Which parts of a phone-based information, advertising, and voice-mailbox service are taxable telecommunications services in Texas, and which parts are not?

Subject

Advertising Space/Advertisement — Provided With Caller Voice Mailbox By Newspaper — Charge For Mailbox Is Taxable Telecommunications

Plain-English summary

This 1996 letter answers a computer service bureau's questions about which of its phone-based services owe Texas sales tax. The company (identified only as "ABC" in the letter) described three lines of business plus a set-up-fee question, and the Comptroller responded to each:

• Computerized telephone polling (calling client-supplied or randomly generated phone numbers and having the called party answer survey questions via touch-tone) is a telecommunications service, so charges for it are taxable.
• A telephone "Community Bulletin Board" ("INFO-LINE"), where callers dial in for free and select prerecorded announcements (weather, lottery numbers, trivia, restaurant guide, etc.), is funded by advertisers who pay a flat monthly fee to have their 10-15 second ad played when a caller accesses a category. Charges to advertisers for playing their information to callers who initiate the call are not taxable. But when the company also offers call transfer — routing the caller directly to a restaurant to make a reservation or order — that routing is a taxable telecommunications service. If the advertiser pays one combined price for both the ad/listing and the call-transfer feature, the entire combined charge is taxable.
• A telephone "Hotline" of prerecorded sound tapes (6-8 minutes each), used by vitamin salesmen who pay a flat monthly fee for a numbered prompt, works the same way: playing the prerecorded tapes to callers who dial in is not taxable, but callers can also leave a message in the salesman's voice mailbox, and that electronic message-taking function is a taxable telecommunications service. Again, if one fee covers both the tape-playing and the voice-mailbox feature, the whole charge is taxable.
• Set-up fees: a set-up fee tied to a taxable service is taxed the same way the underlying service is taxed; a set-up fee tied to a non-taxable service is not taxed.

The Comptroller notes the opinion is based on the facts presented and could change if the facts are different.

What this means for you

Audiotex / voice-information and voice-mailbox providers

If you run a dial-in information line, playing prerecorded content to callers who initiate the call is not, by itself, subject to Texas sales tax. But once you add features that route or transfer calls, or that let callers leave and retrieve voice messages, those features are taxable telecommunications services. Bundling a taxable feature (call transfer, voice mail) into the same flat fee as your non-taxable listening service makes the entire fee taxable — so if you want to keep any part of the charge exempt, you likely need to separately state and separately charge for the taxable feature.

Businesses that advertise or list themselves on these services

If you pay a flat monthly fee just to have your ad or listing played to callers, that fee should not carry sales tax. But if your package also includes call transfer (so callers can be routed straight to you) or any similar telecommunications feature, expect the combined fee to be taxed in full, not just the transfer portion.

Accountants and tax professionals

This letter illustrates the Comptroller's approach to "mixed" phone-service charges: telecommunications functions (call routing/transfer, electronic voice-mail message taking, computerized survey/polling) are taxable, while simply playing recorded content to an inbound caller is not. When a single undifferentiated price covers both a taxable and a non-taxable component, the Comptroller taxes the full combined charge — so separately stating charges for the taxable component is the way to avoid taxing the non-taxable portion. Set-up fees follow the taxability of the underlying service they set up.

Common questions

Q: Is charging advertisers to have their ad played on a dial-in information line taxable?
A: No. Charges to advertisers for playing their information to callers who initiate the call are not subject to sales tax.

Q: Is routing or transferring an incoming call to a business taxable?
A: Yes. Routing incoming calls to various businesses (call transfer) is a telecommunications service and is subject to sales tax.

Q: What happens if I charge one combined fee for both the ad/listing and call transfer?
A: The entire combined charge is taxable, per this letter.

Q: Is letting a caller leave a voice-mail message for a salesman taxable?
A: Yes. Electronic message taking (a voice mailbox) is a telecommunications service and is subject to sales tax, even though simply playing the prerecorded tapes to the caller is not.

Q: Is computerized telephone polling taxable?
A: Yes. The letter states that computerized telephone polling is a telecommunications service and charges for it are subject to sales tax.

Q: Are set-up fees taxable?
A: It depends on the underlying service. Set-up fees connected with taxable services are taxed the same way as the service; set-up fees connected with non-taxable services are not taxed.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9608L1434A08

Original ruling text

August 6, 1996

Dear ***:

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

ABC is a computer service bureau performing three basic types of services
at present.

First, we perform Computerized Telephone Polling using both client supplied
phone numbers as well as random generated phone numbers. After the called
party answers, questions are asked and the called party answers by pressing
the appropriate buttons on their touch tone phone. The answers are
considered proprietary information and supplied only to my client(s).

Response: Computerized telephone polling is a telecommunications service.
Your charges are subject to sales tax.

Second, my company operates a telephone accessed (not
computer accessed) Community Bulletin Board called "*** INFO-LINE."
A caller, who dials a unique local telephone number (**) to access
our computer and uses their touch tone telephone to further access a prompt
corresponding to the category of information of their choice (eg. "Weather
Report", "Lottery Numbers", "Trivia", "Lake Report", "Church Guide",
"Obituaries", "Attractions, Events & Entertainment", and "Community Services &
Local Organizations".) can then listen to various pre-recorded announcements.
The information is obtained free of charge to us and the service is free to any
caller. I have advertisers who pay a flat monthly fee to have their 10 to 15
second advertisement heard when a caller accesses a prompt like one of those
listed above. The advertisers pay this monthly fee expecting (and hoping)
their ad will be heard by individual callers, but with no foreknowledge that
any will actually hear it. In addition, restaurants that wish to be listed in
the "Restaurant Guide" pay a monthly fee to be so listed. Do I tax this?
Also, if the restaurants pay this monthly fee, AND pay for a 10 to 15 second
advertisement, I give them call transfer where the initial caller into the
"**** INFO-LINE" can be transferred directly to the restaurant to make
a reservation or order take-out. This transfer service carries a separate
price tag, but I give it free as a package if the restaurant buys both the
listing and the advertisement. This third service (call transfer) carries its
own price, but it is given free to all users. Is it taxed, and how?

Response: Charges to advertisers for playing their
information to citizens that initiate the calls are not subject to sales tax.
Charges for routing incoming calls to various businesses are subject to sales
tax. The routing constitutes a telecommunications service. A single charge
for both services is taxable in total.

Third, my company operates a telephone accessed data
base of pre-recorded sound tapes, each lasting approximately 6 to 8 minutes in
length. I have a unique telephone number for this service (***) and
we call it the "***** Hotline." I charge individual vitamin salesmen
a flat monthly fee for a numbered prompt on the system. The salesmen then give
out the "Hotline" number to prospective customers & clients and invite them to
call the "Hotline" (free of charge to the caller) and listen to the tapes.
After listening to a tape, the caller can, if they desire, leave a message in
the individual salesman's voice mailbox or simply hang up on the system. Do I
charge the individual vitamin salesman a tax on his monthly fee to use the
"Hotline"?

Response: As above, a charge for playing messages to
citizens who initiate incoming calls is not subject to sales tax. The function
of electronic message taking constitutes a telecommunications service and is
subject to sales tax. A single charge for both services is taxable in total.

Lastly, if I charge a "set-up" fee to any entity using
the services of number two above (the "*** INFO-LINE") or to number
three above (the "***** Hotline") is that "set-up fee taxable?

Response: Set-up fees in connection with taxable services are subject to
sales tax in the same manner as the service itself. Set-up fees in connection
with non-taxable services are not subject to sales tax.

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

NOTE: Previous Accession Number 9608627L