Did an out-of-state clearinghouse that routed telephone billing records and payments owe South Carolina tax on communications charges?

Plain-English summary

South Carolina Private Letter Ruling 88-15 concluded that XYZ Computer Data, Ltd. did not owe the communications tax imposed by section 12-35-1150.

XYZ was an out-of-state clearinghouse that routed telephone billing information and payments between communications companies. It operated only in its home state and did not furnish communication services in South Carolina.

The Commission instead placed liability on South Carolina retailers that actually provided communication services, except for the toll and regulated access charges specifically exempted by section 12-35-550(10).

What the clearinghouse did

New long-distance providers, pay-phone operators, alternative operator services, independent telephone companies, and regional telephone companies used XYZ's clearinghouse.

The arrangement allowed a communications company to accept another company's credit card, provide operator assistance, or bill a call to a specific telephone number.

The service provider sent billing information to XYZ. XYZ forwarded that information to the proper telephone company. After the telephone company collected from its customer, payment moved back through XYZ to the company that had provided the service.

The ruling stated that XYZ did not function in any state other than the state where it was located.

Who was taxed under section 12-35-1150

Section 12-35-1150 taxed charges for the ways or means of transmitting voice or messages, including charges for equipment supplied for that transmission.

Section 12-35-90(7) defined a communications retailer or seller to include a person engaged in selling or furnishing the ways or means of transmitting voice or messages between people in South Carolina for consideration.

The Commission summarized the tax as applying to persons engaged in selling, furnishing, or using communication services in South Carolina.

XYZ did not meet that description on the stated facts. It handled billing information and receivables outside South Carolina rather than furnishing the underlying communication service in the state.

Which provider charges were exempt

Section 12-35-550(10) exempted:

• toll charges for transmitting voice or messages between telephone exchanges;
• telegraph messages;
• carrier access charges established by the Federal Communications Commission or South Carolina Public Service Commission; and
• customer access-line charges established by either commission.

The ruling described carrier access charges as payments for one carrier's right to enter or use another carrier's system. Customer access-line charges paid for the customer's right to enter or use a carrier's or telephone company's system.

South Carolina communications retailers remained liable on their other taxable service charges.

Services performed outside South Carolina

The ruling recognized that some communications services were provided entirely outside South Carolina.

Sections 12-35-510 and 12-35-810 imposed sales or use tax on retail sales or use in South Carolina. Section 12-35-140 included communications among the services and intangibles specifically taxed by the chapter.

Those provisions reinforced the Commission's conclusion that XYZ, which did not operate or furnish communications in South Carolina, was not the liable provider.

What this means for you

Billing clearinghouses and payment intermediaries

PLR 88-15 distinguished routing bills and payments from furnishing the underlying telephone communication. XYZ's out-of-state clearing function did not create liability on the stated facts.

Telephone and communications providers

The retailer providing communication service in South Carolina bore the tax unless a specific toll or access-charge exemption applied.

Carrier and customer access teams

The access-charge exemption depended on charges established by the Federal Communications Commission or the South Carolina Public Service Commission.

Accountants and tax professionals

The analysis required identifying the actual provider, where the communication service was furnished or used, and the nature of each charge rather than treating every participant in the billing chain as the seller.

Readers applying the ruling today

PLR 88-15 addressed telephone technology, industry structure, and tax provisions from 1988. Current communications definitions, sourcing, nexus, bundled billing, access charges, digital services, and marketplace or payment-intermediary rules must be checked independently.

Common questions

Q: Did XYZ owe the communications tax?

A: No. It did not furnish communication services in South Carolina.

Q: Who owed tax on taxable communications?

A: South Carolina retailers that provided the communication services.

Q: Were all telephone charges taxable?

A: No. The ruling identified exemptions for toll charges between exchanges and specified regulated carrier and customer access charges.

Q: Did forwarding billing records make XYZ the communications seller?

A: No. The Commission treated XYZ as a clearinghouse and placed liability on the company furnishing the communication service.

Q: Did XYZ operate in South Carolina?

A: No. The ruling stated that it did not function in any state other than the state where it was located.

Q: Can another billing intermediary rely on PLR 88-15?

A: No. The ruling states that it applied only to XYZ's specific facts, had no precedential value, and was not intended for general distribution.

Citations and references

• S.C. Code section 12-35-1150 (1976) — tax on charges for transmitting voice or messages
• S.C. Code section 12-35-550(10) (Supp. 1987) — specified toll, telegraph, carrier-access, and customer-access-line exemptions
• S.C. Code sections 12-35-510 and 12-35-810 (1976) — sales and use taxes
• S.C. Code section 12-35-140 (1976) — communications included among specifically taxed services and intangibles
• S.C. Code section 12-35-90(7) (1976) — communications retailer or seller
• S.C. Code section 12-3-170 (1976) and SC Revenue Procedure 87-3 — private-letter-ruling authority

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR88-15.pdf

Original ruling text

SC PRIVATE LETTER RULING #88-15

TO:

XYZ Computer Data, Ltd

SUBJECT:

Clearing House for Telephone Receivables
(Sales and Use Tax)

REFERENCE:

S.C. Code Ann. Section 12-35-1150 (1976)
S.C. Code Ann. Section 12-35-550(10) (Supp. 1987)
S.C. Code Ann. Section 12-35-510 (1976)
S.C. Code Ann. Section 12-35-810 (1976)
S.C. Code Ann. Section 12-35-140 (1976)
S.C. Code Ann. Section 12-35-90(7) (1976)

AUTHORITY:

S.C. Code Ann. Section 12-3-170 (1976)
SC Revenue Procedure #87-3

SCOPE:

A Private Letter Ruling is a temporary document issued to a taxpayer, upon
request, and it applies only to the specific facts or circumstances related in the
request. Private Letter Rulings have no precedential value and are not
intended for general distribution.

Question:

1. Is XYZ Computer Data, Ltd., a clearing house for telephone receivables, liable for the tax
   imposed under Code Section 12-35-1150?
2. If XYZ Computer Data, Ltd. is not liable for the tax, then who is liable?
   Facts:
   XYZ Computer Data, Ltd., ("XYZ") an out-of-state corporation, is one of several companies
   throughout the United States which has established a clearing house for telephone receivables.
   New technology and the breakup of the phone system, have permitted many new and innovative
   companies to enter the communication industry. These companies include long distance
   services, pay phone operators and alternative operator services. XYZ was established to allow
   such companies to extend their services and accommodate the needs of their customers. XYZ has

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entered into contracts with these new communication companies, independent phone companies
and the regional phone companies. Now, any company in the phone industry, regardless of size,
can accept credit cards from other companies in the phone industry. In addition, these
companies can provide operator assistance and bill calls to a specific number.
Any company, which accepts another's credit card or provides operator assistance, can forward
their billing information to XYZ who will, in turn, forward it to the proper phone company.
When that company receives payment from their customer, the payment is then forwarded,
through XYZ, to the company which provided the service.
XYZ does not function in any state other than the state it is located in.
Discussion:
Code Section 12-35-1150 reads:
Notwithstanding any other provision of law, the gross proceeds accruing or proceeding
from the charges for the ways or means for the transmission of the voice or of messages,
including the charges for use of equipment furnished by the seller or supplier of the ways
or means for the transmission of the voice or of messages, are subject to the license, sales
or use tax, as provided by this chapter.
Code Section 12-35-90(7) defines the term "retailer" or "seller" to include, in part, "every person
engaged in the business of selling or furnishing the ways or means for the transmission of the
voice or of messages between persons in this State for a consideration." However, Code Section
12-35-550(10) specifically exempts from the tax "[t]he gross proceeds from toll charges for the
transmission of voice or messages between telephone exchanges and telegraph messages, and
carrier access charges and customer access line charges established by the Federal
Communications Commission or the South Carolina Public Service Commission." (emphasis
added)
Therefore, there is exempted from the tax imposed under Code Section 12-35-1150 toll charges
between exchanges. In addition, charges for the right of one carrier to enter or use another
carrier's system and charges for the right of a customer to enter or use a carrier or phone
company's system are exempt, when such charges are established by the Federal Communication
Commission or the S.C. Public Service Commission.
In further reviewing the transactions previously described, it is understood that some services are
entirely provided outside of this State. Code Section 12-35-140 defines the term "tangible
personal property" to include, in part, "...services, accommodations and intangibles, including
communications, as are specifically provided for in this chapter (emphasis added)." Code
Section 12-35-510 imposes the sales tax "upon every person engaged or continuing within this
State in the business of selling at retail any tangible personal property..." Code Section 12-35810 imposes the use tax upon "the storage, use or other consumption in this State of tangible
personal property...for storage, use or consumption in this State.

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In summary, the tax imposed by Code Section 12-35-1150 is imposed upon persons engaged in
selling, furnishing or using communication services in South Carolina.
Conclusion:

1. XYZ is not furnishing communication services within South Carolina
   not liable for the tax imposed under Code Section 12-35-1150.

and is, therefore,

2. South Carolina retailers providing communication services are liable for the tax on
   charges for such services, except for toll charges and access charges which are
   specifically exempt under Code Section 12-35-550(10).

SOUTH CAROLINA TAX COMMISSION

s/S. Hunter Howard Jr.
S. Hunter Howard, Jr., Chairman

s/John M. Rucker
John M. Rucker, Commissioner

s/A. Crawford Clarkson Jr.
A. Crawford Clarkson, Jr., Commissioner
Columbia, South Carolina
, 1988
June 23,

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