Are pass-through charges a Competitive Local Exchange Carrier collects from customers -- municipal charges, expanded local calling service surcharges, number portability service charges, FCC-approved customer line charges, and federal presubscribed interexchange carrier charges -- subject to Texas sales tax?

Plain-English summary

A newly licensed Competitive Local Exchange Carrier (CLEC), reselling an incumbent phone company's local service, wanted written confirmation on which charges it should be collecting Texas sales tax on. It listed five specific charges: municipal charges, expanded local calling service surcharges, number portability service charges, FCC-approved customer line charges, and federal presubscribed interexchange carrier charges.

The Comptroller's answer applies to all five as a group: each of these charges becomes part of the sales price of the telecommunications service and is taxed the same way the underlying service itself is taxed, once the charge is passed through to the rate payer (the customer). There's no carve-out for any of the five — they're all treated as part of what the customer is buying, not as separate nontaxable regulatory pass-throughs.

Note on this page's title: STAR's own subject heading for this letter also lists a "Federal Universal Service Fund" charge, but the taxpayer's actual question and the Comptroller's response never mention a Universal Service Fund charge at all — only the five charges listed above. This page's subject_title has been corrected to match what the letter actually covers.

What this means for you

Competitive Local Exchange Carriers and phone service resellers

Regulatory and carrier pass-through charges like municipal fees, local-calling surcharges, number-portability fees, FCC line charges, and interexchange carrier charges don't get special nontaxable treatment just because they originate from a regulatory requirement — once passed through to the customer, they're taxed as part of the service's sales price.

Telecom billing and compliance staff

When structuring a bill, assume any regulatory/carrier surcharge you pass through to a Texas customer is taxable along with the base service charge, unless you have a specific Comptroller ruling or rule saying otherwise for that particular charge.

Accountants and tax professionals

A short, general-principle letter useful mainly for the rule it states plainly: pass-through charges on a taxable telecommunications service are themselves part of the taxable sales price. It doesn't address a Universal Service Fund charge, despite what STAR's index heading suggests.

Common questions

Q: Is a municipal charge passed through on a Texas phone bill taxable?
A: Yes — it becomes part of the sales price of the telecommunications service.

Q: Are number portability, FCC customer line, and federal presubscribed interexchange carrier charges taxable when passed through to customers?
A: Yes, all are taxed the same way as the underlying service.

Q: Does this letter address a Federal Universal Service Fund charge?
A: No — despite STAR's index heading referencing one, the actual letter only discusses the five charges listed above.

Q: Can I rely on this letter for my own telecom billing?
A: No. It's rendered based on the facts presented and can be relied on only by the taxpayer to whom it was issued; other facts, even if similar, may produce a different result.

Citations and references

No specific Tax Code section or numbered Comptroller rule is quoted in the body of this letter; the answer applies the general principle that pass-through charges become part of a taxable service's sales price.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9908626L

Original ruling text

August 17, 1999

Dear **:

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

I am writing this letter on behalf of **, a newly licensed
Competitive Local Exchange Carrier in the State of Texas. As such, we are
currently reselling TELEPHONE COMPANY's local service, and we are unsure as to
what services and charges are taxable. We called and spoke to Carol McAnnally
at the Comptroller's office, and she advised me to write this letter to you to
get this information in writing. We want to make absolutely certain that we are
properly collecting taxes!

Specifically, we want to verify that the following are taxable:

Municipal Charges
Expanded Local Calling Service Surcharges
Number Portability Service Charges
FCC Approved Customer Line Charges
Federal Presubscribed Interexchange Carrier Charges

We would appreciate the answer to the above questions, and also any taxation
guidelines for a telecommunications company which you may have.

Response: Each charge mentioned above becomes part of the sales price of the
telecommunications service and is subject to sales tax in the same manner as
the service itself when passed through to the rate payer.

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