Does Utah tax phone calls and prepaid calling cards, at what rate, on which calls, and when is the tax actually due on a prepaid card?

Plain-English summary

Someone researching Utah's telecommunications tax rules for public/regulatory reference asked the Commission a detailed set of questions about two topics: taxation of ordinary ("presubscribed") phone service, and taxation of prepaid calling cards.

Presubscribed telecommunications services (local, 1+, 800/888, and calling-card-billed calls direct-dialed from a phone). Utah does tax intrastate telephone service, defined under Utah Admin. Code R865-19S-90. The Commission answered each sub-question directly:

1. Combined rate: Yes -- the Commission collects the total sales tax and then distributes each city or town's portion to it, rather than cities/counties layering on a wholly separate telecom-specific tax.
2. Rate: At the time, rates ranged from 5.75% to 7.00% depending on location, with most areas falling between 6.00% and 6.35%.
3. Which calls are taxed: Only intrastate calls -- meaning calls that both originate and terminate in Utah, per Rule R865-19S-90 § A.2 -- even if the transmission signal's route technically leaves and re-enters the state along the way. Calls merely originating in Utah but terminating elsewhere are not taxed on this basis.
4. Flow-through: Yes, the tax may be passed through to the end user as a line item on the phone bill.

Prepaid calling cards. Two distinct questions: does Utah tax the cards, and if so, when does the tax liability arise? The Commission's answer: Utah taxes the sale of prepaid calling cards themselves, but exempts from separate taxation the telephone service that's later charged against the card when the buyer actually makes calls -- avoiding taxing the same value twice. The tax liability is incurred at the point of sale of the card, not when the buyer later uses it to make a call, and the seller is responsible for remitting that tax.

What this means for you

Telecommunications and prepaid calling card providers

Your Utah sales tax obligation on intrastate calls turns on whether both the origin and destination of the call are inside Utah -- not simply whether the call originates here. For prepaid cards, collect and remit tax when you sell the card, not later when it's actually used; don't try to tax the card sale and the subsequent call usage separately, since the ruling treats card-charged phone service as exempt precisely to avoid that double taxation.

Businesses researching Utah's telecom tax structure for compliance purposes

This ruling confirms Utah runs a single combined state/local sales tax on intrastate telephone service (rather than a separate local utility-user tax layered on top), collected centrally by the Commission and redistributed to local jurisdictions.

Accountants and tax professionals

This is a useful, if dated, snapshot of Utah's telecom sales tax mechanics circa 1998 -- current rates and telecommunications-specific tax provisions have changed substantially since (including new/other telecom-related taxes Utah has since adopted), so verify today's rate schedule and statute before relying on the specific numbers here.

Common questions

Q: Are all phone calls originating in Utah taxed? A: No -- only calls that both originate and terminate in Utah (intrastate calls) are taxed on this basis, even if the call's transmission route technically crosses state lines.

Q: What was Utah's sales tax rate on telecom service in 1998? A: It ranged from 5.75% to 7.00% depending on location, with most areas between 6.00% and 6.35%. Check current rates before relying on these figures today.

Q: When is sales tax due on a prepaid calling card -- at purchase or when the card is used? A: At purchase. The seller collects and remits tax at the point of sale; using the card to make calls doesn't trigger a separate tax on the phone service itself.

Q: Does this ruling apply to my business?
A: No. It binds the Commission only for the requesting party and the facts described. Another taxpayer can't rely on it as binding, though it may carry some persuasive weight in a dispute with closely similar facts.

Citations and references

Rules:

• Utah Admin. Code R865-19S-90 (taxable intrastate telephone service; "intrastate" defined in § A.2)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original page: https://files.tax.utah.gov/tax/commission/ruling/98-042.htm

Original ruling text

98-042

Response June 10, 1998

REQUEST
LETTER

May
22, 1998

Re: State Telecommunications Taxes and
Surcharges

Dear
Sir:

The purpose for this correspondence
is to obtain information that will be presented publicly, aud upon which parties may thereafter rely in business and regulatory matters to operate in the State of Utah. I would appreciate as rapid a response from the Utah State Tax Commission as possible. In any event, thank you for your assistance and I anticipate that I will need to communicate with the Utah State Tax Commission directly after receipt of information requested in this letter. As a result, your response might indicate a contact person and phone number to whom such communication may be directed.

State
Sales Tax - Presubscribed Services

First I would like to inquire as to
whether or not the State of Utah requires a state Sales Tax sometimes referred to as a "Utility User Tax") be assessed against presubscribed telecommunications services sold to end users in Utah. (Presubscribed telecommunications services are those services that may be direct dialed from a residential or business phone. e.g., local, 1+, 800/888, and calling card calls.) If so: 1) Is the state Sales Tax a combined rate (i.e., does the state allocate from its collected telecommunications sales tax revenue to the local

taxing
jurisdictions or may local taxing authorities - city and county - assess similar taxes on their own.) 2) What is the current tax rate; 3) Is the tax assessed against all calls originated in Utah or against only those calls that originate in Utah and terminate in Utah; and, 4) May the

telecommunications
service provider "flow through" the state Sales Tax to the end user as a line item on the end user's phone bill.

If
Utah does not assess a telecommunications services Sales or Utility Users Tax, but local taxing jurisdictions may assess such a tax, does your agency maintain information such as that requested in paragraph one on those jurisdictions? If so, would it be possible to please provide me with that information. If, however, your agency does not maintain such information, can your agency provide me with a mailing list of those local taxing jurisdictions so that I might directly make inquiry thereto?

Prepaid
Calling Cards

Prepaid calling cards (also referred
to as "debit cards") have become a standard product in the portfolio of telecommunications services providers. As you may be aware, these calling cards are distinct from traditional calling cards in that the user pays a fee "up front" for the privilege of subsequently using the card. (As compared to the traditional card that is billed after usage to the end user on the end user's local or long distance bill These traditional cards are usually assessed any taxes or surcharges on the bill.)

With the prepaid card, the buyer may
or may not utilize the card (e.g.,
collectors do not use the card and may buyers do not use all of the card) and therefore not receive immediate value at the time of purchase, and/or may use the card for calls that would not be subject to a state or local taxing authority's telecommunication; services taxes. (For example, if a state or local tax is assessed on against calls that originate and terminate in the state, and are billed to an address in the state, a prepaid calling card call that terminates out of the state {and of course there is no bill} would not be assessed such a tax.)

My question: if Utah
assesses telecommunications sales or utility users tax, regarding these taxes, at what point does the liability for such a tax occur for prepaid/debit calling cards? At the point of sale or at the time the buyer receives value - the time the call is made. As you can see, if the buyer pays an additional amount in the form of sales or utility user tax at the time of the sale, the buyer bears the tax burden and may be paying tax that is not directly related to the value. If, however, the tax is assessed at the time the buyer receives his or her value (the time of the call), the buyer gets full value and the burden of the tax falls on the service provider to pay the tax out of card sales revenue.

I appreciate your consideration of
this correspondence and look forward to
your response. Thank you for your assistance.

Sincerely,

NAME

June
10, 1998

NAME

ADDRESS

CITY,
STATE ZIP

RE: Advisory
Opinion - Sales Tax on Telecommunication Services

Dear
NAME,

We have received your request for
information concerning the application of sales tax under Utah law on telecommunication services. Specifically, you have asked a number of questions concerning both presubscribed services and prepaid calling cards. Let us address each of these categories separately.

Presubscribed Services. Utah does assess a sales tax on intrastate telephone service, which is defined under Utah Admin. Code R865-19S-90 (copy attached). Accordingly, your first four questions are relevant to Utah�s taxation system.

Question #1. The sales tax rate applied in Utah is, by your definition, a combined rate. The Tax Commission receives the total sales tax, then distributes to any city or town its portion of the sales tax received.

Question #2. Though the current sales tax rate varies, depending upon location, from 5.75% to 7.00%, a range from 6.00% to 6.35% exists in almost all areas of the state.

Question #3. As indicated above, intrastate telephone service is taxable. Intrastate is defined in Section A.2. of Rule R865-19S-90 to mean a transmission that originates and terminates in this state, even if the route of the transmission signal itself leaves and reenters the state.

Question #4. Yes, sales tax may �flow through� as a line item on the end user�s telephone bill.

Prepaid Calling Cards. You have asked two questions concerning these cards: (1) whether Utah assesses a sales tax on the cards; and (2) if it does, at what point is the tax liability incurred. First, Utah does assess a sales tax on prepaid calling cards, but does exempt from taxation sales of telephone service charged to a prepaid calling card. Second, tax liability is incurred at the time and point of sale, with the seller having the responsibility to remit the tax.

Please contact us if you have any
other questions. As per your request,
you may contact Customer Service at (801)297-2200 for tax information. By selecting option #5, you will reach a representative who may answer your tax questions.

For
the Commission,

Joe
B. Pacheco

Commissioner

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