Overview of Texas Sales Tax on Telecommunications Services
Telecommunications services between locations in Texas are subject to state and local sales tax, whereas most interstate telecommunications services are only subject to state sales tax. Mobile telecommunications services are subject to state and local sales tax based on the place of primary use.
“Telecommunications services” is broadly defined as electronic transmission or reception of sounds, data, and information and is not limited to current technology. The definition includes newer methods of sending and receiving signals that may be introduced in the future.
Examples of Taxable Telecommunications Services
Telecommunications services subject to both state and local sales tax include:
- Basic local exchange service
- Installation and service connection fees
- Intrastate long-distance telephone calls
- Call waiting
- Call forwarding
- Paging
- Intrastate coin-operated telephones
- Mobile telephone service
- Facsimile (FAX) service
- Mobile radio service
- Equipment rented or leased to the customer in connection with a telecommunications service
Note:
Interstate long-distance telephone calls that originate from and are billed to a telephone number or billing or service address in Texas are only subject to state sales tax. Mobile telecommunications services are not considered interstate long-distance telephone calls, and their tax treatment is explained separately below.
Some telecommunications services are not taxable, such as:
- Services purchased for resale
- Interstate long-distance telephone calls that originate outside of Texas
Billing and Invoicing Requirements
On bills and invoices:
- Charges for taxable telecommunications services must be separately stated from charges for non-taxable services.
- If charges are not separately stated, the total charge may be taxable.
Hotels, motels, and owners or lessors of office or residential developments that contract and pay for telecommunications services to resell to their guests or tenants are required to collect sales tax on their charges for telecommunications services.
Telecommunications Equipment and Taxation
A telecommunications service provider must pay tax on equipment it uses to provide taxable service unless that equipment is transferred to customers.
If the equipment is transferred to a customer as part of the taxable service, the service provider can give its supplier a resale certificate in lieu of tax.
Examples:
- A telephone company must pay tax on switches it uses to provide service.
- A telephone company can buy automatic dialers tax-free if those dialers are provided to customers as part of the service.
Local Sales Tax Rules
The governing body of a city, county, transit authority, or special purpose district may vote to impose local sales tax on telecommunications services, but not on interstate long-distance telephone calls.
- Local sales tax is based on where the call originates.
- If the origin cannot be determined, the local tax is based on where the call is billed.
Mobile telecommunications services are taxed differently, as explained below.
Mobile Telecommunications Services
Taxation Based on Customer’s Address
Beginning with billing cycles on or after August 1, 2002, state and local sales taxes on mobile telecommunications services (e.g., cell phone and paging services) are based on the customer’s street address.
- A customer who buys mobile telecommunications services for another person (e.g., a child at college or an employee at a different location) pays state and local sales taxes based on the user’s street address.
Key Change:
The location where a mobile call originates or terminates is no longer a factor.
Tax Responsibilities for Texas Customers
- Texas customers pay state and local sales tax on all mobile telecommunications services, including charges for calls made while traveling outside of Texas.
- Local sales tax applies if the place of primary use is inside a city, county, special purpose district, or transit authority that imposes sales tax on telecommunications services.
- Out-of-state customers do not owe Texas taxes.
Conclusion
Facing a sales tax audit in Texas? Contact our attorney for a consultation.
Frequently Asked Questions
Are all telecommunications services in Texas subject to sales tax?
Not all telecommunications services are taxable. While most intrastate services are subject to both state and local sales taxes, services purchased for resale and certain interstate calls are exempt. For instance, calls that originate outside Texas and are billed to a Texas address are generally not taxed.
How are mobile telecommunications services taxed in Texas?
Mobile telecommunications services are taxed based on the customer’s street address, not on where the call is made or received. Both state and local sales taxes apply if the address is within a jurisdiction that imposes local tax.
What billing rules must telecom providers follow in Texas?
Telecom providers must list taxable and non-taxable charges separately on invoices. If charges are not itemized, the entire bill may be considered taxable. Providers who bundle services without separation risk higher tax liability.
Do hotels and landlords need to charge sales tax on telecom services?
Yes. If hotels, motels, or landlords pay for telecommunications services and then resell them to guests or tenants, they must collect and remit sales tax on those charges.
Can telecom service providers buy equipment tax-free?
Generally, no. Providers must pay sales tax on equipment used to deliver services. However, if the equipment is transferred to customers as part of the taxable service, it can be purchased tax-free using a resale certificate.