Is an advertising company's electronic transmission of a recorded phone message to a radio station's listeners a taxable telecommunications service?

Plain-English summary

An out-of-state advertising and telemarketing company, with no nexus in Texas, planned a promotion for a Texas radio station: a recorded message from an on-air personality delivered electronically by phone to numbers in the station's listening market, with no tangible personal property involved. The taxpayer's representative had already gotten informal verbal advice from a Comptroller staffer that this would be exempt as a form of telemarketing, and asked for written confirmation of that position.

The Comptroller's written response reversed the informal advice: this is a taxable telecommunications service under Rule 3.344(a)(6), because it's the electronic transmission of a recorded message via telephone -- not an exempt telemarketing service. There is a possible exemption, though: Rule 3.344(c)(1) exempts long-distance telecommunications services that are NOT both originated from and billed to a Texas telephone number or billing/service address. So if the call originates outside Texas and is billed outside Texas, it may still qualify as exempt long-distance service; if either the origination or the billing is in Texas, it doesn't.

What this means for you

Advertising and telemarketing companies delivering messages by phone

Don't assume a recorded-message advertising service is automatically exempt "telemarketing" just because it involves no physical product -- it's a taxable telecommunications service unless it independently qualifies for the long-distance exemption (not originated from AND billed to a Texas number/address).

Anyone who received informal verbal guidance from a state tax agency

This letter is a good example of why informal verbal advice from an agency employee isn't reliable -- the taxpayer specifically asked for written confirmation of verbal advice, and the written answer reversed it. Always get a written ruling before relying on a position.

Accountants and tax professionals

The controlling question for the long-distance exemption is conjunctive: BOTH origination AND billing must be outside Texas for the long-distance carve-out in Rule 3.344(c)(1) to apply; either one being Texas-based defeats the exemption.

Common questions

Q: Is transmitting a recorded advertising message by phone considered nontaxable telemarketing in Texas?
A: No, per this letter -- it's a taxable telecommunications service under Rule 3.344(a)(6).

Q: Can this kind of service ever be exempt?
A: Yes, if it qualifies as long-distance telecommunications under Rule 3.344(c)(1) -- which requires that the call is NOT both originated from and billed to a Texas telephone number or billing/service address.

Q: Can I rely on verbal advice from a Comptroller employee?
A: This letter shows that written confirmation can reverse prior verbal advice -- get a written ruling before relying on any position.

Citations and references

Rules:

• 34 Tex. Admin. Code Rule 3.344(a)(6) (Telecommunications Services)
• 34 Tex. Admin. Code Rule 3.344(c)(1) (long-distance telecommunications exemption)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9911915L

Original ruling text

November 30, 1999

Dear **:

This is in response to your request for a ruling on behalf of your client,
** (COMPANY A), a Florida based company without nexus in Texas.

COMPANY A provides various advertising and telemarketing services for its
customers and is in the process of planning an advertising promotion for a
Texas based radio station, RADIO STATION, owned by COMPANY B, in
**, Texas. This promotion is entirely telephoned based and consist
of a recorded message from an on-air personality which is delivered
electronically to telephones within the radio station's listening market. There
is no tangible personal property exchanged in the transaction.

You discussed this issue with Ms. Pearl Goree on October 7, 1999, and she
advised that the sale of this service to RADIO STATION would not be subject to
either sales or use tax as it would be considered a form of telemarketing and
is therefore, exempt from taxation. Please provide me with a written
confirmation of this position for the benefit and reliance of RADIO STATION at
your earliest convenience.

Response: A charge by your client to its customer for the electronic
transmission of recorded messages via telephone is a taxable telecommunications
service as defined under subsection (a)(6) of Rule 3.344 - Telecommunications
Services, copy enclosed. Subsection (c)(1) of this rule exempts long-distance
telecommunications services which are not both originated from, and billed to,
a telephone number or billing or service address within Texas.

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

I hope this information answers your questions. If you need additional
information, please call me toll-free at 1-800-531-5441, extension 3-4502. The
direct line is 512/463-4502. You may also write to Tax Policy Division,
Comptroller of Public Accounts. You may also e-mail our tax help section at:

Sincerely,

Gilbert Zamora
Tax Policy