A company lets customers come to its office to hold video conferences using its own equipment and phone lines, billing them for facility use plus re-billed long-distance charges. Is this equipment rental plus a telecom pass-through, or something else entirely for tax purposes -- and can the company buy its own phone service tax-free?

Plain-English summary

This document is also indexed as a related TIF (Telecommunications Infrastructure Fund) document at STAR 9811966L.

A company set up office space with video-conferencing equipment and telephone lines, letting customers come in and hold video conferences using the company's own gear and phone lines. The company billed customers both for using its facility/equipment and for the long-distance telephone charges it re-billed on their behalf. It asked the Comptroller four questions: is the facility/equipment charge taxable, can it buy the equipment tax-free if so, are the re-billed phone charges taxable, and do any state excise taxes apply to those re-billed charges?

The Comptroller reframed the whole arrangement: this isn't equipment rental plus a separate telephone pass-through charge — it's a single taxable telecommunications service. As a result, the ENTIRE charge the company bills its customers (both the facility/equipment portion and the re-billed long-distance portion) is subject to sales tax. On the flip side, because the company is now classified as a telecommunications service provider rather than an equipment renter, it can buy the underlying telephone service it uses to deliver video conferencing tax-free from its own supplier, by giving that supplier a resale certificate.

Note on obsolete TIF language: the original 1998 letter also said the total charge was subject to the Telecommunications Infrastructure Fund (TIF) assessment. That assessment — a fee on telecommunications providers, not a sales tax — was fully repealed effective September 1, 2008. This document isn't individually flagged as superseded on STAR, but that specific part of its answer no longer reflects current law; the sales-tax holding on the video-conferencing charge itself is unaffected by the TIF repeal.

What this means for you

Video-conferencing, meeting-room, or similar facility-plus-connectivity businesses

If your business model bundles your own equipment with telecom connectivity you provide to customers on-site, the Comptroller may treat the whole package as a single taxable telecommunications service rather than splitting it into a nontaxable equipment rental plus a separately-taxed phone pass-through — tax the full charge accordingly.

Businesses reselling telecom connectivity as part of a bundled service

Being classified as a telecommunications service provider (rather than an equipment renter) has an upside: you can buy the underlying phone/connectivity service you resell to customers tax-free via resale certificate.

Common questions

Q: If I bundle my own equipment with phone/connectivity access I bill separately, is that equipment rental or a telecom service?
A: Per this letter, the Comptroller can treat the whole bundle as a single taxable telecommunications service, taxing the full charge rather than splitting equipment rental from a phone pass-through.

Q: Is the Telecommunications Infrastructure Fund assessment mentioned in this 1998 letter still in effect?
A: No — it was repealed effective September 1, 2008, so that portion of this letter's answer is now obsolete even though the document isn't formally flagged as superseded.

Citations and references

Rules referenced (TIF portion now obsolete):

• 34 Tex. Admin. Code Rule 3.344 (Telecommunications Services)
• 34 Tex. Admin. Code Rule 3.1101 (Telecommunications Infrastructure Fund assessment — repealed 2008)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9811965L

Original ruling text

Note: This document is also indexed as a TIF document at STAR 9811966L.

November 5, 1998

Dear **:

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

Re: Sales tax on Video Conferencing

FACTS:
Company X has office space in which it has installed video conferencing
equipment and telephone lines. Customers will come to Company X's location and
hold video conferences using Company X's equipment and telephone lines. Company
X will bill customers for use of its facilities and also for telephone
long-distance charges.

Will charges for use of the facilities and equipment be subject to sales tax?
If equipment rental is subject to sales tax, can Company X buy the equipment
tax-free?
Will re-billed telephone charges be subject to sales tax?
Will re-billed telephone charges be subject to any state excise taxes?

Response: Company X appears to be providing a taxable telecommunications
service rather than renting equipment and rebilling for telephone charges. The
total charge made by Company X to its customers is subject to both sales tax
and the Telecommunications Infrastructure Fund assessment. Company X may
purchase the telephone service that it uses to provide the video conferencing
tax free by giving its supplier a resale certificate in lieu of sales tax.

Under separate cover, I am faxing you a copy of Rule 3.344 regarding
telecommunications services and Rule 3.1101 regarding the Telecommunications
Infrastructure Fund assessment.

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