Was a Network WATS subscription fee excluded from Texas sales tax because it was separately named and was not a local-access or equipment charge?

Plain-English summary

COMPANY ABC said PUC tariffs prevented certain communications operators from earning a profit on local-access charges. It therefore used a separate "Network WATS Subscription Fee," described as neither a local-access charge nor an equipment charge.

The Comptroller said telecommunications services were taxable items and the total amount charged was subject to tax unless a particular item was independently exempt. Calling part of the price a subscription fee did not create an exemption.

What this means for you

The substance of a telecommunications charge controlled, not its billing label. A separately named fee remained in the taxable total unless the fee itself qualified for an exemption.

Common questions

Why did the carrier use a subscription fee? It said the fee allowed it to earn revenue while complying with PUC restrictions on profits from local-access charges.

Was the fee a local-access or equipment charge? The stated facts said it was neither.

Why was it still taxable? It formed part of the total amount charged for taxable telecommunications services.

Could a different name make the charge exempt? No.

Citations and references

• The letter did not cite a numbered statute, regulation, or case.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9105L1112G13

Original ruling text

May 29, 1991

Thank you for your recent letter to Bob Jeffcoat. I have been
asked to respond. Your facts are restated with response below.

Facts: Certain operators in the communications industry are
prohibited from making a profit on local access charges, because
of the PUC tariff rulings. COMPANY ABC is required to
register with the PUC as a "non-dominant carrier" and we are not
allowed to make any profit on local access charges to our customers.
Thus, the charge for Network WATS Subscription Fee has come into
our terminology. This is not a local access charge or equipment
charge. It's just another way to make money and be in compliance
with PUC.

Response: The total amount for which a taxable item is sold is
subject to tax. Because telecommunications services are taxable
items under the law, the total amount charged is subject to tax
unless the item is itself exempted for some reason. The name
associated with the charge will not serve to exempt it.

This opinion is based on the facts you presented. Other facts,
though similar, may yield different results.

If you have questions or need more information, please call or
write. My direct line number is (512) 463-4680. The number for
FAX transmissions is (512) 475-0900. You may write to me in care
of Tax Administration Division.

Sincerely,

Al Van Allen
Tax Administration Division