Are Mexican citizens exempt from Texas tax on cable TV service and municipal franchise fees, and do cable companies have to collect tax on those franchise fees?

Plain-English summary

A customer wrote to the Comptroller asking about two things on a cable bill: (1) whether cable companies should be charging tax on the municipal franchise fee line item, and (2) whether Mexican citizens are exempt from tax on their cable service.

The Comptroller answered both questions. First, cable companies must collect tax on the full bottom-line sales price of their cable service, including the municipal franchise fee. Municipal franchise fees are charged to cable providers for the privilege of using city rights-of-way and easements. When a cable company separately itemizes that fee on a customer's bill, it is simply showing a breakdown of its own costs — it does not change the fact that tax is owed on the total price the customer pays, costs and profit included.

Second, Mexican citizens do not receive any special tax exemption on cable service. The letter explains that the only relevant exemption is the general export exemption available under the U.S. Constitution: goods that are actually exported from the United States are generally exempt from state tax. That exemption is not limited to foreign nationals — it applies equally to Americans who export goods. But it has firm limits: it does not cover items taken to other U.S. states, items used in Texas before being exported, or items entirely consumed in Texas, such as movie tickets or restaurant meals. A purchaser who wants the exemption must pay tax at the time of purchase, actually export the goods, and then bring proof of export back to the retailer for a refund.

Cable television service is consumed where it is delivered and used — in Texas — so it cannot be "exported," and the export exemption has no application to it. The letter also mentions that the Comptroller had recently issued new export rules, designed to make sure tax is paid on items that are not genuinely exported, which the writer may have seen referenced in a news story.

What this means for you

Cable and other utility/service providers

If you bill customers for a service and separately itemize a municipal franchise fee (or similar cost) on the invoice, that itemization does not remove the fee from the taxable sales price. You must still collect and remit tax on the full amount the customer pays for the service, including any pass-through fees.

Accountants and tax professionals advising customers on export claims

The export exemption is easy to over-claim. Remember its boundaries: it only applies to tangible goods that are actually removed from the United States, not to services consumed in Texas, not to goods used in Texas before export, and not to goods merely taken to another U.S. state. A customer must pay tax up front, export the goods, and then obtain a refund with proof of export — there is no automatic exemption at the point of sale.

Anyone assuming foreign nationals get special tax treatment

This letter is a useful reminder for front-line billing or customer-service staff: citizenship or national origin does not, by itself, create a sales tax exemption in Texas. The only relevant exemption discussed here (export) is available to Texans and foreign nationals alike, and only under the specific export conditions described above.

Common questions

Q: Do Mexican citizens get a special sales tax exemption on cable TV service in Texas?
A: No. The letter states plainly that Mexican citizens "do not get a unique tax break." The only potentially relevant exemption is the general export exemption, and it does not apply to cable service because the service is consumed in Texas.

Q: Why is tax charged on the municipal franchise fee shown on my cable bill?
A: The franchise fee is a cost the cable provider itemizes for informational purposes, but it's still part of what the customer pays for the service. Tax applies to the bottom-line sales price, including all costs the provider chooses to break out on the bill.

Q: How does the export exemption actually work for goods that qualify?
A: The purchaser must pay tax to the retailer at the time of sale, physically export the goods from the United States, and then bring proof of export back to the retailer to obtain a tax refund. The exemption does not apply to goods used in Texas before export, goods merely taken to another U.S. state, or anything entirely consumed in Texas (like a meal or a movie ticket).

Q: Could cable service ever qualify for the export exemption?
A: No. The export exemption is for tangible goods physically removed from the United States. Cable television service is delivered and consumed in Texas, so there is nothing to "export."

Citations and references

The original letter does not cite any specific Texas statute or administrative rule by number — it refers only generally to "new rules on exports" that the Comptroller had recently issued and enclosed for the writer's information, without naming a rule number in the text provided.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9302L1224B03

Original ruling text

February 23, 1993

Dear **:

Thank you for your recent letter asking about your cable bill and tax
exemptions for Mexican citizens. First, cable companies are supposed to
collect tax on municipal franchise fees, which are imposed on cable
providers for the privilege of using city rights-of-way and easements.
When a cable provider separately itemizes the fee on a bill it is just
giving a partial breakdown of its expenses. It has to collect tax from
its customers on the bottom-line sales price of its cable services,
including all of its costs and profits.

Second, Mexican citizens do not get a unique tax break. However, under
the United States Constitution, goods that are exported from the United
States are generally exempted from state taxes. This does not benefit
only foreign nationals; it also covers exported goods purchased by
Americans. It does not apply to items taken elsewhere in the United
States, items used in Texas prior to export, or items entirely consumed
in Texas (like movie tickets, restaurant meals, etc.). When a purchaser
picks up goods in Texas, he must first pay tax to the retailer, export
the goods, and then take proof of export back to the retailer for a tax
refund. We just issued new rules on exports, which were designed to
make sure tax is paid on items that are not truly exported. The news
story you saw was probably about the rules, which are enclosed for
your information.

Thank you again. If you have further questions, please feel free to write
or call John Christian of the Tax Administration Division, at
1-800-531-5441, extension 3-3889.

Sincerely

John Sharp
Comptroller of Public Accounts