Does a not-for-profit 'call before you dig' organization owe sales tax on its member dues, which fund both its damage-prevention education/seminars and its call center that locates underground utility lines?

Subject

Whether a not-for-profit corporation that provides damage prevention seminars, educational, training and marketing services to the public and to contractors, and that also operates a call center notifying its utility members of proposed excavation in their area, is responsible for collecting sales tax from its members.

What this means for you

A New York not-for-profit organization with over 270 utility and municipal-corporation members runs a "Call Before You Dig" program: damage-prevention seminars, contractor education and training (some accredited for professional credit), billboard and advertising campaigns, field liaisons who work with contractors, and a toll-free call center. When a contractor or member of the public calls to report planned excavation, the organization's own employees and equipment take the call and notify whichever utility members have underground facilities in that area, who then check or mark the site. The organization doesn't charge callers for this notification service -- the cost is folded into its members' annual dues, along with the cost of the seminars, liaison work, training, and marketing, allocated based on how many notifications each member received.

New York specifically taxes "telephone answering services" -- taking messages by phone and passing them to the purchaser -- and the Department had already held, in an earlier opinion about a similar one-call notification system, that this exact kind of call-and-relay service qualifies. So the organization's call center is a taxable telephone answering service on its own. The harder question was the other, non-taxable-sounding services (seminars, education, training, marketing) bundled into the same annual dues. Under New York's bundling rule, if components of one sale can't actually be bought separately -- even when they can be calculated or estimated separately -- the whole thing is treated as a single sale. Because members pay one annual due covering everything and can't opt to buy just the education/marketing services without the call center, the ENTIRE membership charge is taxable, not just the call-center portion. On the flip side, when the organization itself buys a third-party answering service to cover calls outside its normal business hours, that purchase is for resale (since the organization is reselling that answering-service function to its own members through their dues), so the organization doesn't pay tax on what it pays that third-party vendor.

Q&A

Q: We run a phone-based notification or "one-call" service that relays messages to members or subscribers -- is that taxable?
A: Yes, per this opinion (following the Department's own prior "One Call Systems" precedent) -- taking calls and relaying messages to the purchaser at the purchaser's direction is a taxable telephone answering service under Tax Law § 1105(b) and § 1101(b)(13).

Q: Our education/seminar/marketing services aren't separately taxable, but they're bundled with our call center into one membership fee -- does that change anything?
A: Yes. Per this opinion, because members can't purchase those non-taxable services separately from the taxable call-center service, the bundling rule treats the whole membership charge as one taxable sale -- even though the education and marketing services would not have been taxable on their own.

Q: We buy a third-party after-hours answering service to cover calls when we're closed -- do we owe tax on that purchase?
A: No, per this opinion -- that purchase qualifies as a purchase for resale, since the organization is passing that same answering function through to its own members via their dues.

Q: Can another damage-prevention or "call before you dig" organization rely on this opinion?
A: No. This advisory opinion binds the Department only as to the petitioner and the facts described here; another taxpayer cannot rely on it.

Citations

• Tax Law § 1105(b) -- imposes sales tax on receipts from every sale, other than for resale, of a telephone answering service.
• Tax Law § 1101(b)(13) -- defines "telephone answering service" as a service consisting of taking messages by telephone and transmitting them to the purchaser or at the purchaser's direction, excluding a service that is merely incidental to a different service purchased by the customer.
• Morton L. Coren, P.C., Adv. Op. Comm. T&F, June 29, 1990, TSB-A-90(33)S -- held that components of a sale that cannot be separately purchased must be treated as a single taxable sale, even if separately stated, calculated, or estimated.
• One Call Systems, Inc., Adv. Op. Comm. T&F, January 3, 1992, TSB-A-92(1)S -- held that a similar one-call excavation-notification service, receiving calls and relaying messages to member utilities, is a taxable telephone answering service.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1993.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a93_63s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (63) S
Sales Tax
December 20, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S931018A

On October 18, 1993, a Petition for Advisory Opinion was received from Underground
Facilities Protective Organization, Inc., 3650 James Street, Syracuse, New York 13206.
The issue raised by Petitioner, Underground Facilities Protective Organization, Inc., is
whether a not-for-profit corporation that provides damage prevention seminars, educational, training
and marketing services to the public and to contractors to advise of the hazards involved in
disturbing the ground before confirming that no underground pipelines, power lines, telephone lines
and similar related facilities (hereinafter "facilities") are in jeopardy of damage is responsible for
collecting sales tax from its own members when Petitioner also provides an additional service to its
members whereby the public and contractors may call to inquire as to the location of facilities in an
area in which construction is proposed and information on the inquiry is given to the members who
may have facilities in that area.
Petitioner is a New York, not-for-profit corporation which has over two hundred seventy
members (the "members") comprised of various public utilities and municipal corporations from
fifty-five counties in New York State. The objective of Petitioner is to prevent damage to buried
facilities. In furtherance of this objective, Petitioner provides damage prevention seminars,
educational and training programs to the public and to contractors, as well as marketing programs
such as billboards and other forms of advertisement advising contractors and the public to "Call
Before You Dig".
Three (3) full-time field liaisons are also employed by Petitioner. T h e s e l i a i s ons a r e
assigned to each of the Western, Central and Eastern Regions of New York State. The liaisons work
with contractors in their designated areas in insuring their operations are structured so as to guard
against unintentional damage to facilities. The liaisons assist the contractors in educating employees
and in placing Petitioner's informational stickers on their equipment which advise their employees
and subcontractors of the dangers of digging without notifying Petitioner. Some of Petitioner's
programs have been certified as accredited courses for which attendees receive professional credit.
To assist the contractors, Petitioner provides a call center service which provides information
on underground facilities in an area in which the ground may be disturbed by construction. Utilizing
a toll-free number, contractors and others can telephone Petitioner to report their intent to excavate,
drill or otherwise disturb the ground. The calling parties are then advised of members of Petitioner
which have facilities in the immediate area proposed for disturbance. The inquiry is then passed on
to the members, which in turn check the proposed work site and paint or stake their buried facilities
or notify the excavator that the location is clear, thus prevention potential damage to both the public
and the underground facilities.

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All operations of Petitioner are conducted internally. Petitioner owns and operates its own
call center. All equipment is owned by Petitioner and the personnel who provide information to
callers and to the members are leased employees. Petitioner does not charge the calling contractor
or excavator a fee for this notification service. Rather, the cost is included, together with the cost
of the damage prevention seminars, the liaison services, and the training, education and marketing
programs, in the annual dues paid by the members.
When calls are made to Petitioner outside its normal hours of operation (7 a.m. to 5 p.m.) a
third party telephone answering service takes the call and passes the information on to Petitioner.
The third party answer service charges Petitioner for each call at its customary rates plus sales tax.
Approximately fifty percent of Petitioner's budget is allocated to damage prevention
seminars, educational, training, and marketing programs and materials. The remaining portion of the
budget is primarily for the operation of the call center. Petitioner's annual budget is created each year
based on the prior year's total cost of all of it operations.
Because of the great disparity in the size of its members, it is difficult for Petitioner to
allocate the costs of operations among its members. The size of the members range from companies
as small as Groveland Water Corp. to several large utilities such as Niagara Mohawk Power Corp.,
Consolidated Edison Company of New York and New York State Electric and Gas. To fairly allocate
the costs of providing all of Petitioner's services to its members, membership dues are based on the
number of notifications each member received during the prior year. The budget amount for all
services is divided by an estimate of the number of notices which the total membership will receive
and a per notification assessment is calculated based on the prior years experience with each
member. If estimates are not accurate and the cost of Petitioner's operations result in Petitioner being
over budget, each member is charged an additional allocation to cover the shortfall.
Because of the substantial expense involved in providing Petitioner's other services, the per
notification assessment is not a fair representation of the actual cost of each notification; however,
when used solely for the purpose of assessing members' contribution responsibility, the per
notification assessment does result in a fair representation of the benefits each member derives from
all services of Petitioner.
The allocation by Petitioner of benefits provided to each member is a direct calculation to
the density of population which concentrate underground disturbances of member facilities. The
most equitable method of cost allocation because of the population variations and the number of
facility disturbances has been determined by the Board to be based on the total number of individual
event notices provided numbers.
Furthermore, Petitioner uses this method of allocation because based on historical experience,
members generally benefit from all of Petitioner's services in proportion to the number of phone calls
received for the members' geographic area of operation. For example, the annual assessment charged
to a member electric utility serving a major metropolitan area is higher than the assessment charged

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December 20, 1993
to the water department of a rural village. However, several billboards and other forms of
advertisements which advise "Call Before You Dig" may be located in the metropolitan area while
only a few such advertisements may be found in the rural village's immediate geographic area.
Similarly, more damage prevention seminars and educational programs for contractors may be
conducted in a metropolitan area serviced by a large utility than in a rural area of the state. Thus,
although the services rendered by the call center represent only a portion of the overall services
provided by Petitioner, the allocation of membership fees based on the number of notifications made
to a utility results in a fair representation of the benefits each member derives from Petitioner.
Section 1105(b) of the Tax Law as last amended by Ch. 166, Laws 1991, effective September
1, 1991, imposes sales tax upon "The receipts...from every sale, other than sales for resale, of a
telephone answering service."
Section 1101(b)(13) of the Tax Law as added by Ch. 166, Laws 1991, effective September
1, 1991, defines a telephone answering service as "A service that consists or. taking messages by
telephone and transmitting such messages to the purchaser of the service or at the purchaser's
direction, but not including such service if it is merely an incidental element of a different or other
service purchased by the customer."
In Morton L. Coren, P.C., Adv Op Comm T&F, Jun 29, 1990, TSB-A-90(33)S, the
Commissioner advised that even though the components of a particular sale could be separately
stated, calculated or estimated, that if such components could not be separately purchased the
combination of items must be considered as one and, thus, subject to sales tax as a single purchase.
In One Call Systems, Inc., Adv Op Comm T&F, January 3, 1992, TSB-A-92(1)S the
Commissioner advised that activities consisting of receiving telephone calls from contractors,
utilities and the general public to report their intent to disturb the earth and the transmission of the
messages at the direction of the purchaser to the member utilities who fund One Call User's Council,
Inc. come within the definition of a telephone answering service as defined in Section 1101(b)(13)
of the Tax Law. Therefore, the receipts received by Petitioner from One Call User's Council, Inc.
were subject to the imposition of State and local sales and use taxes pursuant to Section 1105(b) of
the Tax Law.
While Petitioner's providing of damage prevention seminars, educational, training and
marketing services may not be taxable services, such services cannot be purchased separately from
Petitioner's call center service. Pursuant to Morton L. Coren, P.C., supra, even though the
components of a particular sale can be separately stated, calculated or estimated, if they cannot be
separately purchased, the combination of the items listed must be considered as a single sale.
Pursuant to One Call Systems, Inc., supra, Petitioner's call center service consisting of receiving
telephone calls from contractors and the general public to report their intent to disturb the earth and
the transmission of the message at the direction of the purchaser to the member utilities comes within
the definition of a telephone answering service as defined in Section 1101(b)(13) of the Tax Law
and, thus, the receipts from such activities are taxable under Section 1105(b) of the Tax Law.
Therefore, since Petitioner's seminars, educational, training and marketing services cannot be
purchased separately from Petitioner's call center service, the entire charge to its members for

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Sales Tax
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providing seminars, educational, training and marketing services and call center services are subject
to sales and use taxes.
It is noted that where Petitioner purchases a third party answering service to take calls outside
its normal hours of operation, that the services of such third party answering service may be
purchased for resale. Therefore, the charges for such third party answering service are not subject
to sales and use taxes.

DATED: December 20, 1993

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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