The FCC assesses telecommunications carriers for the Federal Universal Service Fund (USF), similar to the state's Telecommunications Infrastructure Fund (TIF) assessment. When a carrier bills this USF charge through to its customers as a reimbursement, is it subject to Texas sales tax?

Plain-English summary

A taxpayer asked the Comptroller about the Federal Universal Service Fund (USF) charge the FCC imposes on telecommunications carriers: is it a tax or a surcharge, is it assessed on the carrier or the customer, and — if the carrier passes the charge through to customers as a reimbursement — is it subject to Texas sales tax the way the state's own Telecommunications Infrastructure Fund (TIF) assessment is?

The Comptroller explained that the USF assessment is made against the telecommunications carrier itself, not directly against the carrier's customers/ratepayers — and that whether the FCC's charge counts as a "tax" or a "surcharge" is a question for the FCC, not something the Comptroller rules on. But for Texas sales tax purposes, the USF assessment is treated just like the state TIF assessment: once the carrier bills the USF charge through to the customer, it becomes part of the taxable sales price of the telecommunications service and is subject to Texas sales tax. As with the TIF, the carrier must bill it through as a reimbursement of the carrier's own cost — not represent it to the customer as if it were itself a tax or fee being collected on the customer's behalf.

What this means for you

Telecommunications carriers billing USF charges to customers

Treat pass-through USF charges the same way you treat TIF charges: they become part of your taxable sales price once billed to the customer, so Texas sales tax applies to them. Bill the charge as a reimbursement of your own FCC assessment, not as if it were itself a tax the customer owes.

Customers questioning a "USF" line item on a phone bill

The line item is a pass-through of the carrier's own federal assessment, not a separate government tax charged directly to you — but the carrier is still required to charge Texas sales tax on that amount once it's included in your bill.

Accountants and tax professionals

This letter is useful shorthand alongside the parallel TIF-assessment guidance (see also Letter Ruling 9804535L on intercorporate telecom services in this corpus, which references the TIF assessment) for how Texas treats carrier-level regulatory assessments that get billed through to end customers: they enter the sales tax base as part of the sales price, regardless of their federal or state regulatory origin.

Common questions

Q: Is the Federal Universal Service Fund (USF) charge itself a tax under Texas law?
A: The Comptroller didn't characterize it that way for Texas purposes — whether it's a "tax" or "surcharge" under federal law is a question for the FCC. For Texas sales tax purposes, what matters is that it becomes part of the taxable sales price once billed to the customer.

Q: Who does the FCC assess the USF charge against — the carrier or the customer?
A: The carrier (certain telecommunications providers), not directly against their ratepayers.

Q: If my phone company passes the USF charge through to me, do I owe Texas sales tax on it?
A: Yes — once billed through to the customer, the USF charge becomes part of the sales price of the telecommunications service and is subject to Texas sales tax, just like the state TIF assessment.

Q: Can the carrier bill the USF charge to me as if it were itself a tax I owe?
A: No — like the TIF assessment, it must be passed through as a reimbursement of the carrier's cost, not represented as a tax or fee in its own right.

Q: Can I rely on this letter for my own situation?
A: No. It's based on the facts presented, and the letter notes the opinion may change on additional or different facts.

Citations and references

• Tex. Tax Code ch. 151 (Limited Sales, Excise, and Use Tax — general sales-price/taxability framework applied to the pass-through charge)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9804500L

Original ruling text

April 23, 1998

Dear Mr. **:

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

Please forward to me by fax or mail the state's ruling concerning the USF
charges imposed by the Federal Communications Commission.

Is this a tax or surcharge? If so, which is it. Is this charge on the
consumer or the telephone company?

If the telephone company treats this charge as a reimbursement, is it subject
to Texas sales tax to be collected by the telephone companies? Does this
charge come under Chapter 151 of the Tax Code as you have ruled for the TIF?

Response: The Federal Universal Service Fund (USF) assessment is made against
certain telecommunications providers and not directly against their ratepayers.
You should contact the Federal Communications Commission for their
interpretation as to whether the USF assessment is a tax or surcharge.

As a charge to the carrier, the USF assessment is like the Telecommunications
Infrastructure Fund (TIF) assessment and becomes part of the sales price of the
telecommunications service and subject to sales tax when it is billed through
to the customer. Like the TIF, it must not be passed through to the ratepayer
as if it were a tax or fee but rather as a reimbursement.

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. The email address is .

Sincerely,

Al Van Allen
Tax Policy Division