Is a voice mail service sold nationwide, with all calls terminating in Texas but toll charges billed to out-of-state customers, subject to Texas sales tax?

Plain-English summary

A company sold Voice Mail service nationwide, accessible by calling a 1-800 number from anywhere in the United States. All the calls physically terminated at the seller's equipment in Texas, but customers could live and be billed anywhere in the country. The seller already collected Texas sales tax on Voice Mail service provided to Texas residents, but asked how to handle the interstate long-distance toll charges billed on top of the monthly Voice Mail fee.

The Comptroller answered that Texas taxability turns on where the call originates, not where it terminates. Long-distance telecommunications charges are taxable if the call originates in Texas and is billed to a Texas telephone number, billing address, or service address. If the call originates outside Texas -- even though it terminates at the seller's Texas-based equipment -- the toll charge is not subject to Texas sales or use tax. Likewise, Voice Mail service itself is not taxable when sold to out-of-state residents.

In short, the ruling confirms the seller's existing practice (tax Texas-billed customers) was correct, and clarifies that neither the interstate toll charges nor the Voice Mail service charge for out-of-state customers create Texas tax liability just because the calls happen to route through Texas-based hardware.

What this means for you

Telecommunications and voice-mail service providers

If your equipment or switching hardware is located in Texas but you sell to a nationwide customer base, don't assume every call that terminates in Texas is taxable here. Look at where each call originates and where the customer is billed. Only calls originating in Texas and billed to a Texas number, billing address, or service address are subject to Texas sales tax.

Accountants and tax professionals

This letter is a clean, narrow sourcing rule for long-distance telecommunications: origin-of-call plus billing location controls, not the location of the seller's switching or terminating equipment. Apply the same origin-based test to both the toll charges and the underlying service fee (here, the Voice Mail charge) when a bundled interstate service is involved.

Common questions

Q: We have voice mail equipment in Texas that receives calls from customers all over the country. Do we owe Texas sales tax on all those calls?
A: No. Only calls that originate in Texas and are billed to a Texas telephone number, billing address, or service address are taxable. Calls originating outside Texas are not subject to Texas sales or use tax, even though they terminate on your Texas equipment.

Q: Is the monthly Voice Mail service fee itself taxable for out-of-state customers?
A: No. The ruling states that Voice Mail services provided to out-of-state residents are not subject to Texas sales tax.

Q: We already charge Texas sales tax on Voice Mail service for our Texas customers -- is that correct?
A: Yes. The letter confirms that approach; Texas sales tax applies to Voice Mail service provided within Texas to Texas residents.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9206L1176F12

Original ruling text

June 5, 1992

Dear **:

Thank you for your recent letter which is restated in part with response below.

Facts: We sell Voice Mail to customers throughout the United States; the Voice
Mail is connected to and accessed by calling a 1-800+ number from anywhere in
the United States. All calls terminate at our Texas location but are sold to
customers who may not reside at, or be billed at, a Texas location. Our service
handles only incoming calls outgoing calls are not possible with our equipment.
These calls are toll calls made from anywhere in the United States and are
charged to our customers' accounts at a predetermined rate per minute. We
charge a monthly rate for the Voice Mail service itself and these toll charges
are additional monthly charges billed to the customer.

We currently remit sales tax on Voice Mail service we provide within the State
of Texas (for Texas Residents). However, there has been some question as to how
interstate toll charges and Voice Mail should be handled and whether it is
taxable by the State of Texas. Please send us a detailed explanation of the
procedure we should follow for this interstate telecommunications service we
are now providing.

Response: Long distance telecommunications services are taxable if they
originate in Texas and are billed to a Texas telephone number, or billing or
service address. To the extent that the calls originate at points outside
Texas, they are not subject to sales or use tax. Voice Mail services provided
to out-of-state residents are not subject to sales tax.

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