Does a mailing service or a broker who collects payment for a 900-number telecommunications service have to collect Texas sales tax on those transactions?

Subject

900 Numbers — Customer Orders Service And Pays Connection Fee Through Broker — Service Provider Responsible For Tax

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9310104L

Plain-English Summary

A taxpayer's letter described several different business situations and asked the Comptroller to address each one. In Situation 1, the taxpayer mails information to potential customers of out-of-state businesses; if a recipient decides to order a product, the order and payment go directly to the out-of-state business, and the taxpayer earns only a commission for the mailing service. The Comptroller responded that a mailing service consisting of stuffing and addressing envelopes and attaching postage is not a taxable service, though the taxpayer is required to pay tax on the materials purchased to provide that mailing service. The letter also answered a rate question tied to this situation: the correct combined sales tax rate for the City of Premont is 8.25%, made up of 6.25% state tax, 1.5% Premont city tax, and 0.5% Jim Wells county tax.

In Situation 3, the taxpayer receives a brokerage package from a company that leases a 900 number service; the information packet describes the 900 service and discloses the company providing it. A customer who orders the service sends payment to the taxpayer, who deducts a commission and forwards the remaining payment to the 900 service provider, and the service provider then connects the customer to the 900 service. The Comptroller held that the taxpayer is acting as a broker in this arrangement and is not required to collect tax on the orders accepted for the 900 company. Instead, the letter states that the 900 company itself is required to collect tax on the telecommunications service (the connection fee) it provides to its customer.

The letter notes that a fourth question did not require a response, and a fifth question also did not require a response because the taxpayer was not making sales for resale; the Comptroller enclosed Rule 3.285 for reference on that point. The Comptroller further stated it was unable to provide an excise tax rate chart for different states and could not locate information the taxpayer's husband had requested about security and self-defense items. As with all such letters, the response is expressly based on the facts presented, and the opinion may change if the facts differ.

What This Means For You

If you run a mail-order referral or lead-generation business: Simply stuffing and addressing envelopes and attaching postage to distribute another company's marketing materials is not, by itself, a taxable service under this letter — but you still owe tax on the materials (envelopes, paper, etc.) you buy to perform that mailing service, since you are the end consumer of those supplies.

If you broker 900-number or similar telecommunications services: Under this letter, collecting a customer's payment, taking a commission, and forwarding the balance to the actual service provider does not make you responsible for collecting sales tax on that transaction. The tax obligation for the underlying telecommunications (connection fee) service falls on the company that actually provides the 900 service to the customer — not on the broker who merely processes payment.

If you operate in or bill customers in Premont, Texas: This letter confirms a combined local sales tax rate of 8.25% for Premont (6.25% state + 1.5% city + 0.5% Jim Wells county) as of the date of this 1993 letter — useful as a historical data point, but current rates should always be verified against the Comptroller's current rate lookup since local rates can change over time.

Q&A

Q: Is a mailing service that stuffs and addresses envelopes for an out-of-state business a taxable service in Texas?
A: No. The letter states that a mailing service entailing stuffing and addressing envelopes and attaching postage is not a taxable service.

Q: Does the taxpayer providing that mailing service owe any tax at all?
A: Yes — the letter states the taxpayer is required to pay tax on the materials purchased to provide the mailing service.

Q: Who is responsible for collecting tax on the 900-number connection fee when a broker collects the customer's payment?
A: According to the letter, the broker (the taxpayer, who deducts a commission and forwards the rest of the payment) is not required to collect the tax. The 900 company is required to collect tax on the telecommunications service it provides to its customer.

Q: What is the combined sales tax rate for the City of Premont per this letter?
A: The letter states the correct total tax rate for Premont is 8.25%, broken down as 6.25% state tax, 1.5% Premont city tax, and 0.5% Jim Wells county tax.

Q: Why didn't the Comptroller answer every question in the taxpayer's letter?
A: The letter states Question 4 did not require a response, and Question 5 also did not require a response since the taxpayer was not making sales for resale; Rule 3.285 was enclosed for reference.

Original ruling text

October 8, 1993

Dear **:

Thank you for your letter of September 4, 1993, regarding sales made by your
business. You asked us to address the following situations.

Situation 1:

As I understand it, you mail information to potential customers of out-of-state
businesses. If a person receiving the information chooses to order a product,
the order and payment is sent directly to the out-of-state business. You
receive a commission for your mailing service.

Question 1:

Are we responsible for collecting taxes on their products?

Response:

A mailing service entailing stuffing and addressing envelopes and attaching
postage is not a taxable service. You are required to pay tax on the materials
you purchase to provide this service.

Question 2:

What is the correct tax rate for the City of Premont?

Response:

The correct total tax rate for Premont is 8.25%. The rate is broken down as
6.25% state tax, 1.5% Premont city tax, and .5% Jim Wells county tax.

Situation 3:

You receive a brokerage package from a company leasing a 900 number service.
The information packet describes the 900 service and discloses the company
providing the service. The customer ordering the service sends payment to you.
You deduct your commission and forward the payment to the 900 service provider.
The service provider then connects the customer to the 900 service.

Question 3:

Are we responsible for collecting tax on the sale (connection fee) of the 900
service.

Response:

You are acting as a broker in this situation. You are not required to collect
tax on the orders you accept for the 900 company. The 900 company is required
to collect tax on the telecommunications service they provide to their
customer.

Question 4 does not require a response. Question 5 also does not require a
response since you are not making sales for resale. I have enclosed Rule 3.285
for your reference.

I apologize for being unable to provide you with an excise tax rate chart for
different states. Also, I was unable to find the information requested by your
husband regarding security and self-defense items.

This opinion is based on the facts presented. If there are any additional or
different facts, the opinion may change.

If you have any questions or need additional information, you may call toll
free 1- 800-531-5441, ext. 50037. The regular Austin number is 512-475-0037.
You also may write to Tax Administration Division.

Sincerely,

Lindey Osborne
Tax Administration Division