Is a flat monthly fee charged to customers for Internet access service subject to Utah sales tax, given that all transmissions leave the state and usage isn't billed by the hour?

Plain-English summary

An officer of an early Internet access provider wrote to the Utah Tax Commission to formally confirm a practice the company had already adopted: not charging sales tax to customers for Internet access. The company's reasoning, laid out in its request, was that only intrastate calls are taxed (not interstate), all Internet transmissions leave the state, customer usage can't practically be monitored or tracked, and customers were billed a flat monthly rate rather than by the hour. The company acknowledged its own internal decision wasn't binding law and asked for an official advisory opinion and letter ruling.

The Commission agreed with the company's practice: under Utah law at the time, charges for access to on-line services like the Internet were not subject to sales tax, and charges for interstate telephone communications were separately exempt as well. Based on the contract details the company provided, its Internet access charges were confirmed tax-exempt.

What this means for you

Businesses that adopted a tax position on their own and want it confirmed

This ruling is an example of a company formalizing an existing internal practice through an advisory opinion request — a useful approach when you've made a reasonable interpretation of ambiguous tax rules but want the Tax Commission's own confirmation on the record for your specific facts.

Internet service providers researching Utah's historical sales tax treatment of internet access

This is one of several ruling from the mid-1990s (see also PLR 95-065 and PLR 96-141) establishing that Utah did not tax Internet access charges during this period, while the state legislature was actively studying how to treat on-line/computer-related services going forward. Don't assume this 1995-era policy is still current without checking later statute changes.

Common questions

Q: Does billing customers a flat monthly rate (rather than by usage) affect whether Internet access is taxable?
A: Not decisively in this ruling — the taxpayer cited its flat-rate billing as one of several reasons supporting its no-tax position, but the Commission's answer rested on the general rule that on-line service access charges aren't subject to Utah sales tax, regardless of billing structure.

Q: Does this exemption cover interstate telephone charges too?
A: Yes, per this ruling — the Commission noted that charges associated with interstate telephone communications are separately exempt from Utah sales tax, in addition to the Internet-access exemption.

Citations and references

No specific Utah Code or Administrative Rule sections were cited in this ruling's text; the Commission's answer rested on its general position (further developed in companion 1995-1996 rulings) that on-line/Internet access charges were not taxable under then-current Utah sales tax law.

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/95-031.htm

Original ruling text

95-031

Response
August 2, 1995

Request

XXXXX

Dear XXXXX:

I appreciate the time you spent with me talking about the sales tax issues surrounding the Internet. My name is XXXXX, and I am an officer of XXXXX. I am writing this letter to receive an advisory opinion and an opinion letter with respect to charging sales tax to our customers for their use of the Internet.

Presently, XXXXX does not charge sales tax to its clients for their use of the Internet. The management of XXXXX made this decision for the following reasons:

"Only intrastate calls are taxed, not interstate

"All Internet transmissions leave the state of Utah

"It is impossible to monitor or track customers' on-line transmissions

"Customers' fees are based on a flat rate, not the number of hours used

However, as a management team, we recognize that our decisions are not law. Therefore, we are soliciting an advisory opinion and an opinion letter on this matter. We would appreciate an answer on this question when possible. Thank you for your cooperation.

Sincerely,

XXXXX

RE: Advisory Opinion - Application of sales tax to charges for use of the Internet.

Dear XXXXX,

You requested an advisory opinion as to whether the charges your clients pay for XXXXX access services to the Internet are taxable. We find as follows:

Under Utah law, charges for access to on-line services such as the Internet are not subject to sales tax. Additionally, charges associated with interstate telephone communications are also exempt from sales tax. From the information provided in the contract accompanying your letter, it appears that XXXXX charges are tax exempt.

If you new facts arise in the future which raise additional questions, please feel free to request another advisory opinion.

For the Commission,

Alice Shearer

Commissioner

See file for information descriptive fliers on XXXXX software (2 fliers), and an Internet access-service agreement (2 page)