Must a tax-exempt university collect sales tax when it bills its own students for telephone lines, long-distance authorization, and usage?

Plain-English summary

Alfred University is an educational organization that is exempt from sales tax on its sales and purchases under Tax Law § 1116(a)(4). In 1988 it began running its own telephone system as a service to students, buying the switch and continuing services under exemption certificates. It bills students monthly (and is considering semester billing) for the line, long-distance authorization, and usage, and asked whether it must collect sales tax on those charges.

The Department said no.

• Sales by exempt organizations are generally exempt. Under 20 NYCRR § 529.7(i)(1), sales of tangible personal property and services by an exempt organization are exempt from sales and use tax, except in specific listed situations.
• No exception applies here. The sale of telephone service is not one of the exceptions in Tax Law § 1116(b) or in 20 NYCRR § 529.7(i)(2), (3), and (4).
• Result. As a § 1116(a)(4) exempt organization, Alfred University is not required to collect sales tax on its charges to students for the telephone line, long-distance authorization, and usage.

What this means for you

An exempt organization's sales are usually exempt — even normally taxable ones

The exempt-organization rules cut two ways. A qualifying charity, school, or similar § 1116(a)(4) organization not only buys tax-free, it generally sells tax-free too. So a service that would be taxable if sold by an ordinary business — here, telephone service — is not taxable when the exempt organization is the seller, unless the law specifically carves it out.

Know the exceptions before assuming a sale is exempt

The exemption for sales by exempt organizations has limits. Tax Law § 1116(b) and § 529.7(i)(2)–(4) list situations — such as certain sales from a shop or store, or sales of specific taxable items — where an exempt organization must collect tax. Telephone service to students wasn't among them, but an exempt organization should check whether its particular sale falls into one of those exceptions.

This is about the organization as seller, not buyer

Alfred University had already used exemption certificates to buy its phone switch and services tax-free (the buyer side). This opinion answers the separate question of whether it must charge tax to the students it bills (the seller side) — and it doesn't.

Common questions

Q: Does a tax-exempt university charge sales tax when it bills students for phone service?
A: No. Sales by a § 1116(a)(4) exempt organization are generally exempt, and telephone service is not one of the exceptions.

Q: Isn't telephone service normally taxable?
A: Yes, when sold by an ordinary vendor. But when an exempt organization is the seller, the general exemption for its sales applies unless a specific exception (§ 1116(b) or § 529.7(i)(2)–(4)) covers it.

Q: Does monthly versus semester billing change the answer?
A: No. The exemption turns on the organization's exempt status and the absence of an exception, not on the billing frequency.

Citations and references

Statutes and regulations:

• Tax Law § 1116(a)(4) — exemption for organizations organized and operated exclusively for educational (and similar) purposes
• Tax Law § 1116(b) — exceptions requiring exempt organizations to collect tax on certain sales
• 20 NYCRR § 529.7(i) — sales of tangible personal property and services by exempt organizations

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_36s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-90(36)S
Sales Tax
July 24, 1990

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S900608A

On June 8, 1990 a Petition for Advisory Opinion was received from Alfred University, Post
Office Box 845, Alfred, New York 14802.
The issue raised by Petitioner, Alfred University, is whether it is required to collect sales tax
on billings related to student telephone lines, long distance authorization and usage.
Petitioner is an educational organization not subject to sales tax on its sales or purchases
pursuant to Section 1116(a)(4) of the Tax Law. It began operations of a telephone system in the
summer of 1988, and since this time has been operating the system as a service to students. The
related switch was purchased, and exemption certificates have been provided on this preliminary
transaction as well as on the continuing services of the provider. Petitioner has been billing students
monthly for the line, long distance authorization, and usage. In addition, Petitioner is considering
billing on a semester basis for the line and long distance authorization.
Section 1116(a)(4) of the Tax Law provides that:
(a) Except as otherwise provided in this section, any sale or amusement
charge by or to any of the following or any use or occupancy by any of the
following shall not be subject to the sales and compensating use taxes
imposed under this article:. . .

(4) Any corporation, association, trust, or community chest, fund or
foundation, organized and operated exclusively for... educational purposes,...
no part of the net earnings of which inures to the benefit of any private
shareholder or individual, no substantial part of the activities of which is
carrying on propaganda, or otherwise attempting to influence legislation,
(except as otherwise provided in subsection (h) of section five hundred one
of the United States internal revenue code of nineteen hundred fifty-four, as
amended), and which does not participate in, or intervene in (including the
publishing or distributing of statements), any political campaign on behalf of
any candidate for public office;
Section 529.7(i)(1) of the Sales and Use Tax Regulations provides that:
"Except as provided in paragraphs (2) through (4) of this subdivision, sales
of tangible personal property and services by exempt organizations are
exempt from the sales and use tax."
TP-9 (9/88)

-2­
TSB-A-90(36)S
Sales Tax
July 24, 1990

The sales of telephone services is not one of the exceptions to the exemption as provided for
in Section 1116(b) of the Tax Law or Sections 529.7(i)(2), (3) and (4) of the Sales and Use Tax
Regulations. Therefore Petitioner, an exempt organization pursuant to Section 1116(a)(4) of the Tax
Law, is not required to collect sales tax on charges by it to students for telephone lines, long distance
authorization and usage.

DATED: July 24, 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.