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.
Telecommunications services that are subject to both state and local sales tax include such things as:
Interstate long-distance telephone calls that originate from and that 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 the tax treatment is explained below).
Some telecommunications services are not taxable, such as services purchased for resale and interstate long-distance telephone calls that originate outside of Texas.
On bills and invoices, charges for taxable telecommunications services must be separately stated from charges for non-taxable services. If these charges are not separately stated, then the total charge may be taxable. Hotels, motels, and owners and lessors of office or residential developments that contract and pay for telecommunications services to resell those services to their guests or tenants are required to collect sales tax on their charges for telecommunications services.
A telecommunications service provider must pay tax on equipment that it uses to provide the taxable service and that it does not transfer to its customers. If the equipment is transferred to a customer as part of the taxable service, however, the service provider can give its supplier a resale certificate in lieu of tax. For example, a telephone company must pay tax on switches it uses to provide service, but can buy automatic dialers tax-free if those dialers are given to customers as part of the service.
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.
The local sales tax is based on where the call originates. If the origin of the call cannot be determined, the local tax is based on where the call is billed. Local sales tax on mobile telecommunications services is determined differently.
Beginning with billing cycles on or after August 1, 2002, state and local sales taxes on mobile telecommunications services - such as cell phone and paging services - are based on the customer's street address. A customer who buys mobile telecommunications services for use by another person, such as a child going to college or an employee at a different location, pays state and local sales taxes based on the user's street address.
Because of this new law, the location from which a mobile call originates or terminates is no longer a factor. Texas customers pay state sales and local sales tax on all mobile telecommunications services, including charges for calls made while traveling outside of Texas. Texas customers owe local sales tax if their 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.