Audit Procedures for Telecommunications Taxes

Chapter 2 - Public Utility Commission Gross Receipts Assessment


The Public Utility Regulatory Act was first passed in Texas in 1975. That Act established the Public Utility Commission of Texas and levied an assessment on electric, telephone, and water utilities. In 1985 regulatory jurisdiction over water utilities was transferred to the Texas Water Commission (now the Texas Commission on Environmental Quality).

Regulatory jurisdiction over electric and telephone utilities remains under the control of the PUC. In 1981, the responsibility for reports and payments for the assessment was changed, making the Comptroller responsible for the reporting from electric and telecommunications utilities.[1]

The assessment is on the utility company, not the ultimate consumer or customer. The statute does not provide any exemptions from the assessment, so the utility company should pay the assessment on rates charged all its customers regardless of type (commercial, residential, governmental, exempt organizations, etc.) The utility company may collect a reimbursement of the assessment from the customer if it is a separate line item on the customer's billing labeled "utility gross receipts assessment." If this reimbursement is collected from the customer, it is to be included in the tax base.

The Utilities Code includes all the provisions for regulation of the electric and telecommunications industries. Chapter 11 includes definitions, Chapter 16 provides for the assessment, Chapters 31-43 govern electric utilities, and Chapters 51 through 66 govern the telecommunications industry.

This manual discusses the PUC Gross Receipts Assessment only as it pertains to telecommunications. For information on the PUC Assessment on electric utilities, refer to the Audit Procedures for Utilities.

Statutory Assessment

The statutory authority for the Public Utility Commission Gross Receipts Assessment (PUC Gross Receipts Assessment) comes from the Utilities Code, Chapter 16.

Chapter 16. Commission Financing

Subchapter A. Assessment on Public Utilities

Section 16.001. Assessment on Public Utilities

(a) To defray the expenses incurred in the administration of this title, an assessment is imposed on each public utility, retail electric provider, and electric cooperative within the jurisdiction of the commission that serves the ultimate consumer, including each interexchange telecommunications carrier.

(b) An assessment under this section is equal to one-sixth of one percent of the public utility's, retail electric provider's, or electric cooperative's gross receipts from rates charged to the ultimate consumer in this state.

(c) An interexchange telecommunications carrier that does not provide local exchange telephone service may collect the fee imposed under this section as an additional item separately stated on the customer bill as "utility gross receipts assessment."

Sec. 16.002. Payment Dates

(a) The assessment is due August 15.

(b) A public utility may instead make quarterly payments due August 15, November 15, February 15, and May 15.

Sec. 16.003. Late Payment Penalty.

(a) An additional fee equal to 10 percent of the amount due shall be assessed for any late payment of an assessment required under this subchapter.

(b) An assessment delinquent for more than 30 days accrues interest at an annual rate of 12 percent on the amount of the assessment and penalty due.

Sec. 16.004. Collection by Comptroller.

The comptroller shall collect the assessment and any penalty or interest due under this subchapter.

General Information

Tax Type:
Utilities Code, Title 2, Public Utility Regulatory Act
Rule 3.511. Tax Rate, Due Dates, Payments, Exclusions, and Auditing.
Assessment Rate:
One-sixth of one percent of gross receipts from rates charged the ultimate consumer in Texas = (.001667 of taxable receipts, or 0.1667%).
10% of the assessment, levied on the first day after the due date.
12% per annum, on the amount of the assessment plus penalty, beginning 31 days after the due date. (Fluctuating interest rates and credit interest provisions do not apply.)
Due Dates:
Annual assessment covers July 1 through June 30 of each year, and is due on or before August 15. Quarterly payments may be elected by the taxpayer, in writing, and must be received by the Comptroller at least 30 days prior to August 15. If an election is made, the assessment covers calendar quarters, with reports due on May 15, August 15, November 15 and February 15.
Reported Data:
All returns and reports are sent to the Comptroller from the utility companies, using Form #20-106. The reported data is maintained manually and is not accessible via the mainframe. To obtain information on reported figures, contact Revenue Accounting, Miscellaneous Tax Section, at 512/463-4276.
Statute of Limitations:
General Provisions of the Tax Code apply, which imposes the 4 year statute of limitations upon an audit of the PUC Gross Receipts Assessment. Agreement to Extend Period of Limitation should be obtained as necessary. For "Type of Tax" use "Public Utility Commission Gross Receipts Assessment, Utilities Code, Title 2."
Taxpayer History:
There is no computer inquiry nor taxpayer history available for the PUC Gross Receipts Assessment. Contact Revenue Accounting for reported data. (See Reported Data above).
Audit Write-up:
The audit should be completed under Tax Type 47, always as an annual filer, covering July 1 through June 30 of each year in which the taxpayer was in business.


There are several important telecommunications definitions used in the Utilities Code, Section 51.002 that must be used in interpreting the statute:

"Basic local telecommunications service" means:

  1. flat rate residential and business local exchange telephone service, including primary directory listings;
  2. tone dialing service;
  3. access to operator services;
  4. access to directory assistance services;
  5. access to 911 service provided by a local authority or dual party relay service;
  6. the ability to report service problems seven days a week;
  7. lifeline and tel-assistance services; and
  8. any other service the commission determines after a hearing is a basic local telecommunications service.

Note: Utilities Code, Section 54.001, states that a person may not provide local exchange telephone service, basic local telecommunications service, or switched access service unless the person obtains a certificate of convenience and necessity, a certificate of operating authority, or a service provide certificate of operating authority.

"Dominant carrier" means a provider of a communication service provided wholly or partly over a telephone system who the commission determines has sufficient market power in a telecommunications market to control prices for that service in that market in a manner adverse to the public interest. The term includes a provider who provided local exchange telephone service within a certificated exchange area on September 1, 1995, as to that service and as to any other service for which a competitive alternative is not available in a particular geographic market. In addition, with respect to:

  1. intraLATA long distance message telecommunications service originated by dialing the access code "1-plus," the term includes a provider of local exchange telephone service in a certificated exchange area for whom the use of that access code for the origination of "1-plus" intraLATA calls in the exchange area is exclusive; and
  2. interexchange services, the term does not include an interexchange carrier that is not a certificated local exchange company.

"Incumbent local exchange company" means a local exchange company that has a certificate of convenience and necessity on September 1, 1995."Local exchange company" means a telecommunications utility that has a certificate of convenience and necessity or a certificate of operating authority to provide in this state:

  1. local exchange telephone service;
  2. basic local telecommunications service; or
  3. switched access service.

"Local exchange telephone service" means telecommunications service provided within an exchange to establish connections between customer premises within the exchange, including connections between a customer premises and a long distance provider serving the exchange. The term includes tone dialing service, service connection charges, and directory assistance services offered in connection with basic local telecommunications service and interconnection with other service providers. The term does not include the following services, whether offered on an intraexchange or interexchange basis:

  1. central office based PBX-type services for systems of 75 stations or more;
  2. billing and collection services;
  3. high-speed private line services of 1.544 megabits or greater;
  4. customized services;
  5. private line or virtual private line services;
  6. resold or shared local exchange telephone services if permitted by tariff;
  7. dark fiber services;
  8. non-voice data transmission service offered as a separate service and not as a component of basic local telecommunications service;
  9. dedicated or virtually dedicated access services; or
  10. any other service the commission determines is not a "local exchange telephone service."

"Public utility" or "utility" means a person or river authority that owns or operates for compensation in this state equipment or facilities to convey, transmit, or receive communications over a telephone system as a dominant carrier. The term includes a lessee, trustee, or receiver of any of those entities, or a combination of those entities. The term does not include a municipal corporation. A person is not a public utility solely because the person:

  1. furnishes or furnishes and maintains a private system;
  2. manufactures, distributes, installs, or maintains customer premise communications equipment and accessories; or
  3. furnishes a telecommunications service or commodity only to itself, its employees, or its tenants as an incident of employment or tenancy, if that service or commodity is not resold to or used by others.

"Telecommunications provider":

  1. means:
    1. a certificated telecommunications utility;
    2. a shared tenant service provider;
    3. a nondominant carrier of telecommunications services;
    4. a provider of commercial mobile service as defined by Section 332(d), Communications Act of 1934 (47 U.S.C. Section 151 et seq.), Federal Communications Commission rules, and the Omnibus Budget Reconciliation Act of 1993 (Public Law 103-66), except that the term does not include these entities for the purposes of Chapter 17, 55, or 64;
    5. a telecommunications entity that provides central office based PBX-type sharing or resale arrangements;
    6. an interexchange telecommunications carrier;
    7. a specialized common carrier;
    8. a reseller of communications;
    9. a provider of operator services;
    10. a provider of customer-owned pay telephone service; or
    11. a person or entity determined by the commission to provide telecommunications services to customers in this state; and
  2. does not mean:
    1. a provider of enhanced or information services, or another user of telecommunications services, who does not also provide telecommunications services; or
    2. a state agency or state institution of higher education, or a service provided by a state agency or state institution of higher education.

"Telecommunications utility" means:

  1. a public utility
  2. an interexchange telecommunications carrier, including a reseller of interexchange telecommunications services;
  3. a specialized communications common carrier;
  4. a reseller of communications;
  5. a communications carrier who conveys, transmits, or receives communications wholly or partly over a telephone system;
  6. a provider of operator services as defined by Section 55.081, unless the provider is a subscriber to customer-owned pay telephone service; and
  7. a separated affiliate or an electronic publishing joint venture as defined in Chapter 63.

Note: Utilities Code, Section 54.003, states that a telecommunications utility is not required to obtain a certificate of convenience and necessity, a certificate of operating authority, or a service provider certificate of operating authority for:

  • An interexchange telecommunications service
  • A nonswitched private line service
  • A shared tenant service
  • A specialized communications common carrier service
  • A commercial mobile service, or
  • An operator service as defined by Section 55.081.

The following definitions of certificates in Chapter 54 are also useful:

Certificate of Convenience and Necessity:
a certificate that states that the public convenience and necessity requires or will require the installation, operation, or extension of the service.
Certificate of Operating Authority:
a certificate that states that the applicant has applied for each municipal consent, franchise, or permit required for the type of services and facilities for which the applicant has applied.
Service Provider Certificate of Operating Authority:
cannot be a holder of either of the above two certificates for the same area. This allows the service provider to operate in certain areas, including resellers.

Subject Taxpayers

Utilities Code, Section 16.001, subsection (a) says "an assessment is imposed on each" utility or public utility as defined by Section 11.004, which includes the definitions in Section 51.002 above. Any telecommunications company operating in Texas within these capacities will be subject to the PUC Assessment (200507293H, 9801177L, 9408890L, and Attorney General Opinion JM-1280):

  • Public utilities and telecommunications utilities
  • Local exchange carriers operating in Texas (200507293H,Attorney General Opinion JM-1280)
  • Interexchange telecommunications carriers operating in Texas (200507293H, Attorney General Opinion JM-1280,)
  • Resellers of telecommunications services
  • Specialized communications common carriers
  • A provider of operator services as defined by Sec. 55.081, Utilities Code
  • A communications carrier who conveys, transmits, or receives communications wholly or partly over a telephone system
  • Wire-line cellular providers (who provide rural radiotelephone service to subscribers in areas where it's not feasible to provide conventional telephone service by wire or other means, regulated primarily under the FCC's Public Mobile Services rules (47 CFR Part 22) (Utilities Code, Section 51.003)

Taxpayers EXCLUDED: (Utilities Code, Section 51.003)

  • Commercial mobile service providers
  • Providers of customer-owned pay-telephone service
  • Central office based PBX-type sharing or resale arrangements
  • Telegraph services
  • Television or radio stations
  • Community antenna television services


Utilities Code, Chapter 16.001, subsection (a), also says these taxpayers must be "within the jurisdiction of the commission." Jurisdiction is described in Chapter 52 for public utilities and telecommunications utilities:

  • Chapter 52 for telecommunications utilities describes jurisdiction over all telecommunications utilities, including interexchange telecommunications carriers, in Texas providing service to Texas customers except:
    1. commercial mobile service,
    2. central office based or customer based PBX-type sharing/resale arrangements,
    3. wire-line cellular companies, or
    4. customer owned pay phone services (utility owned coin-operated telephone service is under the jurisdiction of the Commission).

Gross Receipts and Rates

Utilities Code, Chapter 16.001, subsection (b), says "an assessment under this section is equal to one-sixth of one percent of the public utility's gross receipts from rates charged to the ultimate consumer in this state."

Gross Receipts:
includes receipts from charges for services, products, or commodities that are supplied or sold to an ultimate consumer. Does not include receipts derived from the sale of products or services purchased for resale.

  1. any compensation, tariff, charge, fare, toll, rental, or classification that is directly or indirectly demanded, observed, charged, or collected by a public utility for a service, product, or commodity described in the definition of utility in Section 51.002; and
  2. a rule, practice, or contract affecting the compensation, tariff, charge, fare, toll, rental, or classification. (Section 11.003, subsection 16)
"Service" has its broadest and most inclusive meaning. The term includes any act performed, anything supplied, and any facilities used or supplied by a public utility in the performance of the utility's duties under this title to its patrons, employees, other public utilities, an electric cooperative, and the public. The term also includes the interchange of facilities between two or more public utilities. The term does not include the printing, distribution, or sale of advertising in a telephone directory. (Utilities Code, Section 11.003, subsection 19)

PUC Assessment Base

(References italicized in parentheses refer to documents on STARS)

  1. Accounting code charges, i.e., for use by a customer to identify individual users and allocate the cost of long distance service
  2. Account initiation fees, new or existing
  3. Administrative charges, i.e., for system engineering and consultation, network analysis reporting, or access coordination
  4. Answering services, human operator, if charged to the ultimate consumer by the utility company
  5. Automated receiving and relaying of telephone messages if charged by the utility company (i.e., voice mail)
  6. Auxiliary services (call waiting, call forwarding, etc.)
  7. Bad debt recoveries related to taxable receipts
  8. Basic feature charges, i.e., fees for services of call arrangement, call allocation, message referral, and time interval routing
  9. Basic local telecommunications service
  10. Call detail and traffic analysis
  11. Caller mail box
  12. Coin-operated telephone receipts (excluding private pay/customer-owned pay telephones)
  13. Connect, Disconnect, and Reconnect fees for service to ultimate consumer
  14. Customer deposits, forfeited
  15. Directory assistance, intrastate only
  16. Directory listings, separately stated
  17. Electronic transmission of recorded messages, if charged by the utility company
  18. Enhanced services (i.e., metro service, extended area service, multi-line hunting, PBX trunk, etc.)
  19. Equipment sale, lease, rental to the ultimate consumer in connection with the provision of service
  20. Equipment repair and maintenance, when part of telecom service
  21. Expedite charges, i.e., for the expedited processing a customer's service order
  22. Finance charges and late fees, separately stated
  23. Installation service connect fees
  24. Interest earned on security deposits (200204035L, 200204026L)
  25. Late charges (200204026L)
  26. Lease or sale charges by the public utility for any service, product, or commodity described in the PURA
  27. Long distance charges, intrastate only (9506887L, 9510889L)
  28. Magnetic tape charges, i.e., charges for providing magnetic tape to a customer for call detail
  29. Maintenance and repair of equipment, charges in connection with telecom service
  30. Minimum billing charges (200204035L, 200204026L,)
  31. Minimum usage charges, minimum fee adjustment or commitment fee, i.e., a charge to customers who fail to meet their network commitment for a specified period of time.
  32. Monthly fee 800 or 900 service, if intrastate only
  33. Move/change charges for telecommunications equipment
  34. Municipal franchise charges: reimbursements collected from customers
  35. Overhead charges (200204035L)
  36. Patching service
  37. Penalties and forfeited customer deposits (200204035L)
  38. Receipts from providing local or intrastate long distance service via prepaid calling cards: Includes recharged prepaid calling card. (200106333L)
  39. Receipts from providing local or intrastate long distance service to all customers, including those typically thought of as exempt, such as state institutions of higher education, federally chartered credit unions, state and federal governmental agencies, and other charitable and non-profit organizations
  40. Reimbursements: charges that represent taxes or assessments levied on a utility and that are passed on to its customers remain a part of the rate charged by the utility, including the following: (200204035L, 9506888L, 9601886L, 200210502L)
    • Telecommunications Infrastructure Fund (TIF)
    • Texas Universal Service Fund (TUSF)
    • PUC Gross Receipts Assessment
  41. Reimbursements of federal mechanism charges that are funded by all telecommunications carriers:
    • ELS: expanded local calling service
    • NANPA: numbering administration charge
    • LNPA: local number portability administration charge
  42. Receipts from governmental entities and exempt organizations (9412891L)
  43. Returned check charges
  44. Special services charges, i.e., for special reports and information provided for customers with services such as 800 numbers
  45. Teleconferencing service charges
  46. Telephone messages, electronic transmission of recorded messages via telephone, and automated receiving/relaying of messages
  47. Voice mail when part of the telecom service

PUC Exclusions/Exemptions

(References italicized in parentheses refer to documents on STARS)

  1. Access charges paid by interexchange carriers to other carriers for access to local telephone networks, if the local access charges are passed through to their subscribers (Attorney General Opinion JM-1280)
  2. Bad debts from non-taxable revenues
  3. Bandwidth, sold as separately stated charges from web hosting or internet
  4. Coin operated telephones, privately owned (not by a telecom utility)
  5. Commercial mobile service and wire-line cellular service
  6. Community antenna television services
  7. Computer communications networks, access to or actual usage of
  8. Customer deposits
  9. Deposits for equipment or service
  10. Directory advertising and sales (Utilities Code, Sec. 11.003(19). Order in Docket #2054
  11. Dispatch service for truck radios
  12. Electronic mail service and email only IDs
  13. Electronic tax return filing
  14. Email, originating in and billed to Texas location
  15. Email only Ids
  16. FAX services
  17. Hotels/motels, charges to guests for telecommunications services
  18. Installation and repair of customer's inside wiring (9702580H)
  19. Insurance for repair of telecom equipment
  20. Interdepartmental sales
  21. Internet access and lines to internet providers for data modem use only
  22. Labor charges for installation of wiring which becomes part of realty
  23. LANs, connecting LANs in different locations
  24. Long distance revenues, interstate only (9510889L, 9506888L, Order in Docket #2054
  25. Mobile radio repeater service
  26. Motor vehicle GPS tracking systems
  27. Paging services, including airtime fees and equipment
  28. PBX-type sharing/resale arrangements, central office based or customer based
  29. Pole rentals
  30. Pre-paid calling cards and pre-paid paging cards sold for resale (200106333L)
  31. Private line revenues, because this is a non-basic competitive exchange service over which the PUC does not have jurisdictional authority
  32. Radio signal booster service
  33. Receipts from long distance carriers for handling the billing of the customers' end user charges for intrastate charges.
  34. Reimbursements for federal mechanisms which are funded only by telecoms providing interstate service:
    • FUSF: federal universal service fund
    • TRS: telecommunications relay services
    • PICC: presubscribed interexchange carrier charge
  35. Rental of equipment or conduit space, not to end user
  36. Rental of realty (Order in Docket #2054)
  37. Roaming Charges
  38. Sales for resale (9705884L, 200202829L, 200106333L)
  39. Satellite transmission service
  40. Taxes that are levied on the consumers and collected by utilities as agents for the taxing authority (9506888L, 9506887L, 200204035L)
    • State and local sales taxes
    • 911 Emergency Service Fees
    • 911 Equalization Surcharge
  41. Telegraph services (Order in Docket #2054
  42. Television and radio station broadcasts
  43. Tower access
  44. Transmission of information between automated clearing houses and merchants
  45. Transmission of signals
  46. Trucking dispatch service
  47. Two-way radio service
  48. Uncollectible accounts (Order in Docket #2054)
  49. Unlisted phone number, separately stated charge
  50. VOIP, originating in Texas

Texas Universal Service Fund (TUSF)

There are two fees in the Utilities Code that are levied against the telecom providers. One is the PUC Gross Receipts Assessment, which is collected by the Comptroller. The other is the Texas Universal Service Fund (TUSF), which is collected by a third party vendor on behalf of the PUC. (200003109L, 9910676L). Telecom utilities are responsible for both of these fees.

Vendor Web Sites

The current vendor is Solix, Inc.

The predecessor was National Exchange Carrier Association (NECA).

The TUSF rate on telecom revenues is:

  • 5%, effective 10/01/2006
  • 5.65%, effective 09/01/2004 through 09/30/2006
  • 3.955% effective prior to 09/01/2004

The PUC has published a rule that requires telecom providers that want to recover the TUSF assessment from their customers to make a separate charge on their customer's bills, styled as "Texas Universal Service." (16 TAC §26.420 (effective 07/20/06)). Since the PUC mandates the language on the customer's bills, TUSF reimbursements are not considered to be error tax if improperly labeled.

Note: Some taxpayers are not aware that they are responsible for both the PUC Assessment and TUSF and may be paying only one of them.

[1] Senate Bill 600, 67th Legislative Session, 1981.

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(Revised 05/2008)