Is telemarketing taxable in Texas?

Subject

Telemarketing Services — Charges For Making Sales Calls/Soliciting Sales And Taking Orders, Past Due Courtesy Calls, Compiling List Of Marketing/Sales Leads For Clients

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9409L1312B13

Plain-English Summary

The Texas Comptroller ruled that "telemarketing" is not one single taxable (or non-taxable) service — it depends on what the calls actually do. The ruling identifies three distinct scenarios:

1. Automated calls delivering standardized messages. If a telemarketer uses an automated computer system to call potential customers and play/transmit a standardized message to names or numbers on a list, that is a taxable telecommunications service under 34 Tex. Admin. Code Rule 3.344.
2. Compiling a marketing/sales-leads list. If the calls are made in order to build a list of marketing or sales leads that the telemarketer then sells to its client, the telemarketer must collect and remit sales tax on the charge for that list, because it is a taxable information service under Rule 3.342.
3. Soliciting sales and taking orders. If the calls are made to actually sell the client's goods or services — soliciting sales and taking orders on the client's behalf — that service is not taxable. Instead, the client remits sales tax on any taxable items sold in Texas, and the telemarketer is responsible for paying sales tax to its own suppliers on any taxable tangible personal property or taxable services it uses to provide the service.

What This Means For You

Telemarketing companies

Look closely at what your calls actually accomplish, not just the label "telemarketing." An automated-dialer campaign that plays a canned message is taxed as telecommunications. A calling campaign whose output is a compiled leads list sold to a client is taxed as an information service, on the charge for the list. A calling campaign whose purpose is to close sales or take orders for a client's products is a non-taxable service — but you still owe sales tax as the end consumer of any taxable property or services (phone systems, software, etc.) you buy to run that operation.

Businesses that hire telemarketers

If you hire a telemarketing firm to solicit sales and take orders on your behalf, expect no sales tax to be charged on the telemarketer's service fee — but you, as the seller, remain responsible for collecting and remitting Texas sales tax on the taxable items or services actually sold to your customers.

Accountants and tax professionals

This ruling is a useful three-way test for classifying "telemarketing" fees: (1) automated/standardized-message calling → telecommunications service (Rule 3.344); (2) lead-compilation calling → information service (Rule 3.342), taxable on the charge for the resulting list; (3) live sales-solicitation/order-taking calling → not a taxable service at all, with use tax exposure instead falling on the telemarketer's own purchased inputs.

Q&A

Q: My company uses an automated system to call a list of numbers and play the same recorded message to everyone. Is that taxable?
A: Yes. That is a taxable telecommunications service under Rule 3.344.

Q: I make calls to build a list of sales leads that I then sell to a client. Is that taxable?
A: Yes. You must collect and remit sales tax on the charge for that list, since compiling and selling it is a taxable information service under Rule 3.342.

Q: I make calls to solicit sales and take orders for my client's products. Is that taxable?
A: No. That service itself is not taxable. Your client remits sales tax on any taxable items sold, and you instead pay sales tax to your own suppliers on any taxable goods or services you use to provide the calling service.

Citations

• 34 Tex. Admin. Code Rule 3.344 (telecommunications services) — governs automated calling systems that transmit standardized messages.
• 34 Tex. Admin. Code Rule 3.342 (information services) — governs charges for compiled marketing/sales-leads lists.

Original ruling text

September 2, 1994

Dear *****:

Thank you for your August 10, 1994, letter concerning the taxability of
telemarketing services. Telemarketing services take several forms. Some
telemarketing methods are taxable services and some are not.

If you use an automated system (computer) to call potential customers for
your client in order to transmit standardized messages to names/numbers on
a list, the service is a taxable telecommunications service. See enclosed
Rule 3.344 on telecommunications services.

If you make calls in order to compile a list of marketing/sales leads,
then you must collect and remit tax on the charge for information that
you accumulate and sell to your client. See Rule 3.342 on information
services.

If you make calls in order to sell your client's goods and services (i.e.,
soliciting sales and taking orders), the service is not taxable. The client
must remit the sales tax on any taxable items sold in Texas. You are
responsible for paying sales tax to suppliers on any taxable items (tangible
personal property or taxable services) that you use in providing the service.

This opinion is based on the facts you submitted. Other facts, though similar,
may yield different results.

You may call me toll free at 1-800-531-5441, ext. 5-0030. The direct line
is 512/475-0030. You may also write to Tax Administration, Comptroller of
Public Accounts.

Sincerely,

David Somerville
Tax Administration Division

NOTE: Previous Accession Number 9409523L