How does Texas apply state, city, and MTA (Metropolitan Transit Authority) sales tax to cellular roaming charges, including calls that originate or terminate outside Texas?

Plain-English summary

A cellular customer disputed several roaming charges on a bill, walking through three concrete examples, and the Comptroller worked through the sourcing rules for each:

The core rule: a call is subject to Texas tax only when it both originates from Texas AND is billed to a telephone number or billing/service address within Texas.

• Intrastate calls (originating and terminating in Texas) are subject to both state (6.25%) and local sales tax. Local tax is sourced to where the call originates -- or, if that can't be determined, to the billing address -- per Rule 3.344(h). In the customer's Example 1, calls originating in Austin should have been billed 6.25% state + 1% Austin city + 1% Austin MTA = 8.25% (the provider had actually overcharged by a penny on one line item).
• Interstate calls (to an out-of-state phone number) are subject to state tax only (6.25%), with no local tax component.
• Calls originating OUTSIDE Texas are exempt from Texas tax entirely, regardless of where they terminate or are billed. In the customer's Example 2, a call originating in Dubuque, Iowa and one originating in St. Louis, Missouri were both exempt from Texas tax -- the Comptroller noted it can't determine whether those states would tax the calls themselves. In Example 3, calls originating out-of-state but terminating in Texas were likewise exempt, regardless of the "interstate" label, because the origin (not the termination) drives Texas taxability.
• If a provider mistakenly collected Texas tax on a call that actually originated outside Texas, the customer's remedy is to request a refund or credit directly from the service provider, not the Comptroller.

What this means for you

Cellular/telecommunications providers billing Texas customers

Get origin-based sourcing right: Texas tax (state + local) only attaches when the call originates in Texas and is billed to a Texas number/address. Calls originating out-of-state are exempt from Texas tax no matter where they terminate or are billed -- a common source of over-collection if your billing system defaults to the customer's home state/MTA for all charges.

Customers reviewing cellular bills for tax errors

If you see Texas state and local tax charged on a call that actually originated in another state, that's likely an error -- your recourse is a refund or credit request to your own service provider, not the Comptroller.

Accountants and tax professionals

A clean worked-example letter for origin-based telecommunications sourcing, useful for auditing corporate cellular accounts with heavy interstate/roaming usage, and a reminder that local (city + MTA) tax rides on top of state tax only for true intrastate calls.

Common questions

Q: When is a cellular call subject to Texas state AND local tax?
A: Only when it both originates in Texas and is billed to a Texas telephone number or billing/service address.

Q: Are calls originating outside Texas ever subject to Texas tax?
A: No, regardless of where they terminate or are billed.

Q: What tax applies to interstate calls (to an out-of-state number) that originate in Texas?
A: State tax only (6.25%), no local tax.

Q: How do I get a refund for Texas tax mistakenly charged on an out-of-state-origin call?
A: Request a refund or credit from your service provider directly.

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

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.344(h) (local tax sourcing for telecommunications)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9906510L

Original ruling text

June 30, 1999

Dear Ms. **:

Thank you for your letter concerning sales tax on cellular roaming charges.

Example 1: On the bill, incoming calls are treated as originating in Texas,
and when terminating in Texas, are treated as "intrastate" and are subject to
both state and local sales tax (8.25%). See line Items 8 - 12. When incoming
calls terminate in another state, you believe they should be treated as
"interstate", but you are being charged a sales tax of 8%, not 6.25% as would
be your understanding for interstate calls. See line items 3 & 28. What is
the applicable sales tax rate?

Response: Calls that both originate from Texas and that are billed to a
telephone number or billing or service address within Texas are subject to
Texas tax. Intrastate calls are subject to state and local sales taxes. Local
tax is allocated to the location from which the call originates. If the point
of origin cannot be determined, the local tax is allocated to the address to
which the call is billed. See Rule 3.344(h) on local tax. Interstate calls
are subject to the state tax (6.25%) only. Calls to out-of-state phone numbers
are interstate calls.

Line items 8 - 12 are for calls originating from Austin, Texas, but do not
indicate to be interstate calls on the bill. The correct tax rate for these
calls is 6.25% state sales tax, 1% Austin city sales tax, and 1% Austin MTA
sales tax (8.25%). The sales tax charged for line item 7 was .07 cents when it
should be .06 cents (.74 x .0825).

Example 2: Line item 16 originated in Iowa and terminated within Iowa, no long
distance was charged. The sales tax rate charged is 8%. The state sales tax
rate in Iowa is 5% and the applicable local sales tax rate is 1%. Does Texas
have any jurisdiction to charge a sales tax rate? Same scenario for line item
2, except this is an interstate call between two other states. Does Texas have
any jurisdiction to charge a state tax rate? If not, would not this call be
exempt from any state sales tax? State #l, call originates, State #2, call
terminates, and State #3 call billed.

Response: Calls that originate outside Texas are not subject to Texas tax.
Line item 16 originating from Dubuque, Iowa and line item 2 originating from
St. Louis, Missouri are exempt from Texas sales tax. We are unable to
determine the taxability of calls by another state (Iowa or Missouri).

Example 3: Calls originating in another state, but terminating in Texas are
charged a Texas state and local sales tax rate 8.25%. See line items 14 & 20.
Because this call is "Interstate," would not just the State sales tax rate
apply? Or, would Texas even be able to charge sales tax because the call did
not physically originate in Texas?

Response: Calls for line items 14 and 20 are exempt from Texas tax because
these calls originate from outside Texas. If the service provider has
collected Texas tax in error on calls that originated outside Texas, the
customer may request a refund or credit for the Texas tax from the service
provider. Of course, calls originating in another state may be subject to tax
in that state. See the response to Example 2 above.

This opinion is based on the facts you submitted. Other facts, though similar,
may yield different results.

You may call me toll free at 1-800-531-5441, ext. 5-0030. The direct line is
512/475-0030. You may also write to Tax Policy, Comptroller of Public
Accounts.

Sincerely,

David Somerville
Tax Policy Division