Is a charge for 'on hold' tapes with marketing messages played to callers waiting to be connected, plus related equipment, subject to Texas sales tax?

Subject

Telephone "On Hold" Tapes — Messages And Music Provided To Callers While Waiting To Be Connected

Plain-English summary

This letter answers a question about the tax treatment of "on hold" tapes -- recordings with marketing messages that callers hear while they wait to be connected to a business.

The Comptroller first noted an older, separate policy: subscriptions to Muzak and similar subscription music services were previously found not to be taxable telecommunications services. That earlier issue involved music transmitted electronically to a business, which the business then played at its own location.

The letter says that older policy "has not changed," but it is not fully relevant to this taxpayer's facts. Here, based on the taxpayer's phone conversations with the Comptroller's office, the seller was providing "on hold" tapes containing marketing messages, played to callers while they wait to be connected -- not just background music.

For that fact pattern, the Comptroller held that charges for the tapes and related equipment are subject to sales tax. Where a single charge covers both the "on hold" tapes and the music transmitted to the business, that whole charge is taxable.

As with other STAR letters of this era, the opinion is based on the facts presented and could change if the facts are different.

What this means for you

Businesses that buy "on hold" message/music services

If you pay a seller for "on hold" tapes with marketing messages (played to callers waiting to be connected) along with any related playback equipment, expect that charge to be subject to Texas sales tax. If the seller bills you a single combined charge for the tapes and the transmitted music, the Comptroller treats the entire charge as taxable.

Sellers of on-hold messaging and music-on-hold equipment

When you sell "on hold" tape/message services and equipment to a business customer, this letter indicates you should be charging sales tax on those charges. A single bundled charge for tapes and transmitted music is taxable in total -- there's no indication in this letter that any portion can be separately treated as nontaxable.

Accountants and tax professionals

Don't assume the older Muzak/subscription-music policy (music transmitted electronically to a business and played there, found not to be a taxable telecommunications service) automatically extends to "on hold" marketing tape services. This letter distinguishes the two fact patterns: on-hold tapes with marketing messages played to callers, plus related equipment, are taxable.

Common questions

Q: Are charges for "on hold" marketing tapes subject to Texas sales tax?
A: Yes. Charges for "on hold" tapes containing marketing messages played to callers while they wait to be connected, and for related equipment, are subject to sales tax.

Q: What if the seller bills tapes and transmitted music together as one charge?
A: The letter says a single charge for "on hold" tapes and music transmitted to the business is taxable in total.

Q: Does the older Muzak subscription policy (not a taxable telecommunications service) apply here?
A: That policy hadn't changed, but the letter says it "is also not completely relevant" to a fact situation involving "on hold" tapes with marketing messages played to callers waiting to be connected.

Q: Could this answer change under different facts?
A: Yes -- the letter states the opinion is rendered based on the facts presented, and the opinion may change if there are additional or different facts.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9608L1421G13

Original ruling text

August 1, 1996

Dear **:

I am responding to your recent letter regarding the tax treatment of "Message &
Music on Hold" with Muzak.

Subscriptions to Muzak and similar subscription music services were found not to
be telecommunications services by Mr. Bullock while he was Comptroller of Public
Accounts. The issue at the time was the transmission of music by electronic
means to customers that received the incoming signals and played them at their
businesses.

That policy has not changed. However, it is also not completely relevant to
your fact situation. According to our telephone conversations with yourself and
***, the seller is providing "on hold" tapes containing marketing
messages to be played to callers while they wait to be connected. Charges for
the tapes and related equipment are subject to sales tax. A single charge for
"on hold" tapes and music transmitted to your business will be taxable in total.

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

You may call me toll free at 1-800-531-5441, ext. 3-4680. The direct line is
512/463-4680. You may also write to Tax Policy, Comptroller of Public Accounts.
My Internet address is [email protected].

Sincerely,

Al Van Allen
Tax Policy Division