Is Texas sales tax due on teleconferencing/bridging fees when the conference is arranged by an out-of-state company but participants call in from Texas?

Plain-English summary

A company that resells long-distance telecommunications service to Texas businesses planned to start reselling teleconferencing services too, in three different setups, all billed to the company that arranges the conference. The Comptroller's answer differs for each setup:

• Standard Exchange Dial-In: Participants dial a New Jersey telephone number directly and pay their own long-distance carrier for the call; the arranging company only pays the bridging fee to connect everyone. No Texas tax is due on the out-of-state company's connection/bridging charge, because each Texas caller has already paid tax to their own individual long-distance provider on their own call.
• Toll-Free Dial-In: Participants dial a toll-free number, and the arranging company pays all the telephone charges and bridging fees itself. This IS taxable to the extent the calls originate in Texas — because Texas-based individuals are originating their portion of the conference call from Texas when they dial the out-of-state operator, regardless of where the bill ultimately gets sent.
• Operator Dial-Out: An operator calls participants directly (rather than participants dialing in), with the arranging company paying the telephone and bridging charges. Texas tax is not due if the company's operator is located outside Texas.

The letter points to Rule 3.344 (Telecommunications Services) as the governing rule.

What this means for you

Teleconferencing and telecommunications resellers

Whether your teleconferencing/bridging charges carry Texas tax depends on the technical setup: who dials whom, where the calls originate, and where your operator sits — not simply where your company or your customer is headquartered. Toll-free dial-in conferences with Texas-based participants generally trigger tax on the Texas-origin portion; participant-pays-their-own-long-distance and out-of-state-operator dial-out setups generally don't.

Accountants and tax professionals

This letter is a compact illustration of the call-origination principle under Rule 3.344: Texas taxes telecommunications based on where the call originates, and a Texas caller "originates" their leg of a conference call from Texas even when dialing an out-of-state number, regardless of billing address.

Common questions

Q: Is teleconferencing always taxable in Texas?
A: No, per this letter — it depends on the setup. Standard dial-in where callers pay their own long distance, and operator dial-out from an out-of-state operator, are both not taxable; toll-free dial-in paid by the conferencing company is taxable to the extent calls originate in Texas.

Q: Does it matter where the conferencing company or the bill is located?
A: Not for the toll-free scenario, per this letter — Texas tax applies based on where the CALL originates (Texas), regardless of where the bill is sent.

Q: What rule governs telecommunications services taxability generally?
A: Rule 3.344, per this letter.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.344 (Telecommunications Services)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9806516L

Original ruling text

June 2, 1998

Dear **:

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

"We are currently in the business of re-selling long distance telecommunication
service to companies located within your state. Soon, we will begin to re-sell
Teleconferencing Services to our customers as well.

The teleconference will be sold one of three ways. In all three cases, the
company that arranged the conference is billed for the cost of the conference:

Standard Exchange Dial-In: Participants dial a New Jersey telephone number
incurring long distance fees billed from their long distance carrier. The
company arranging the conference pays the bridging fees.

Response: Tax is paid by callers in Texas to their individual long-distance
telecommunications providers. No Texas tax is due on the charge by the
out-of-state company for connecting the callers, each of which has paid for his
own call.

Toll Free Dial-In: The participants dial into a toll-free number. All
telephone charges and bridging fees are paid by the conferencing company.

Response: The charges are taxable to the extent that the calls originate in
Texas. Individuals in Texas originate their portion of the conference call from
Texas by calling the out-of-state operator. Accordingly, that portion of the
billing is subject to Texas sales tax regardless of where the bill is sent.

Operator Dial-Out: Participants are contacted by an operator. The telephone
charges and bridging fees are paid by the conferencing company.

Response: Texas tax is not due if the company operator is located outside
Texas. I am enclosing Rule 3.344 for your reference.

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