In a four-party chain — a telecom provider (Company A) selling to a reseller (Company B), which sells a bundled WAN service to a service company (Company C), which in turn charges a property owner (Company D) — where in the chain is Texas sales tax actually due?

Plain-English summary

A taxpayer asked about the taxability of wide-area network (WAN) charges as they flow through a chain of four parties: a telecommunications provider ("Company A") sells WAN service to a reseller ("Company B," which handles telecommunications), which bundles it into a lump-sum charge to a services company ("Company C"), which in turn bills a property owner ("Company D") a lump-sum charge.

The Comptroller confirmed: WAN charges are taxable as telecommunications, but traced through where the tax actually attaches at each link in the chain:

• Company A → Company B: taxable. Company A charges sales tax on its telecommunications bills to Company B.
• Company B → Company C: Company B's lump-sum charge is taxable in full if it includes both the WAN charges and charges for nontaxable services bundled together — per Tex. Tax Code § 151.025(b), a lump-sum bundling a taxable item with a nontaxable one is taxed on the whole amount. Company B may take a credit on its own sales tax return for the tax it already paid to Company A on the telecommunications service it resold.
• Company C → Company D (the property owner): Company C's lump-sum charge to the property owner is not taxable at all — governed instead by Rule 3.356(n) concerning real property services.

The letter also references two earlier STAR documents (9105L1112G13 and 9011T1060F01) as related precedent.

What this means for you

Telecommunications resellers and network integrators

If you resell WAN/telecom service bundled with other nontaxable services in a single lump-sum charge, the entire charge is taxable under § 151.025(b) — you can't shelter the nontaxable portion just by bundling it with a taxable telecom charge. But you can claim credit for tax you already paid upstream on the telecom service you're reselling.

Businesses billing a property owner for a bundled service that includes network/telecom components

Where your service falls under the real property services rule (Rule 3.356(n)), your lump-sum charge to the property owner may be entirely nontaxable, even though telecom charges further up your own supply chain were taxed.

Accountants and tax professionals

A useful multi-party tracing example: the SAME underlying WAN service can be taxable at one link in a resale chain (bundled lump-sum under § 151.025(b)) and nontaxable at another link (real property services under Rule 3.356(n)) — the analysis has to be done separately at each transaction, not assumed to follow through the whole chain uniformly.

Common questions

Q: Are wide-area network (WAN) charges taxable in Texas?
A: Yes, WAN charges are taxable as telecommunications services.

Q: If a reseller bundles WAN charges with nontaxable services in one lump-sum bill, is the whole bill taxable?
A: Yes, under Tex. Tax Code § 151.025(b), a lump-sum charge that includes both taxable and nontaxable items is taxable in total.

Q: Can a reseller avoid double taxation on the resold telecom service?
A: Yes — the reseller can take a credit on its own sales tax return for the tax it already paid to its own telecom supplier on the resold service.

Q: Is a lump-sum charge to a property owner for a bundled network/real-property service taxable?
A: In this letter, no — that charge fell under the real property services rule (Rule 3.356(n)) and was not taxable.

Q: Can I rely on this letter for my own multi-party arrangement?
A: No. This opinion is based on the facts presented, and additional or different facts may change the opinion; it can be relied on only by the taxpayer it was issued to.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.025(b) (a lump-sum charge bundling taxable and nontaxable items is taxable in total)
• 34 Tex. Admin. Code Rule 3.356(n) (real property services)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200001016L

Original ruling text

January 31, 2000

Tony Hill

Subject: Taxability of Wide Area Network (WAN) Charges

Dear Mr. Hill:

Thank you for your recent e-mail concerning the taxability of wide-area
network (WAN) charges.

WAN charges are taxable as telecommunications.

The initial charge made by COMPANY A to COMPANY B is taxable. You indicate
sales tax is charged on the bills. The COMPANY B handles telecommunications.

The COMPANY B charges COMPANY C a lump-sum charge. The lump sum charge made by
the COMPANY B to COMPANY C is taxable in total if the charge includes the WAN
charges and charges for nontaxable services. See Texas Tax Code Section
151.025(b).

The COMPANY B may take credit on its sales tax return for the sales tax paid to
COMPANY A on the telecommunications services resold to the COMPANY B.

The lump-sum charge COMPANY C makes to COMPANY D (the property owner) is not
taxable. See Rule 3.356(n) concerning real property services.

See STAR documents 9105L1112G13 and 9011T1060F01.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

You may call me toll free 1-800-531-5441, extension 3-4683, if you have any
questions or need more information. You may write to Tax Policy Division,
Comptroller of Public Accounts, P.O. Box 13528, Austin, Texas 78711-3825. My
e-mail address is .

Sincerely,

Eddie C. Washington
Tax Policy Division