How did sales tax apply when a shared-tenant provider bought telephone service and resold local and intrastate long-distance access to tenants?

Plain-English summary

A shared-tenant-services business installed a telecommunications switch in a commercial property, connected it to local and long-distance lines, and billed tenants for local access and marked-up long-distance service.

Assuming the provider made no personal or business use of the lines, it could give its telephone supplier a resale certificate instead of paying tax. It then had to collect and remit tax on both the local service and intrastate long-distance service sold to tenants.

Alternatively, the provider could take a credit against tax collected for tax it had already paid on telecommunications service that it resold.

Common questions

Could the provider buy the telephone service tax-free for resale? Yes, if it made no personal or business use of the lines.

Which tenant charges did the letter require it to tax? Both local service and intrastate long-distance service.

What if the provider already paid tax to its supplier? It could take a credit against the tax collected on the resold service.

Citations and references

• 34 Tex. Admin. Code Rule 3.338

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8608L0758E01

Original ruling text

September 15, 1986

Dear ***:

*** of ***** has asked me to write to you
concerning tax on telecommunications service.

I have restated *** description of his business:

"*** is in the shared tenant services industry. Specifically,
we install an advanced telecommunications switch in a commercial real
estate project. This switch is connected to ** local lines
and common carrier long distance lines. Through these connections,
tenants can tie-in to the * switch and receive access to local
telephone service. If tied to the * switch, customers will
be billed by * for access to local telephone service.
* passes through the cost of local service to tenants, as
this service is not resold for profit. Long distance, however, is billed
back with a profit margin to ****."

Assuming, *** makes no personal or business use of the lines
provided by their advanced telecommunications switch. ** may
give * a Resale Certificate in lieu of tax. ****
will then collect and remit tax on both local service and intrastate long
distance service.

In the alternative, *** may take credit against tax collected
for tax paid to ***** on telecommunications service resold.
Please refer to the enclosed Rule 3.338, Allowance of Credit for Tax
Paid to Supplies.

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

If you have any questions or need more information, please call us at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write us at the Tax Administration Division.

Sincerely,

Tax Administration Division