Was a telephone company's purchase of local-exchange access exempt when it resold the telecommunications service to final customers?

Plain-English summary

The Comptroller said sales tax was not due when one telephone company charged another for access to a local-exchange network for resale.

The final consumer instead paid tax on the total telecommunications charge, including the access component. The purchasing telephone company had to provide a valid resale certificate under Rule 3.285; the forms it had already supplied were not sufficient to support a refund or tax-free future purchases.

If the purchasing company used any of the service itself, it could not issue a resale certificate for the whole purchase. The letter said it could instead pay tax and take credit for the portion it could prove was resold to customers.

What this means for you

Telecommunications providers

Intercompany access charges can receive resale treatment only when the buyer is actually reselling the service and supplies an acceptable resale certificate. Keep records supporting the resold portion of any mixed-use purchase.

Accountants and tax professionals

The tax was imposed at the final-customer level on the total service charge. The historical letter also shows that an invalid exemption form could prevent both a refund and prospective tax-free purchasing.

Common questions

Was local-exchange access sold from one telephone company to another taxable? Not when the buyer purchased it for resale and supplied a valid resale certificate.

What amount was taxable to the final consumer? The total service charge, including the access charge.

What if the buyer both used and resold the service? It could not claim resale treatment for the self-used portion; the letter allowed tax payment followed by credit for the provable resale portion.

Citations and references

• 34 Tex. Admin. Code Rule 3.285 (resale certificates)
• 34 Tex. Admin. Code Rule 3.325
• 34 Tex. Admin. Code Rule 3.344 (telecommunications 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/9201L1157A08

Original ruling text

January 30, 1992

Dear ***:

Thank you for your recent letter asking if ***** is entitled
to claim exemption on their purchases of local and long distance
service.

Sales tax is not due on the charge by one telephone company to
another for providing access to a local exchange network. Sales
tax must be collected from the final consumer on the total charge
for the service including the charge for access. Since the
customer is reselling the service, they must issue you a resale
certificate in keeping with Rule 3.285 (enclosed). The forms
they have provided are not sufficient to allow you to refund tax
or to not tax their future purchases.

If *** is using any of the service they purchase from
you for purposes other than resale, they may not issue a resale
certificate for the telecommunications purchase. But, they may
pay the tax and take credit for the portion of the service they
can prove was sold to their customers.

I am enclosing Rules 3.285, 3.325, and 3.344 for your reference.

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. You may reach me by calling toll free, (800) 531 5441.
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