
(4) providing assistance if a participant enters an incorrect passcode or calls
in at a time other than the scheduled time.

When a participant dials the **-provided telephone number, he is
connected with
**'s bridge and prompted for the conference's passcode. The bridge
verifies the passcode entered by the participant and links him together with
all other participants on the audio conference. A participant that enters an
incorrect passcode or calls in to a conference other than at the scheduled time
is connected with an ** employee for assistance. Once the
participant enters the proper passcode, other participants that are already on
the audio conference hear a tone notifying them that a new participant has
entered the conference.

** has bridges in several states. None of these bridges is located
in Texas. Audio
conference participants situated in Texas may be linked together at any
location where ** has a bridge. Bridges do not change the form,
content or composition of the communications.

Response: **'s charges for bridging services that occur outside
Texas are not subject to Texas sales tax.

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. The email address is .

Sincerely,

Al Van Allen
Tax Policy Division