Are charges for telemarketing sales calls, list-based calling, and related services (compiling lists, mail fulfillment, final reports) subject to Texas sales tax?

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

Plain-English summary

ABC MARKETING, a telephone-solicitation company, asked the Comptroller to sort out the sales-tax treatment of the various services it bills to clients: making sales calls, calling into lists (the client's own database, a purchased database, or a database ABC MARKETING sells to the client), buying equipment, mail fulfillment, and delivering a final report.

Sales calls themselves are not taxable. The letter states plainly that charges for making sales calls -- soliciting sales and taking orders -- are not subject to sales tax.

But list-related charges often are. When ABC MARKETING makes calls into a list, it is treated as gathering information on behalf of its client, and sales of information are taxable services under Tax Code 151.0101(a). There's an exception: if the information is proprietary to that one client -- meaning ABC MARKETING gathered or compiled it for that client and can't resell it to others -- the charge is not taxable. If ABC MARKETING bills a single combined charge for both a list and the calls made into it, the whole charge is taxable. However, if ABC MARKETING buys a list itself (not reselling it to the client) and uses it to make calls for more than one customer, the firm just owes tax on its own purchase of the list, and the separately billed sales-call charge is not taxable.

Equipment is taxable. Sales tax applies to equipment ABC MARKETING purchases to perform the work.

Mail fulfillment vs. printing. Labor for mail fulfillment services (folding, inserting, sealing, and postage) is not taxable. But printing form letters -- even ones personalized with a name and address -- is taxable. If mail fulfillment and printing are billed together as one charge, the entire charge is taxable.

Final report — unresolved. The Comptroller could not answer whether a final report summarizing results and feedback is taxable without more facts, specifically whether ABC MARKETING does anything besides making sales calls on the client's behalf.

Billing method doesn't matter. Charging by the hour versus by the call makes no difference to whether a service is taxable.

What this means for you

Telemarketing / call-center businesses billing Texas clients

Charge sales tax based on what you're actually selling, not just how you bill. A pure sales-call charge (soliciting and taking orders) is not taxable. But if your charge is tied to a list -- whether you gathered it, bought it, or resell it to the client -- treat it as a taxable information service under Tax Code 151.0101(a), unless the information was gathered specifically for that client and isn't resellable to others.

Firms itemizing bills that mix taxable and nontaxable items

Combining a nontaxable item (sales calls, mail fulfillment labor) with a taxable item (a list, printed form letters) on a single line makes the whole charge taxable. Itemize separately if you want the nontaxable portion to stay nontaxable.

Firms buying lists or equipment for their own use

If you buy a list for your own use (not resold to the client) and use it across multiple customers' campaigns, you owe use tax on your purchase price of the list, but the sales-call charges to those customers are not taxable. Equipment you purchase to do the work is taxable to you as the purchaser.

Common questions

Q: Are charges for making sales calls (soliciting sales, taking orders) subject to Texas sales tax?
A: No. The letter states these charges are not subject to sales tax.

Q: Is it taxable if I call into a list of companies my customer already gave me?
A: You're gathering information on behalf of your client, which is a taxable information service under Tax Code 151.0101(a) -- unless the information is proprietary to that client and can't be resold to others, in which case it's not taxable.

Q: What if I sell my customer a list and also make the calls into it, billed as one charge?
A: A single combined charge for both the list and the sales calls is taxable in total.

Q: What if I buy one list and use it to make calls for several different customers, without reselling the list itself?
A: You owe tax on your purchase price of the list, but the sales-call charges to those customers are not taxable.

Q: Do I owe sales tax on equipment I buy to do this work?
A: Yes.

Q: Are mail fulfillment charges (folding, inserting, sealing, postage) taxable?
A: No, mail fulfillment services are not subject to sales tax. But printing form letters -- even personalized ones -- is taxable, and a single combined charge for both is taxable in total.

Q: Is a final report summarizing results and feedback to the client taxable?
A: The Comptroller couldn't say without more information about whether the firm performs services beyond making sales calls on the client's behalf.

Q: Does it matter if I bill by the hour instead of by the call?
A: No, the billing method doesn't affect taxability.

Citations and references

Statutes and rules:

• Tax Code 151.0101(a) (defines taxable services, including information services, under which sales of gathered/compiled information are generally taxable)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9611830L

Original ruling text

November 18, 1996

Dear ***:

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

ABC MARKETING is a company which does telephone solicitation. Our
customers willhire us to make phone calls into (1) their database
and/or (2) into a database they buy from us. My questions have to do with
determining if these calls are taxable to our customers. Note: In our
telephone conversation of November 13, 1996, you gave me the following
information:

Your firm performs two primary services, Prospecting, and Customer Surveying.
Prospecting means developing a list of individuals that have specific
interests and may be interested in buying certain products. Customer Survey
Services means gathering information on customer satisfaction.Your firm may
also contract to solicit sales for a customer. You asked me to distinguish
sales solicitation calls from Prospecting and Customer Survey calls. Sales
calls are calls to prospective customers with the intent to take an order
for specific merchandise and to obtain payment and delivery information on
the spot.

Your firm itemizes its customer billing so that charges for sales of lists
are separated from charges for prospecting, surveying or mail fulfillment.

Your firm may perform some mail fulfillment services, but does not act as a
printer except to print an occasional personalized letter to include as a
stuffer. Charges for such letters will be separately stated from other
charges.

Charges for making sales calls are not subject to sales tax.

1. Do we charge tax on phone calls made into a list of companies which has
   been provided by our customer?

Response: Your firm is gathering information on behalf
of its client. Sales of information are subject to sales tax under Tax Code
151.0101(a). However, the sale of information which is gathered or compiled on
behalf of a particular client is not subject to tax if the information is of a
proprietary nature to that client and may not be sold to others by the person
who gathered or compiled the information

2. Do we charge tax on phone calls made into a list of
   companies which has been purchased by DEF MARKETING and sold to our customers
   (I understand that the resale of the list is taxable, what about the phone
   calls)

Response: Same as for #1 above. A single charge for
both the list and the sales calls would be taxable in total.

3. If we buy one database or list and make phone calls
   into the list for more than one customer, how is that handled?

Response: It would depend on how the customers were
billed. If the list were used by your firm, but not resold to the customer,
you would simply owe tax on the purchase price of the list and the charge for
sales calls would not be taxable.

4. Do I pay sales tax on equipment I purchase to perform the work?

Response: Yes.

5. Do I charge sales tax for labor billed to a customer
   where we prepare something like a direct mail piece (i.e.. folding, inserting,
   sealing and postage)?

Response: Mailing fulfillment services are not subject
to sales tax. However, charges for printing form letters, even with
personalized forms of address, are subject to sales tax. A single charge for
both mailing fulfillment and form letters is taxable in total.

6. At the completion of a project I will provide a final report summarizing
   results and feedback, do I charge sales tax on this report?

Response: I need more information in order to be able
to respond to this question. Are you doing services other than making sales on
behalf of your customer?

7. Does it make a difference on taxability if I charge a customer by the hour
   for phone services or if I charge them by the call?

Response: No

This opinion is rendered based on the facts presented.
If there are 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