A phone customer noticed their bill includes an FCC line charge, which they understood to be a federal charge tied to the number of incoming lines, within the total that Texas sales tax is calculated on. Since it looks like a federal tax/fee, should Texas sales tax apply to it?

Plain-English summary

A phone customer noticed that their bill's FCC line charge was included in the total that Texas sales tax was calculated on, and objected — since the charge is tied to the number of incoming lines and referenced by the FCC, the customer assumed it was effectively a federal tax and shouldn't be subject to a state sales tax on top of it.

The Comptroller explained why that assumption is wrong: the FCC line charge is not a federal tax on the customer. According to the FCC, the charge applies to all telephone subscribers regardless of whether they use long-distance service, and it exists as part of a program letting local phone companies recover the cost of connecting individual phone lines to the interstate telephone network. In other words, it's simply another way the carrier recovers its own cost of doing business — not a government levy being passed through. Because of that, the charge is part of the sales price as defined in Tax Code Section 151.007, and it's subject to Texas sales tax like the rest of the bill.

Note on this page's title: STAR's own subject heading for this letter lists six different pass-through telecom charges (municipal, expanded local calling, number portability, FCC customer line, federal universal service fund, federal presubscribed interexchange carrier) — but this particular letter discusses only the FCC line charge; it's a single-item ruling, not a six-item one. This page's subject_title has been corrected to reflect what the letter actually covers. (A companion letter, 9908626L, does address five of those six items together, though even that one omits the universal service fund charge.)

What this means for you

Phone customers questioning line-item charges on their bill

A charge referencing the FCC or federal regulation isn't automatically a "tax" exempt from further state sales tax — if it's really a cost-recovery mechanism for the carrier (as the FCC line charge is), it's part of the taxable sales price like any other billed charge.

Telecom carriers and billing departments

Don't assume a regulatory-sounding line item is excluded from the sales tax base; the test is whether the charge is a genuine government tax being passed through unchanged, versus a carrier cost-recovery mechanism — the FCC line charge falls in the latter category.

Accountants and tax professionals

A concrete example of applying Sec. 151.007's sales price definition to a specific, frequently misunderstood telecom charge, plus a reminder that STAR subject headings covering multiple charges don't always match what an individual letter actually discusses — check the body, not just the index heading.

Common questions

Q: Is the FCC line charge on a phone bill a government tax?
A: No — it's a carrier cost-recovery charge for connecting lines to the interstate network, not a tax passed through from the government.

Q: Is the FCC line charge subject to Texas sales tax?
A: Yes, because it's part of the sales price under Tax Code Section 151.007.

Q: Does this letter address other pass-through telecom charges like municipal fees or the universal service fund?
A: No — despite STAR's shared subject heading suggesting a six-item letter, this letter discusses only the FCC line charge.

Q: Can I rely on this letter for my own phone bill dispute?
A: No. It's rendered based on the specific facts presented and can be relied on only by the taxpayer to whom it was issued; other facts, even if similar, may produce a different result.

Citations and references

Statutes and rules:

• Texas Tax Code Section 151.007 (definition of "sales price")

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9907562L

Original ruling text

July 22, 1999

Dear Mr. **:

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

I have a question regarding sales tax on the attached bill from TELEPHONE
COMPANY. Please note on this bill that the FCC line charge is included in the
sales tax payable total. In as much as this FCC line charge is a tax on the
number on incoming lines I cannot understand paying a state sales tax on the
charge.

Response: According to the FCC, this charge applies to all telephone
subscribers, regardless of whether long distance services are used, and is part
of a program for local telephone companies to recover the cost of connecting
individual phone lines to the interstate telephone network. Accordingly, it is
another means for the carrier to recover their cost of doing business and is
not a federal tax on the customer. It is part of the sales price as defined in
Tax Code Section 151.007 and is subject to sales tax.

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