Were transaction fees for processing nationwide telephone calls at a Texas operator center Texas franchise-tax receipts?

Plain-English summary

Transaction fees for processing calls at the Texas operator center were Texas gross receipts, even though the calls originated throughout the United States.

The telecommunications provider processed calls through a Texas operator center and charged a transaction fee for that service. Sections 171.103(2) and 171.1032(a)(2) sourced service receipts to where the service was performed, making the processing fees Texas receipts.

The Comptroller distinguished the processing service from the telephone call itself. Rules 3.549(e)(43) and 3.557(e)(39) treated receipts from interstate calls as non-Texas, but defined those receipts as amounts from originating or terminating the call. Related services followed the ordinary place-of-performance rule.

Currency note: Texas replaced the former franchise-tax receipts system with the margin tax effective January 1, 2008. Confirm current telecommunications and service-receipts sourcing.

What this means for you

Telecommunications providers

Separately charged services can have a different sourcing result from the interstate communication they support. Here, the operator processing occurred in Texas.

Tax professionals

Identify what the fee pays for. The interstate-call rule did not shelter a related service fee merely because the underlying calls crossed state lines.

Common questions

Q: Did the calls originate only in Texas?
A: No. They originated throughout the United States.

Q: Why were the processing fees Texas receipts?
A: The processing service was performed at the Texas operator center.

Q: Did the interstate-call exclusion apply?
A: Not to this related processing service; it applied to receipts from originating or terminating calls.

Citations and references

• Texas Tax Code Secs. 171.103(2) and 171.1032(a)(2)
• 34 Tex. Admin. Code Sec. 3.549(e)(43)
• 34 Tex. Admin. Code Sec. 3.557(e)(39)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/9908776L

Original ruling text

August 2, 1999

Dear **:

Thank you for the information contained in your inquiry concerning the
activities of a telecommunications provider. This response represents the
franchise tax implications of the situation described in the ruling request.

You have indicated that the corporation processes calls through its operator
center in **, Texas. The calls processed through the operator
center originate from all parts of the United States. The corporation charges
a transaction fee for this service.

The state's franchise tax law provides that the gross receipts from each
service performed in Texas are Texas receipts. Sections 171.103(2) and
171.1032(a)(2), Texas Tax Code. Based on these provisions, those receipts
attributed to the processing charges for services performed in **
would be Texas gross receipts for apportionment purposes.

Franchise Tax Rules 3.549(e)(43) and 3.557(e)(39) do hold that receipts from
interstate calls are not Texas receipts. Receipts from interstate calls are
considered those receipts from originating and/or terminating the phone call.
Any related services are apportioned to the location where the service is
performed in accordance with the above statutory provisions.

This response is based on the facts presented. If there are different or
additional facts, the response may change.

If you have any questions, my internet address is
[email protected], or you may call toll free at 1-800-531-5441,
extension 3-4496. My direct line is (512)463-4496.

Sincerely,

Jerry Bobbitt
Tax Policy Division