Is a wholesaler of prepaid telephone calling cards required to collect Texas sales tax when selling the cards to a retailer who will resell them?

Plain-English summary

A wholesaler of prepaid telephone calling cards asked whether selling those cards is subject to Texas sales tax. Tax Code § 151.01032 defines a "telephone prepaid calling card" as a card or other item, including an access code, representing the right to make one or more telephone calls, paid for in incremental amounts before the call is made — with a carve-out for cards sold by mechanical means (like a vending machine) for $1 or less, which don't count as prepaid calling cards under this definition. Section 151.009 folds telephone prepaid calling cards into the broader definition of "tangible personal property."

Because of that classification, sales of prepaid calling cards are taxed as tangible personal property, regardless of whether the card is sold in traditional physical form or as an access number. If the wholesaler is "engaged in business" in Texas (as defined in Rule 3.286(a)(1)), it must either collect Texas sales tax on its sales, or — when selling to a retailer who will resell the cards to the end customer — obtain a properly completed Texas resale certificate from that retailer instead of charging tax on the wholesale transaction.

What this means for you

Wholesalers and distributors of prepaid calling cards

Your sales of prepaid calling cards are taxable tangible personal property sales, not a tax-exempt service or intangible right. If you sell to retailers who will resell the cards, get a properly completed resale certificate on file rather than charging tax at the wholesale level — otherwise you must collect and remit tax yourself.

Retailers of prepaid calling cards

Because the wholesale purchase can be tax-free with a resale certificate, expect to collect Texas sales tax when you sell the cards to your own end customers.

Accountants and tax professionals

The key statutory hook is that § 151.01032's "telephone prepaid calling card" definition is folded into "tangible personal property" under § 151.009 — this is a definitional/classification ruling, not an exemption analysis, and it applies equally whether the card is a physical item or a bare access number.

Common questions

Q: Are prepaid telephone calling cards taxed as a service or as tangible personal property?
A: As tangible personal property, per Tax Code §§ 151.01032 and 151.009 — this applies whether the card is sold in traditional physical form or as an access number.

Q: Does a wholesaler have to charge tax when selling cards to a retailer?
A: Not if the retailer provides a properly completed Texas resale certificate — otherwise the wholesaler must collect Texas sales tax on the sale.

Q: Are all prepaid calling cards covered by this definition?
A: No — cards sold by mechanical means (e.g., a vending machine) for $1 or less are excluded from the "telephone prepaid calling card" definition in § 151.01032.

Q: Can any calling-card wholesaler rely on this exact answer?
A: Not directly. This is a Texas STAR letter ruling binding on the Comptroller only for the taxpayer it addresses (34 Tex. Admin. Code Rules 3.1, 3.10); confirm your own business's "engaged in business" status and documentation with a tax professional.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.01032 (definition of telephone prepaid calling card)
• Tex. Tax Code § 151.009 (tangible personal property)
• 34 Tex. Admin. Code § 3.286(a)(1) (engaged in business)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200011926L

Original ruling text

November 28, 2000

Dear **:

Thank you for your recent letter regarding your business and Texas sales tax.

You stated that your company is a wholesaler of prepaid telephone calling
cards. You asked if the sale of prepaid calling cards is subject to Texas
sales tax.

Tax Code Sec. 151.01032 defines Telephone Prepaid Calling Card to mean a card
or other item, including an access code, that represents the right to make one
or more telephone calls for which payment is made in incremental amounts and
before the call is initiated. The term "telephone prepaid calling card" does
not include a card sold by mechanical means for consideration of one dollar or
less. Tax Code Sec. 151.009 includes telephone prepaid calling cards in the
definition of "tangible personal property."

Sales of telephone prepaid calling cards are taxed as tangible personal
property whether sold in the form of an access number or by more traditional
means. If your company is "engaged in business" as defined in enclosed Rule
3.286(a)(1), your company is required to collect Texas sales tax or a properly
completed Texas resale certificate when selling telephone prepaid calling cards
to a retailer who resells the cards. I enclosed a copy of the Texas sales tax
resale certificate for your review.

This opinion is based on the facts presented. Additional or different facts
may yield different results.

You may call me toll free 1-800-531-5441, extension 5-9787, if you have any
questions or need more information. The direct line is 512/305-9787. You may
also write to Tax Policy Division, Comptroller of Public Accounts.

Sincerely,

Philip Knisely
Tax Policy Division