Can a pay-phone operator buy phone service for resale, must it collect tax on per-call charges, and are commissions it pays taxable?

Plain-English summary

Coinven Inc. buys telephones and installs them in restaurants, bars and similar spots, buys telephone service from New York Telephone Co., and charges customers 25¢ per call. New York Telephone bills Coinven (with line charges, unit charges and sales tax) for each phone, and Coinven separately pays a commission to each establishment where a phone sits. Coinven asked (1) whether it can buy the phone service for resale, (2) who collects the tax on the calls, and (3) whether the commissions it pays are taxable.

The Department answered all three.

• Issue 1 — buy the service for resale. Section 1105(b) taxes telephone service "other than sales for resale." Coinven's purchases of service from New York Telephone are purchases for resale and may be made without paying sales tax, so long as Coinven gives New York Telephone a properly completed resale certificate (Form ST-120).
• Issue 2 — collect tax on the full call charge. Coinven's charges to its customers for telephone service are taxable in their entirety, with no deduction for the commissions it pays (receipts allow no deduction for expenses; § 1101(b)(3)). Coinven must collect and remit the tax on all such charges.
• Issue 3 — commissions aren't taxable. The commissions Coinven pays the establishments for the privilege of placing its telephones on their premises are not subject to sales or use tax under Articles 28 and 29.

What this means for you

Reselling a taxable service means buying it tax-free, then taxing your customer. If you buy telephone service (or another taxable service) only to resell it to end users, you give your supplier a resale certificate and pay no tax on the purchase — then you collect tax when you sell to the public. Don't pay tax at both ends; use the ST-120 on your inputs.

Tax the whole price — your costs don't come off the top. "Receipts" are the full charge with no deduction for your expenses, so the commissions (or rent, or overhead) you pay out don't shrink the taxable amount. On a 25¢ call, tax is figured on the full 25¢.

Payments for the right to place equipment aren't a taxable sale. The commission you pay a host location for letting you put a phone (or machine) on its premises isn't a taxable sale of property or an enumerated service — it's not subject to sales or use tax. That's a separate transaction from your taxable sales to the public.

Common questions

Q: Do I pay sales tax when I buy the phone service I resell?
A: No. Because you're buying it for resale, you can purchase the service tax-free by giving your provider a resale certificate (Form ST-120). You then collect the tax from your own customers.

Q: Can I subtract the location commissions before figuring the tax on calls?
A: No. Receipts allow no deduction for expenses, so you collect tax on the full charge to the caller with no reduction for commissions.

Q: Is the commission I pay the bar or restaurant taxable?
A: No. A commission paid for the privilege of placing your telephones on the premises isn't subject to sales or use tax.

Citations and references

Statutes:

• Tax Law § 1105(b) — taxes telephony/telegraphy and telephone/telegraph service, other than sales for resale
• Tax Law § 1101(b)(3) — defines "receipts" as the charge for the service without any deduction for expenses

Form:

• Form ST-120 (Resale Certificate) — supports buying the telephone service for resale tax-free

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1986.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a86_17s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86(17)S
Sales Tax
May 5, 1986

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S851217A

On December 18, 1985 a petition for Advisory Opinion was received from Coinven Inc., 9
Brightside Avenue, East Northport, N.Y. 11731-1903.
Petitioner purchases telephones and installs them in various establishments such as
restaurants and bars. Petitioner purchases telephone services from the New York Telephone Co. and
charges its customers 25¢ per call. New York Telephone Co. bills Petitioner for each telephone in
service. The bill includes line charges, unit charges, etc. and the sales tax applicable for the location
of each telephone.
As a separate transaction, Coinven pays a commission to the owner of each establishment
where a telephone is located.
The issues are (1) whether Petitioner may purchase for resale telephone services provided
by New York Telephone Co.; (2) who is responsible for collection of the sales tax on the sale of
telephone services to Petitioner's customers; and (3) are the commissions paid by Petitioner to the
owners of the establishments where the telephones are located subject to tax.
Section 1105(b) of the Tax Law imposes a tax on "The receipts from every sale,... other than
sales for resale, of telephony and telegraphy and telephone and telegraph service...." Section
1101(b)(3) defines receipts as: "The sale price of any property and the charge for any service taxable
under this article . . . without any deduction for expenses...."
Accordingly, Petitioner's purchases of telephone services from New York Telephone Co. are
purchases for resale and may be made without payment of the sales tax. To avail itself of this
exclusion, Petitioner must furnish to New York Telephone Co. a properly completed resale
certificate (Form ST-120).

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-86(17)S
Sales Tax
May 5, 1986

Petitioner's charges to its customers for telephone services are subject to tax in their entirety,
with no deduction for the commissions paid to the establishments where the telephones are located.
Petitioner is required to collect and remit sales tax on all such charges. However, the commissions
paid by Petitioner to the establishments for the privilege of placing its telephones on their premises
are not subject to sales and use tax under Articles 28 and 29 of the Tax Law.

DATED: May 5, 1986

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth herein.