Which specific charges on a cellular/paging service bill (access fees, airtime, various categories of toll charges, roaming, optional features, equipment sales/leases, late fees) are subject to Utah sales tax, what determines the tax situs (location) for each type of charge, and is the reseller itself subject to any other Utah taxes?

Plain-English summary

A cellular and paging service reseller preparing to launch in Utah asked the Tax Commission to sort out which of its many bill line items were subject to Utah sales tax, and how to determine the correct local tax jurisdiction (situs) for each charge type. The Commission worked through the reseller's detailed list.

Taxable charges: cellular/paging access fees and activation/termination charges; airtime (per-minute) charges; toll charges for calls that both originate and end within Utah ("intrastate"), regardless of which Local Access Transport Area (LATA) arrangement applies; and optional feature charges including roaming, detailed billing, call waiting, caller ID, and voice mail. The Commission also assumed the reseller's undefined "pager over-call" charges were a taxable feature like the others listed. Not taxable: toll charges for calls crossing state lines (interstate), and late-payment/interest charges, provided those are separately stated on the customer's bill or invoice.

Equipment sales/leases: phones, pagers, and other equipment sold or leased are themselves taxable tangible personal property. If the reseller bundles a service contract together with equipment (e.g., selling a $200 package combining a phone and a service plan), the Commission's position is that the ENTIRE bundled price is taxable — regardless of how much of that price is allocated to the (otherwise nontaxable) service versus the (taxable) equipment — but the reseller can then buy the equipment itself tax-free under the resale exemption, since the customer ends up paying tax on the full bundled price. If the reseller instead gives away the equipment for free alongside a service contract, the reseller itself becomes the taxable "final consumer" of that equipment and owes the tax (or must remit it if it was originally purchased tax-free under a resale exemption).

Tax situs rules: equipment delivered to or installed at a fixed Utah location is taxed based on that location. For service-type charges like airtime, the relevant location is the "service location" — the business location from which the user is employed/dispatched/based, or for personal (non-business) accounts, the user's residence address; the billing address can be used as a stand-in if it fairly represents that service location.

Beyond sales tax: the Commission separately noted the reseller's Utah-source income is subject to Utah corporate franchise tax, and any Utah property it owns is subject to property tax. It declined to address local/municipal franchise fees or Public Service Commission charges, since those fall outside the Tax Commission's own jurisdiction, and referred the taxpayer to the Public Service Commission directly.

What this means for you

Cellular, paging, or similar telecom resellers doing business in Utah

Map your specific bill line items against this ruling's taxable/nontaxable categories before setting up your billing system — the taxable list (access fees, airtime, intrastate tolls, feature charges) is broader than many resellers expect, while interstate tolls and separately-stated late fees fall outside it. If you bundle free or discounted equipment with a service plan, be careful: this ruling treats the bundle's full price as taxable, and treats a reseller who gives equipment away for free as the taxable final consumer of that equipment.

Businesses determining the correct local jurisdiction for cellular sales tax

Don't default to the billing address without checking whether it actually reflects the user's true service location (business location for business accounts, residence for personal accounts) — per this ruling, the billing address is only a valid stand-in when it fairly represents that service location.

Telecom companies with Utah nexus asking about their OTHER Utah tax obligations

Sales tax on customer charges is a separate question from the company's own tax exposure — this ruling flags that Utah-source income is subject to corporate franchise tax and Utah property is subject to property tax, independent of how customer billing is taxed. Municipal franchise fees and Public Service Commission charges are a different regulatory track entirely, outside the Tax Commission's jurisdiction.

Common questions

Q: Are long-distance (interstate) toll charges on a cellular bill subject to Utah sales tax?
A: No — per this ruling, interstate toll charges are not subject to Utah sales tax, while intrastate toll charges (both ends of the call within Utah) are taxable regardless of LATA arrangement.

Q: If we bundle a "free" phone with a service contract, do we owe tax on the phone?
A: Yes, according to this ruling — if the reseller gives away equipment for free alongside a paid service contract, the reseller (not the customer) is treated as the taxable final consumer of that equipment.

Q: What determines which city/county's tax rate applies to airtime charges, as opposed to equipment sales?
A: This ruling distinguishes the two: equipment delivered to or installed at a fixed Utah location is taxed based on that location, while airtime and similar service charges use the "service location" (the user's business or residence location), with the billing address usable only if it fairly represents that service location.

Citations and references

Statutes (Utah Code Ann., as in effect at the time of this 1996 ruling):

• § 59-12-103(1) — imposes sales tax on telephone service, defined broadly to include transmission of signals/data by wire, radio, or light waves, plus non-recurring service charges (e.g., activation fees) and optional feature charges

Rules:

• Utah Administrative Rule R865-19S-90 — implements the telephone-service sales tax provisions cited above

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/96-129.htm

Original ruling text

96-129

Response September 30, 1996

Request

August 20, 1996

By Facsimile

Utah State Tax Commission

Attn: XXXXX

210 N. 1950 West

Salt Lake City, UT 84134

RE: Tax on Cellular Service

Gentlemen:

As per a conversation with your office, I am requesting that your department formally opine on the taxability of the following cellular and paging services provided by XXXXX, Inc.

Cellular Service

The method of providing cellular service is as follows:

1. A subscriber makes a phone call from his cellular telephone.

2. Through electronic means, one of two facilities-based carriers in your state processes the call.

3. The carrier accumulates all of the calls made during the billing cycle and then forwards the information to the reseller, who, in turn, bills the individual subscriber.

There are three different types of fees and charges associated with cellular service:

(A) Basic Service

1. Access fees - Charges that are billed to a customer one month in advance for the right to use the cellular service.

2. Air time charges - Per minute used fees based on elapsed transmission time.

3. Toll charges - Local or long distance call charge levied by the land line telephone companies for the use of their networks to complete a call to a land line number. There are 4 categories of toll charges as follows. Please identify which toll charges are taxable.

a. Interstate InterLATA (Local Access Transport Area)

A call was placed by a mobile customer from one state to another state and the LATAs are different.

b. Interstate IntraLATA

A call was placed by a mobile customer from one state to another state with the same LATA.

c. Intrastate IntraLATA

A call was placed by a mobile customer in one LATA of a state to another LATA in the same state.

d. Intrastate IntraLATA

A call was placed by a mobile customer on one LATA to the same LATA within the same state.

4. Roamer charges, including Air time, tolls and local taxes - charges for calls made by a cellular telephone user when he is outside the service area of his home carrier. These charges are taxed by local and long distance carriers and we pass on these charges plus local taxes to the end use customers.

5. International toll - long distance call charges levied by the long distance carrier for the use of their networks to complete a call to an international number.

(B) Optional Service

1. Fees for providing a cellular user a detailed list of the phone calls made. (Detailed billing charges)

2. Monthly fees for special features such as call waiting and call forwarding. (Feature charges)

3. Voice Mail Box

(C) Other Charges

1. Lease charges

2. Rental charges

3. Late charges

4. Activation and termination charges

Pager Service: One-way communication service which allows for communication from a mobile or traditional land line telephone to pager equipment. The charges are:

1. Pager access charges - a flat monthly charge which permits the customer access to the carrier's paging system.

2. Pager over-call charges.

3. Pager rental charges.

Please determine if the above fees are taxable. Also, please inform whether we should charge applicable tax on the basis of 1) Service address, 2) Billing Address, 3) Location of exchange of the cellular phone.

Also, please advise whether there are any other taxes such as utilities tax, gross receipt tax, a separate municipal or city tax, 911 surcharge or any other tax on cellular services.

For your information, XXXXX expects to commence doing business on September 1, 1996 and, therefore, we would appreciate your responding as soon as possible.

Thank you in advance for your cooperation.

Very truly yours,

XXXXX

XXXXX

Advisory opinion - Application of sales tax to sales of cellular and paging service agreements.

Dear XXXXX

We have received your request for tax guidance on the sale of cellular phone and paging service agreements. We advise as follows:

Charges for telephone service

Intrastate telephone service is subject to sales tax. §59-12-103 (1) Utah Code Ann. "Telephone service" means the transmission for hire of any signal, writing, image, sound messages, data or other information by wire, radio, light waves, or other means, and includes non-recurring services charges (like activations fees) and charges for optional service features (such as call waiting). Utah Admin. R. R865-19S-90. Addressing the list of items included in your letter, the following are subject to sales tax:

1. Cellular or paging access fees or activation/termination charges.

2. Airtime charges.

3. Toll charges for intrastate calls (originating and ending in Utah), regardless of LATA arrangement. Charges for interstate calls are not subject to tax.

4. Charges for features, including:

a. roaming;

b. detailed billing feature; and

c. call waiting, caller ID, and voice mail.

Your letter does not explain what "pager over-call" charges are, but we assume that it is a taxable option or feature like the others listed above.

Charges for late payment and interest accrued are not subject to sales tax if separately stated on the bill or invoice.

Charges for the sale or lease of equipment.

The sale and lease of tangible personal property is also subject to sales tax. §59-12-103 Utah Code Ann. The sale or lease of phone or pager equipment is taxable as follows:

1. XXXXX must collect and remit sales tax on the sales price of phones, pagers and other equipment sold. Although you do not mention the sale of wiring or other items that are converted to real property owned by the customer, if your company engages in such sales, it is liable for the tax as the final consumer of such items. If you have questions about this, let us know.

2. If XXXXX sells cellular or paging service contracts in conjunction with sales of phone or pager equipment, the entire amount of the sale is subject to tax. For example, if XXXXX sells a service contract with a cell phone telephone for $200, the entire $200 is subject to sales tax regardless of how much of the total sales price is allocated to each taxable item. In this case, XXXXX can purchase the phone equipment tax free for resale because the customer is paying tax on the equipment..

3. If XXXXX sells cellular or paging service contracts, but offers the phone or pager for free, XXXXX is regarded as the final consumer of the equipment and is liable for the tax. If XXXXX puchased this equipment tax free under the resale exemption, it must report and remit the tax on its next sales tax report.

Responses to miscellaneous questions.

1. As to tax situs, we offer the following guidelines. For sales of equipment delivered to or installed in a fixed location in Utah, that location determines the tax situs (local jurisdiction) and tax rate applied to charges for the equipment. For other charges, such as air time charges, the tax situs is the service location. By "service location" we mean the business location from which the cellular user is employed, dispatched or based, or in the case of non-business accounts, the residence address of the user. The billing address may be used if it fairly represents the service location as that is defined here.

2. XXXXX income from Utah sources will be subject to Utah corporate franchise tax. XXXXX's property located in Utah will be subject to property tax. We are unable to respond to your question about local and municipal franchise fees or special charges required by the Public Service Commission because we do not have jurisdiction over those charges. You may contact the Public Service Commission at (801) 530-6716. The address is 160 East 300 South, Salt Lake City, Utah 84111.

Please let us know if we can be of further assistance.

For the Commission,

Alice Shearer,

Commissioner