How did Utah tax teleconferencing services provided by facilities-based carriers or resellers, including separately billed long-distance and call-connection charges?

Plain-English summary

Utah Private Letter Ruling 01-020 said teleconferencing services were taxable when associated with intrastate telephone service and nontaxable when associated with interstate telephone service.

The provider's business model did not change the classification. A traditional facilities-based carrier and a company that bought and resold long-distance time both qualified as telephone corporations when selling or reselling intrastate telephone service in Utah.

Separately billing the long-distance minutes and the service of connecting conference participants also did not change the outcome. The Commission treated both charges as telephone service when the call was intrastate.

Two types of providers

The request described:

1. A traditional carrier offering teleconferencing within a larger package of telecommunications services.
2. A company with no Utah physical plant that used proprietary software and purchased long-distance time for resale with its conferencing service.

The Commission cited Utah Admin. Rule R865-19S-90(A)(4), which defined a telephone corporation to include an entity owning, controlling, operating, or managing telephone service for shared use or resale.

Any entity selling or reselling intrastate long-distance time therefore fell within the definition, regardless of whether it owned physical telecommunications facilities.

Intrastate service was taxable

The Commission treated teleconferencing as an optional telephone feature comparable to the features addressed in Rule R865-19S-90(B)(2).

That feature was taxable only when associated with an intrastate call.

Under the ruling's example, a Utah customer connected with participants in Utah, Illinois, California, and New York. Because the transmission originated in Utah and one connection terminated in Utah, the Commission treated the entire teleconferencing service as intrastate and taxable.

Interstate service was not taxable

If the call originated in Utah and connected only with participants outside Utah, the Commission treated the teleconferencing service as interstate telephone service and not taxable in Utah.

Separately stated charges

The request proposed a $3-per-minute charge split into:

• $0.25 for resold long-distance telephone service.
• $2.75 for connecting or bridging conference participants.

The Commission said the transaction's essence was telephone service, not an independent service of connecting participants.

Both charges were taxable when associated with intrastate telephone service, whether the provider bundled or separately stated them.

Holding

Under the described rules:

• Facilities-based carriers and long-distance resellers could both be telephone corporations.
• Intrastate teleconferencing was taxable.
• Interstate teleconferencing was not taxable.
• A Utah origin and at least one Utah termination made the example conference intrastate.
• Separately stating telephone-time and conference-connection charges did not make either charge nontaxable for an intrastate call.

What this means for you

Teleconferencing providers

The ruling looked through the provider's infrastructure model and focused on selling or reselling telephone service and where the transmission originated and terminated.

Telecommunications resellers

Lack of owned facilities did not keep a reseller outside the historical telephone-corporation definition.

Accountants and tax professionals

Do not assume unbundling creates a nontaxable service. Analyze the transaction's substance and current telecommunications sourcing rules.

Common questions

Q: Did provider type change taxability?

A: No. Both a traditional carrier and a reseller could be a telephone corporation.

Q: Was intrastate teleconferencing taxable?

A: Yes. The Commission treated it as a taxable telephone feature.

Q: Was interstate teleconferencing taxable?

A: No, under the rule applied in the ruling.

Q: What made the example call intrastate?

A: It originated in Utah and at least one conference connection terminated in Utah.

Q: Did separate billing change the result?

A: No. Both charges were treated as telephone service when associated with an intrastate call.

Key source language

• Provider definition: “any entity that sells or resells long distance phone time is included in the definition of ‘telephone corporation.’”
• Interstate result: “if the call from Utah is connected with various other parties, none of which are in Utah, then the teleconferencing service would be considered an interstate telephone service, which is not taxable in Utah.”
• Unbundling: “both charges reflect the purchase of taxable telephone services, whether bundled or unbundled.”

Citations and references

• Utah Code Ann. § 59-12-103(1)(b)(ii)
• Utah Admin. Rule R865-19S-90(A)(2), (A)(4), and (B)(2)

Source

• Landing page: Utah Private Letter Rulings
• Official ruling: Utah PLR 01-020
• Date note: the official source labels the response dateline only as “DATE”; no exact response date was verified.
• Fetch note: the exact official URL returned HTTP 404 to a direct request and was then retrieved through Sofya.

Original ruling text

REQUEST LETTER

01-020

NAME

COMPANY

ADDRESS

I am an attorney that works for a telecommunication tax consulting and software development company that needs information regarding the taxablility of teleconferencing services. Our inquiry involves the following factual scenario.

Teleconferencing providers take one of the following two forms: (1) a traditional �brick and mortar� type telecommunications carrier offering teleconferencing services as part of a much larger package of services sold to customers (type 1); (2) a company owning no physical plant and equipment in a given state which typically specializes in services like teleconferencing using special proprietary software who will buy long distance phone time from a telecommunications carrier in order to offer a complete service (type 2).

A typical transaction by the type 2 company works as follows. A customer located in a state such as Utah will dial into the toll free number belonging to our client that connects him/her to one of our client�s operators. That operator, who is located in State X, then obtains the necessary information for the call including the number of parties to be included in the call, their names, telephone numbers, etc. At the time selected for the conference, the operator calls each of the parties and connects them to the conference call. The operator then remains on the line to manage the call. Another option allows the parties to call a central number and be connected to the conference call automatically. The customer is then billed for two separate transactions, namely: (1) the cost of arranging and managing the conference call; and (2) the resale of the long distance telephone minutes.

Utah imposes a sales tax on amounts paid to telephone corporations for intrastate telephone service. Utah Code 59-12-103(1)(b)(ii). Intrastate telephone service includes charges for optional telephone features such as call waiting, caller identification, and call forwarding. Utah Regulations, Rule R865-19S-90(B)(2). Teleconferencing is commonly grouped together with these features and termed enhanced features. Utah does not impose a state sales and use tax on interstate telephone calls , Utah Regulations, Rule R865-19S-90(C)(2). Thus, interstate calls are excluded but interstate services are not addressed. On the other hand the statue imposes the sales tax on intrastate telephone services, so by omission it would seem that interstate telephone services are outside the cope of the statue.

We would greatly appreciate a written response, which thoroughly explains the department�s position on the taxability of both intrastate and interstate teleconferencing services being provided by both types of companies outlined above. Additionally, please address the separate issue of whether the bundling of teleconferencing services together with the resale of long distance phone service affects the taxability of either service (i.e. a case where a company provides both services and separately bills their customers for each part of the transaction). Furthermore, please address whether you would agree that a teleconferencing service would be considered an enhanced feature in Utah.

Please respond in the form of a general information letter, quoting appropriate sources when necessary. Thank you for your time and effort in responding to our tax inquiry.

NAME

RESPONSE LETTER

DATE

NAME

COMPANY

ADDRESS

RE: Advisory Opinion Taxation of Teleconferencing Services

Dear NAME,

You have requested an advisory opinion concerning the taxability of teleconferencing services. You specifically ask: (1) whether the taxability of such services depends upon the �type of company� that is providing the services; (2) whether �interstate� teleconferencing services are taxed differently from �intrastate� teleconferencing services; and, as a separate issue, (3) whether taxability is affected by �unbundling� the service into two charges, one for the resale of long distance phone service and another for connecting the parties to the teleconference call.

Type of Company. Under Utah Code Ann. �59-12-103(10(b)(ii), Utah imposes sales tax on amounts paid to telephone corporations for intrastate telephone service. A �telephone corporation� is defined in Utah Admin. Rule R865-19S-90(A)(4) (�Rule 90�) to mean �any corporation owning, controlling, operating or managing any telephone service for the shared use with or resale to any person on a regular basis whether or not regulated by the Public Service Commission.� Whether a traditional �brick and mortar� carrier or a company owning no physical plant and equipment, any entity that sells or resells long distance phone time is included in the definition of �telephone corporation.� Accordingly, if either of the two types of companies you describe sells or resells intrastate telephone service in Utah, it is considered a �telephone corporation� and must collect sales tax on that sale.

Interstate Versus Intrastate. Subsection (B)(2) of Rule 90 provides that taxable telephone service charges include charges for optional telephone features, such as call waiting, caller i.d., and call forwarding. You indicate in your letter that �teleconferencing services� is commonly grouped together with such features for taxation purposes. Utah would also consider teleconferencing services a feature that is taxable, but only if it is associated with an intrastate call. Accordingly, if the teleconference call involves a transmission that originates and terminates in Utah, as provided for in Subsection (A)(2) of Rule 90, then the teleconference call is taxable. For example, a Utah entity purchases the teleconference service to connect a call from Utah with four other parties, who are located in Utah, Illinois, California, and New York. As the call originates in Utah and one of the connections terminates in Utah, the entire teleconferencing service would be deemed an intrastate telephone service and, thus, taxable. However, if the call from Utah is connected with various other parties, none of which are in Utah, then the teleconferencing service would be considered an interstate telephone service, which is not taxable in Utah.

Unbundling. In your letter and during a recent telephone conversation, you describe the teleconference service to include two elements: (1) the resale of long distance telephone service; and (2) the service involved with connecting multiple parties to the conference call. This latter �connection� service would either require the entity that purchases the teleconference service to reserve a conference time with the provider, at which time all conference participants would call in and be connected, or require an operator with the provider to call all the conference participants and �bridge� them together for the conference call. In either instance, you propose a hypothetical where the provider would charge $3.00 per minute for the teleconference service. You ask whether there is any affect on taxability if this charge is �unbundled� into a $0.25 per minute charge for the resale of long distance telephone service and a $2.75 per minute charge for the service to �connect� the parties to the call. On the information currently provided, we believe the essence of the transaction to be the sale of taxable telephone service, not the sale of services to connect parties to a teleconference call. Accordingly, we would consider that both charges reflect the purchase of taxable telephone services, whether bundled or unbundled, and, as such, are both taxable when associated with intrastate telephone service.

Please contact us if you have any other questions.

For the Commission,

Marc B. Johnson

Commissioner

MBJ/KC

01-020