A hotel or motel buys telecommunications trunk line service partly to resell to guests and partly for its own business calls. Can it issue a resale certificate for that service, and if it already paid sales tax on services it resold, can it get a credit?

Plain-English summary

A taxpayer wrote to the Comptroller's office asking two questions about telecommunications trunk line service purchased by businesses like hotels and motels that resell phone service to their guests.

Can a resale certificate be used for trunk line service? Yes, but only in a limited way. If telecommunications services are purchased for resale, the buyer may give the seller a resale certificate instead of paying tax on that purchase. However, a hotel cannot issue a resale certificate in good faith for trunk line service that it also uses for its own business calls. Resale certificates should only be issued to telecommunications providers for lines that are dedicated to selling telecommunications service to guests — not for lines that serve a mixed (business-and-resale) use.

Can tax already paid on resold service be credited back? Yes. If Texas Sales and Use Tax was paid to the carrier or supplier on telecommunications services that were later resold, the reseller may take a credit on its own sales tax return. But the reseller must be able to document the resale of the service, and the letter points the reader to Rule 3.338 for the documentation requirement.

What this means for you

Hotels and motels reselling phone service to guests

If you resell local or long-distance calls to guests, you can only give your telecommunications carrier a resale certificate for lines that are truly dedicated to guest resale. A line that is shared — used for both guest resale and your own front-desk or back-office business calls — does not qualify for a good-faith resale certificate. Mixing uses on the same trunk line is the key problem this letter flags.

Telecommunications providers

When a hotel, motel, or similar business presents a resale certificate for trunk line service, that certificate should only cover dedicated resale lines, not lines with mixed business/resale use. Providers rely on the buyer's good-faith certification, but the underlying rule (Rule 3.338) governs what's actually eligible.

Businesses that already paid tax on resold telecommunications services

If you paid sales tax to your carrier on service you later resold, you don't have to eat that cost — you can take a credit on your own sales tax return. Keep documentation of the resale, since the letter is explicit that the reseller "must be able to document the resale of the service."

Common questions

Q: Can a hotel give its phone company a resale certificate for all of its trunk lines?
A: No. A resale certificate can only be issued in good faith for trunk lines dedicated to reselling telecommunications service to guests — not for lines the hotel also uses for its own business calls.

Q: What if a hotel's trunk line is used both for guest resale and internal business calls?
A: The letter says a hotel could not issue a resale certificate in good faith for such a mixed-use line.

Q: If sales tax was already paid on telecommunications service that was later resold, can that tax be recovered?
A: Yes — a credit can be taken on the reseller's own sales tax return, but only if the reseller can document the resale of the service.

Q: What rule governs documentation of the resale for purposes of taking the credit?
A: The letter refers the reader to the enclosed Rule 3.338.

Q: Can this hotel (or any other business) rely on this letter for its own situation?
A: No. The letter states its opinion is based on the facts presented, and other facts, though similar, may yield different results. Under Texas STAR practice, this letter can be relied on as the basis for a detrimental-reliance claim only by the taxpayer to whom it was issued.

Citations and references

• 34 Tex. Admin. Code Rule 3.338 (telecommunications services) — referenced in the letter as "the enclosed Rule 3.338" for documenting the resale of telecommunications service in order to take a credit for tax already paid.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9207L1181E06

Original ruling text

July 1, 1992

Dear **:

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

Question: When telecommunications services are purchased for resale (for
example, by a hotel or motel), may a resale certificate be issued for the
purchase of the service from the carrier?

Response: If telecommunications services are purchased for resale, the buyer
may give the seller a resale certificate in lieu of tax. But, a hotel could not
issue a resale certificate in good faith for trunk line service if the hotel
also uses the service for its business calls. Resale certificates should only
be issued to telecommunications providers for lines that are dedicated for
sales of telecommunications service to guests.

Question: If Texas Sales & Use Taxes were paid to the carrier or supplier on
telecommunications services which were resold, may a credit be taken on the
seller's sales tax return?

Response: Yes. However, the telecommunications reseller must be able to
document the resale of the service. Please refer to the enclosed Rule 3.338.

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