How does Texas sales tax and the Telecommunications Infrastructure Fund (TIF) assessment apply to toll calls, 800-number calls, and prepaid telephone calling cards sold by a switchless telecom reseller?

Plain-English summary

A switchless reseller of telecommunications services (a company that resells telecom capacity without owning switching infrastructure) laid out everything it was currently assessing -- sales tax, 911 tax, Poison Control surcharge, Texas Universal Service Fund, Telecommunications Infrastructure Fund (TIF), and PUC gross receipts tax -- across several service categories, and asked the Comptroller to confirm it was doing this correctly, with particular interest in prepaid calling cards.

The Comptroller answered only the pieces within its jurisdiction (sales tax, TIF, and PUC gross receipts), and referred the 911 tax and Poison Control surcharge questions to the Advisory Commission on State Emergency Communications, and the Texas Universal Service Fund question to the National Exchange Carrier Association -- a useful reminder that Texas telecom bills can be assessed by multiple different agencies, not just the Comptroller.

For ordinary telecommunications services (toll calls, intrastate 800 calls, calling card usage as a category of service): Tax Code Section 151.0103 defines "telecommunications services" broadly (electronic/electrical transmission of sounds, signals, data, or information by wire, cable, radio, microwave, satellite, fiber optic, or any similar method), but the definition specifically excludes two things: (1) data storage/retrieval or processing intended to change data's form or content, and (2) the sale or use of a telephone prepaid calling card itself. Telecommunications services that originate in Texas and are billed to a Texas number or address are subject to Texas sales tax, purchasable tax-free with a resale/exemption certificate, and generate a separate 1.25% TIF assessment on top of the sales tax. Purchases by credit card are taxed the same as cash/check purchases.

For prepaid calling CARDS specifically: Section 151.01032 defines a "telephone prepaid calling card" as a card or item (including an access code) representing the right to make one or more calls, paid for in increments before the call happens (excluding cards sold by mechanical means for $1 or less). Because the statute's telecommunications-services definition excludes these cards, selling one is legally a sale of tangible personal property -- taxed at the time of purchase, like any retail good, rather than as a telecom service assessed on usage. And critically, prepaid calling card sales are NOT subject to the 1.25% TIF assessment at all, since that assessment applies only to telecommunications services revenue, and the card sale isn't a telecommunications service under the statute.

What this means for you

Telecom resellers and switchless carriers selling both usage-based services and prepaid cards

Split your tax treatment cleanly: ordinary toll/800/calling-card-usage revenue is a telecommunications service (sales tax + 1.25% TIF, sourced by origination/billing location in Texas), while prepaid calling CARD sales are a tangible-property sale (sales tax only, at time of purchase, no TIF).

Businesses fielding customer questions about 911 tax, Poison Control surcharge, or Universal Service Fund

The Comptroller doesn't administer these -- direct those specific questions to the Advisory Commission on State Emergency Communications (911/Poison Control) or the National Exchange Carrier Association (Texas Universal Service Fund) instead.

Accountants and tax professionals

A clean statutory walkthrough distinguishing "telecommunications services" from "telephone prepaid calling cards" under Sections 151.0103/151.01032 -- useful any time a client's telecom billing system needs to correctly bucket usage-based charges versus card sales, especially for the TIF assessment which applies to one but not the other.

Common questions

Q: Is a prepaid telephone calling card taxed as a telecommunications service?
A: No, it's legally excluded from that definition and taxed instead as a sale of tangible personal property, at time of purchase.

Q: Does the 1.25% Telecommunications Infrastructure Fund assessment apply to prepaid calling card sales?
A: No, only to telecommunications services revenue -- card sales are excluded.

Q: Who do I ask about 911 tax or Poison Control surcharge questions?
A: The Advisory Commission on State Emergency Communications, not the Comptroller.

Q: Can I rely on this letter for my own telecom billing practices?
A: No. It is based on the specific facts presented and can only be relied on by the taxpayer to whom it was issued.

Citations and references

Statutes and rules:

• Texas Tax Code Section 151.0103 (definition of telecommunications services)
• Texas Tax Code Section 151.01032 (definition of telephone prepaid calling card)
• 34 Tex. Admin. Code Rule 3.344 (telecommunications services)
• 34 Tex. Admin. Code Rule 3.1101 (Telecommunications Infrastructure Fund assessment)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9904357L

Original ruling text

April 19, 1999

Dear Mr. **:

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

"My name is ** and I work for COMPANY A COMPANY A is a switchless
reseller of telecommunications services. I am currently researching which
taxes and surcharges apply to the services that we sell to our customers and I
was hoping to verify that we are assessing these taxes and surcharges
correctly.

Currently we are assessing the following taxes/surcharges on the following
telecommunications services:

Sales Tax- toll calls, intrastate 800 calls, calling card usage

911 Tax - all intrastate long distance usage including 800 usage and calling
card usage

Poison Control Surcharge - all intrastate long distance usage including 800
usage and calling card usage

TX Universal Service Fund- toll calls, intrastate 800 calls, calling card usage

Telecommunications Infrastructure Fund assessment- toll calls, intrastate 800
calls, calling card usage

PUC Tax- all intrastate long distance usage including 800 usage and calling
card usage

If you could confirm that we are assessing taxes/surcharges correctly it would
be greatly appreciated. I am particularly interested in whether calling card
usage is subject to the above taxes/surcharges."

Response: I will respond to your questions regarding sales tax, the
Telecommunications Infrastructure Fund assessment, and the PUC Gross Receipts
assessment.

I have forwarded your email to the Advisory Commission on State Emergency
Communications for their response on 911 and Poison Control. The Advisory
Commission on State Emergency Communications may be reached at (512) 305-6931.
Their Internet Address is .

The National Exchange Carrier Association handles collections for the Texas
Universal Service Fund and can be reached at (800) 899-6078.

Tax Code Section 151.0103 defines telecommunications services as follows: "For
the purposes of this title only, "telecommunications services" means the
electronic or electrical transmission, conveyance, routing, or reception of
sounds, signals, data, or information utilizing wires, cable, radio waves,
microwaves, satellites, fiber optics, or any other method now in existence or
that may be devised, including but not limited to long-distance telephone
service. The term does not include:

(1) the storage of data or information for subsequent retrieval or the
processing, or reception and processing, of data or information intended to
change its form or content; or

(2) the sale or use of a telephone prepaid calling card."

Sec. 151.01032. "Telephone Prepaid Calling Card."

"Telephone prepaid calling card" means a card or other item, including an
access code, that represents the right to make one or more telephone calls for
which payment is made in incremental amounts and before the call is initiated.
The term "telephone prepaid calling card" does not include a card sold by
mechanical means for consideration of one dollar or less.

Please note that purchases of telecommunications services by means of credit
cards are subject to sales tax in the same manner as such purchases by means of
cash or check. Sales of Telephone Prepaid Calling Cards are subject to sale
tax at the time of purchase as sales of tangible property and are not subject
to the Telecommunications Infrastructure Fund assessment of 1.25%.

Telecommunications services that originate in Texas and are billed to a
telephone number, or billing or service address in Texas are subject to sales
tax. Telecommunications services may be purchased tax free if the buyer gives
the seller a properly completed resale or exemption certificate. Revenue from
the sale of telecommunications services on which sales tax is due to be
collected and remitted is also subject to the Telecommunications Infrastructure
Fund assessment of 1.25%.

Our bulletin Sales Tax on Telecommunications Services is available on the
Internet at .
Telecommunications Services Rule 3.344 is at
and TIF Rule 3.1101 is at
.

Please note, the PUC gross receipts assessment applies to rates charged to the
ultimate consumers of telecommunications services in Texas. These rates
include, but are not limited to, intrastate long distance calls, intrastate 800
number calls, and intrastate long distance calls charged to credit cards.

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