How should a telex reseller that can't tell where messages are delivered figure and document the sales tax on its charges?

Plain-English summary

Taft Consulting Corporation is a value-added reseller of telex and communications services. About 20% of its revenue comes from New York-origin message traffic delivered to destinations across the United States. The trouble: the destination is only identified by a random 5-to-10-digit telex number assigned by an international record carrier (Western Union, RCA, MCI, TRT, etc.), and nothing in the number reveals the location of the destination. Taft handles about 50,000 possibly-taxable transactions a month and asked for a practical method to determine where a telex number is located so it can decide whether and at what rate sales tax applies.

The Department declined to hand Taft a formula and instead put the burden on the vendor.

• The recordkeeping rule. Under § 533.2(b), every person required to collect tax must keep records of every sale — with enough detail to independently determine the taxable status of each sale and the tax due — and must substantiate points of delivery when delivery is made somewhere other than the vendor's place of business.
• No prescribed method exists for this business. The Department noted it does not generally state the specific records a vendor must keep, only that the records must accomplish that objective, and that it has not issued any regulations or audit guidelines for this kind of telex business.
• The vendor must propose a method. So it is incumbent on Taft, in the first instance, to submit a proposed method for determining the sales tax due on its services. Upon receiving the proposal, the Department will advise whether the method meets the requirements of § 533.2(b).

What this means for you

When the law doesn't prescribe a method, the burden is on you to devise one

New York's recordkeeping rule sets an objective — records detailed enough to determine each sale's taxable status and the tax due — but usually doesn't dictate the exact records. If your business model makes sourcing hard (here, destinations hidden behind random identifiers), the Department won't invent a formula for you. You must design a defensible method and be ready to support it.

Get your proposed method blessed before you rely on it

The practical path the Department offered is to submit your method for review. Rather than guess and risk an audit adjustment, propose how you'll determine and document the tax, and get the Department's confirmation that it satisfies § 533.2(b). That turns an uncertain position into an approved one.

Delivery-point substantiation is the heart of it

Because New York sales tax is sourced to where a service or item is delivered, the records that matter most are the ones that substantiate the point of delivery. For a business that can't read the destination off its own transaction data, the method has to reconstruct delivery location some other way — and that reconstruction is what the Department will judge.

Common questions

Q: Did the Department tell Taft how to source its telex charges?
A: No. It said there's no prescribed method for this kind of business, and Taft must propose its own method that meets § 533.2(b).

Q: What does § 533.2(b) require?
A: Records with enough detail to independently determine the taxable status of each sale and the tax due, and documentation substantiating the point of delivery when delivery is made away from the vendor's place of business.

Q: What should a vendor do when it can't determine the destination from its data?
A: Design a reasonable method to determine and document the tax, submit it to the Department, and get confirmation that it satisfies the recordkeeping rule.

Citations and references

Statutes and regulations:

• 20 NYCRR § 533.2(b) — sales records; sufficient detail to determine taxable status; substantiation of points of delivery

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1990.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a90_25s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-90(25)S
Sales Tax
May 2, 1990

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S891227B

On December 27, 1989 a Petition for Advisory Opinion was received from Taft Consulting
Corporation, 56 Beaver Street, New York, New York 10004.
The issue raised by Petitioner, Taft Consulting Corporation, is what is a practical method of
determining the locality or state in which a telex number is located, so that the applicability of sales
tax to the charge for the call can be determined.
Petitioner provides telex and other communications services to clients around the world as
a value added reseller. Approximately twenty percent of its gross revenue is derived from message
traffic that originates from clients located in New York that is delivered to destinations within the
United States and its territories. The only information it has concerning the destination is that the
message was delivered to a specific telex number controlled by a specific United States international
record carrier (Western Union, RCA, MCI, TRT, etc.)
The telex numbers range from 5 to 10 digits in length and are assigned randomly by the
international record carriers. Specifically, there is no information within the telex number that allows
determination of the location of the destination.
Petitioner currently handles about 50,000 transactions a month that may be subject to sales
tax. These transactions originate with clients located in New York State and terminate at telex
numbers known to be located within the United States and its territories.
Section 533.2(b) of the Sales and Use Tax Regulations provides in part as follows:
Sales records. (1) Every person required to collect tax, including every person purchasing
or selling tangible personal property for resale must keep records of every sale, amusement charge,
charge for dues or occupancy, and all amounts paid, charged or due thereon, and of the tax payable
thereon. The records must contain a true copy of each:
(i) sales slip, invoice, receipt, contract, statement or other memorandum of sale;
(ii) guest check, hotel guest check, receipt from admissions such as ticket stubs,
receipt from dues; and
(iii) cash register tape and any other original sales document.

TP-9 (9/88)

-2­
TSB-A-90(25)S
Sales Tax
May 2, 1990

Where no written document is given to the customer, the seller shall keep a daily record of
all cash and credit sales in a day book or similar book.
(2)
The sales record either must provide sufficient detail to independently
determine the taxable status of each sale and the amount of tax due and collected thereon or
may be substantiated by analysis of supporting records.
*

*

*

(3)
The seller must maintain records which substantiate points of delivery if
delivery was made at a place other than his place of business. Such documents should
include receipts from parcel delivery services, common carriers, unregulated truckers, the
United States Postal Service, foreign freight forwarders, and logs from company vehicles.
Such documents must be referenced to specific sales transactions.
*

*

*

The Department of Taxation and Finance does not generally state specifically what records
are to be maintained by individual vendors, only that each individual vendor must keep records
which accomplish the objective of providing sufficient detail to determine the taxable status of sales
and the amount due and collected on such sales.
The Department has not issued any regulations or audit guidelines setting forth in detail the
method of record keeping required by vendors conducting the type of telex business carried on by
Petitioner as described above. It is incumbent upon the Petitioner, in the first instance, to submit to
the Department a method for determining the sales tax due on the services rendered by it. Upon the
receipt of such a proposal, the Department will advise the Petitioner whether the method proposed
meets the reporting requirements of Section 533.2(b) of the Sales and Use Tax Regulations.

DATED: May 2, 1990

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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