Who owed Utah sales tax on 1-900 telephone charges, revenue-sharing payments, and monthly line-rental amounts?

Plain-English summary

Utah Private Letter Ruling 91-012 addressed an operator that acquired rights to 1-900 telephone lines and planned to use joint-venture and rental agreements.

Callers would be billed by their own telephone companies. The telephone company would remit part of the receipts through a service bureau, and the line operator would share revenue with the business using the number.

The Commission placed sales tax at the end-user billing stage.

End-user telephone charge

Utah taxed amounts paid to telephone corporations, subject to a stated exemption for interstate telephone service.

The caller's own telephone company billed the customer for placing the 900 call.

The Commission said that telephone company had to collect sales tax on the amount charged to the caller.

Joint-venture revenue sharing

Under the joint-venture arrangement, the telephone company sent part of the call receipts to the service bureau.

The service bureau paid the line operator, who then paid the joint-venture participant its share.

The Commission treated those later remittances as exempt resale transactions rather than new taxable telephone charges.

Monthly rental arrangement

A business using the line under a rental agreement paid a monthly amount in advance and received a larger portion of call revenue.

The Commission also treated that monthly amount as a resale transaction and said it was not taxable.

The returning payments through the telephone company, service bureau, operator, and rental customer were neither separately taxable nor eligible for a tax credit.

Holding

Under the described payment flows:

• The caller's telephone company collected sales tax on the end-user 900-call charge.
• Remittances through the service bureau and joint-venture chain were exempt resale payments.
• The monthly line-rental amount was a nontaxable resale transaction.
• Later distributed fees were not separately taxable.
• Those later payments were not eligible for a tax credit.

What this means for you

Premium-rate service operators and telecommunications businesses

Map who bills the end user and where tax is collected before classifying later revenue-sharing payments.

Joint-venture and media partners

A share of already-taxed call receipts was not treated as a new taxable charge under the stated arrangement.

Accountants and tax professionals

Verify current telecommunications sourcing, interstate-service rules, platform billing, and the treatment of guaranteed or fixed payments.

Common questions

Q: Who collected sales tax from the caller?

A: The caller's own telephone company.

Q: Were the revenue shares separately taxable?

A: No. The Commission treated them as resale transactions.

Q: Was the monthly line-rental amount taxable?

A: No, under the described agreement.

Q: Did the later recipients get a sales-tax credit?

A: No. The Commission said the returning fees were not eligible for a tax credit.

Key source language

• End-user tax: “The telephone company must collect sales tax on the amount charged to the customer.”
• Joint-venture payments: later remittances “are not taxable. These payments are exempt as resale transactions.”
• Monthly amount: it “is a resale transaction and is not taxable.”
• No credit: the returning fees “are not subject to tax or eligible for any kind of tax credit.”

Citations and references

• The official response cites the Utah sales-tax law on telephone corporations and interstate telephone service generally but gives no numbered statute or rule.

Source

• Landing page: Utah Private Letter Rulings
• Official ruling: Utah PLR 91-012
• Scope note: the source describes both a no-monthly-fee joint venture and a monthly rental arrangement with revenue sharing.
• Fetch note: the exact official URL returned HTTP 404 to a direct request and was then retrieved through Sofya.

Original ruling text

August
15, 1991 Response from Tax
Commission

July
8, 1991 Letter from XXXXX

XXXXX

Re:
Advisory Opinion - 900 Numbers

Dear
Mr. XXXXX:

This
letter is in response to your recent request for a Tax Commission ruling on the taxability of fees collected for the use of 900 telephone lines.

The
Tax Commission Policy is to refer such requests to the division most qualified to analyze the request and make recommendations concerning it. As such, your request was referred to the Tax Commission's Auditing Division for their analysis and recommendation. The division's recommendation is as follows.

1.
The sales tax law imposes tax on amounts paid to telephone corporations, with a specific exemption for interstate telephone service. The purchase of telephone service for resale is exempt because tax will be collected on the service of the end user.

2.
Under the "joint venture" agreement, the customer will be billed by his own telephone company for placing a 900 call. The telephone company must collect sales tax on the amount charged to the customer. The remittances by the telephone company to the service bureau, the service bureau to Mr. XXXXX and from Mr. XXXXX to the joint venture party are not taxable. These payments are exempt as resale transactions.

3.
The monthly amounts paid by the individual signing a "rental" agreement, such as in the example $395, is a resale transaction and is not taxable. The amount the customer pays his own telephone company is taxed by the telephone company. The fees coming back from the telephone company to the service bureau, to Mr. XXXXX and to his rental customer are not subject to tax or eligible for any kind of tax credit.

For
the Commission,

Joe
B. Pacheco

Commissioner

XXXXX

Dear
Mr. XXXXX:

Per
XXXXX's suggestion, I am asking for an advisory opinion on the application of sales and use tax on the rental and commission charges I anticipate charging in my business.

I
have bought the right to use several
1-900 numbers from the XXXXX in XXXXX, CA.
This was a one-time fee for three such lines. I may purchase other lines as necessary from XXXXX.

The
rights to these lines include the ability to rent the lines to other individuals or to undertake joint-ventures with others. In both cases, I and the other person will split the revenues. In the case of the rental agreement, the individual will pay a monthly fee as a form of deposit against the revenues and the rental individual will receive a larger portion of the revenues.

Joint
Venture

For
example, a radio station wants to use a 1-900 number for some sort of contest. Since we could expect a good response in calls due to their advertising ability we would enter into a joint venture. The radio station would not pay any monthly "rent." Each person who calls the 1-900 number would be billed $2.00/min/call (collected by the phone company).

The
phone company sends $1.50/min/call to the service bureau (XXXXX). The service bureau will send me $1.25/min/call. I would then send to the radio station (within 5 days of receipt of the money) their portion of the revenues along with a copy of the detailed listing of calls (provided to me by the service bureau).

In
this case, there are no "fees" or charges for use but rather a splitting of the revenues. No money is paid by the radio station to me.

Rental

For
companies/individuals who want a 1-900 number but whom we want to guarantee a minimum income, we would enter into a rental agreement. The individual would sign a rental agreement and pay $395/mo in advance to use the line. We would then split the revenues with the individual on the following scale:
$1.15/min/call to the individual $.10/min/call to me.

Again
the $395 is to guarantee a minimum income for me. I, therefore, would actually pay the individual $l.25/min/call (keep nothing myself) for the first $500 in revenues generated. Thereafter, I would Pay $1.15/min/call. This is an added bonus to the customer. The idea is that the customer ends up paying nothing for the line as long as it is profitable for both of us. In effect, we simply split the revenues if it is Profitable. If it is not profitable, the individual will likely discontinue the 1-900 line.

Conclusion

Please
advise me on the applicability of sales and use tax on the "charges" in my business. I have enclosed copies of the agreements for use in joint ventures and rental arrangements (forms provided by XXXXX). All of these forms and full information is provided in a business start-up kit sold by XXXXX. They are located in XXXXX, Utah in the XXXXX business park.

Thank
you for your assistance.

Sincerely
,

XXXXX