Are prepaid paging cards and bundled pager/prepaid-service packages sold through retail stores taxable as tangible personal property or as telecommunications services, and who has to collect the tax?

Plain-English summary

A pager company that sells pagers through outside retail stores and separately provides one-way paging airtime service was expanding into two new sales models: prepaid paging cards (monthly credits of paging service, priced by service level, sold to retail stores who resell them to customers) and bundled packages (a pager plus prepaid service sold together for one lump-sum price at the retail store, with the customer later billed on a regular cycle and credited for the prepaid amount). The company asked how each should be taxed and who's responsible for collecting.

The Comptroller's answers, in order:

1. Prepaid paging cards: separately stated charges for the cards are taxable as sales of prepaid telecommunications services, not as TPP, at the time of purchase. Retail-store sellers of the cards are treated as resellers of telecommunications services and must collect sales tax at the time of sale, and they're also responsible for remitting the 1.25% Telecommunications Infrastructure Fund (TIF) assessment on that revenue.
2. Bundled packages: the total charge for the pager-plus-prepaid-service bundle is taxable as a telecommunications service (not split out as partly TPP), with the TIF assessment also due on that revenue.
3. Who collects: the pager company should obtain a resale certificate from each retail-store reseller; the reseller — not the pager company — is responsible for collecting and remitting both the sales tax and the TIF assessment.

What this means for you

Telecommunications companies selling through retail resellers

If you sell prepaid service credits or bundled hardware-plus-service packages through third-party retail stores, the entire transaction (including any bundled hardware) can be taxed as a telecommunications service rather than split between TPP and services — and the collection obligation, along with the TIF assessment, shifts to your retail resellers once you've properly documented the resale relationship with a resale certificate.

Retailers reselling prepaid telecom products

If you're reselling prepaid paging cards or bundled pager packages, you are the one responsible for collecting sales tax and remitting the TIF assessment at the point of sale to the end customer — not the underlying carrier.

Accountants and tax professionals

This letter is a clean template for classifying prepaid telecom products sold through a reseller channel, including the important point that a bundled hardware/service package is taxed in its entirety as a telecommunications service rather than requiring an allocation between the pager (TPP) and the airtime (service).

Common questions

Q: Are prepaid paging cards taxed as tangible personal property or as a telecom service?
A: As a telecommunications service — the retail seller collects sales tax at the time of the card purchase and also owes the TIF assessment.

Q: If a pager and prepaid service are sold together for one price, is any part of that treated as a TPP sale?
A: No — the entire bundled charge is taxable as a telecommunications service.

Q: Who actually collects and remits the tax — the pager company or the retail store?
A: The retail store reseller, after the pager company obtains a resale certificate from it.

Citations and references

Rules:

• 34 Tex. Admin. Code § 3.344 (telecommunications services)
• 34 Tex. Admin. Code § 3.1101 (Telecommunications Infrastructure Fund assessment)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9910768L

Original ruling text

Note: This document is also indexed as a TIF document at STAR 9910771L.

October 12, 1999

Dear **:

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

PAGER COMPANY sells pagers and provides one-way airtime services for
subscribers. The pagers are sold through outside retail stores (**,
**, etc.) and then the paging services are provided by PAGER
COMPANY when customers call to set up the services. PAGER COMPANY is adding
prepaid paging cards and bundled packages to its sales. Prepaid paging cards
are credits of paging services sold in monthly increments and priced according
to level of service. They are primarily sold to outside retail stores by PAGER
COMPANY and resold to the customers. The customer is required to call PAGER
COMPANY to set up their prepaid services.

Bundled packages are pagers and prepaid services sold in one lump sum amount
primarily through outside retail stores. When the customer calls in to set up
the services through PAGER COMPANY, they have prepaid for the services at the
retail store. PAGER COMPANY sets them up to be billed on a regular quarterly or
annual cycle billing. When the customer receives their first bill, they are
given a credit for the amount of service that was prepaid which equates to
about one month of service.

• Note: In our telephone conversation of October 12, 1999, you stated that
  PAGER COMPANY prepaid paging card resellers are free to set the price for which
  they sell the prepaid paging cards. The prepaid paging cards have no specific
  face value.

Please answer the following questions concerning these types of sales in your
state.

1. Are the prepaid paging cards taxable as TPP at the retail stores or are
   they taxable as telecommunication services?

Response 1: Separately stated charges for the prepaid paging cards are subject
to Texas tax at the time of purchase as sales of prepaid telecommunications
services. Sellers of the prepaid paging cards are considered to be resellers
of telecommunications services and are responsible to collect sales tax at the
time of sale. Resellers of the prepaid paging cards are also responsible to
remit the Telecommunications Infrastructure Fund (TIF) assessment of 1.25% on
the revenue from sales of telecommunications services.

2. Are the bundled packages taxable as TPP at the retail stores or are they
   taxable as telecommunication services?

Response: The total charge for the bundled packages is taxable as a
telecommunications service. The TIF assessment is also due on such revenue.

3. If they are taxable as telecommunication services, would the tax be
   collected and reported by the retail store or by PAGER COMPANY?

Response: PAGER COMPANY should obtain a resale certificate from each reseller.
The reseller is responsible to collect and remit the sales tax. The reseller
is also responsible to remit the TIF. I am enclosing Rules 3.344 and 3.1101
for your reference.

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