REQUEST LETTER

01-020

NAME

COMPANY

ADDRESS

I am an attorney that works for a telecommunication tax consulting and software development company that needs information regarding the taxablility of teleconferencing services. Our inquiry involves the following factual scenario.

Teleconferencing providers take one of the following two forms: (1) a traditional “brick and mortar” type telecommunications carrier offering teleconferencing services as part of a much larger package of services sold to customers (type 1); (2) a company owning no physical plant and equipment in a given state which typically specializes in services like teleconferencing using special proprietary software who will buy long distance phone time from a telecommunications carrier in order to offer a complete service (type 2).

A typical transaction by the type 2 company works as follows. A customer located in a state such as Utah will dial into the toll free number belonging to our client that connects him/her to one of our client’s operators. That operator, who is located in State X, then obtains the necessary information for the call including the number of parties to be included in the call, their names, telephone numbers, etc. At the time selected for the conference, the operator calls each of the parties and connects them to the conference call. The operator then remains on the line to manage the call. Another option allows the parties to call a central number and be connected to the conference call automatically. The customer is then billed for two separate transactions, namely: (1) the cost of arranging and managing the conference call; and (2) the resale of the long distance telephone minutes.

Utah imposes a sales tax on amounts paid to telephone corporations for intrastate telephone service. Utah Code § 59-12-103(1)(b)(ii). Intrastate telephone service includes charges for optional telephone features such as call waiting, caller identification, and call forwarding. Utah Regulations, Rule R865-19S-90(B)(2). Teleconferencing is commonly grouped together with these features and termed enhanced features. Utah does not impose a state sales and use tax on interstate telephone calls, Utah Regulations, Rule R865-19S-90(C)(2). Thus, interstate calls are excluded but interstate services are not addressed. On the other hand the statue imposes the sales tax on intrastate telephone services, so by omission it would seem that interstate telephone services are outside the cope of the statue.

We would greatly appreciate a written response, which thoroughly explains the department’s position on the taxability of both intrastate and interstate teleconferencing services being provided by both types of companies outlined above. Additionally, please address the separate issue of whether the bundling of teleconferencing services together with the resale of long distance phone service affects the taxability of either service (i.e. a case where a company provides both services and separately bills their customers for each part of the transaction). Furthermore, please address whether you would agree that a teleconferencing service would be considered an enhanced feature in Utah.

Please respond in the form of a general information letter, quoting appropriate sources when necessary. Thank you for your time and effort in responding to our tax inquiry.

NAME

RESPONSE LETTER

DATE

NAME

COMPANY

ADDRESS

RE: Advisory Opinion – Taxation of Teleconferencing Services

Dear NAME,

You have requested an advisory opinion concerning the taxability of teleconferencing services. You specifically ask: (1) whether the taxability of such services depends upon the “type of company” that is providing the services; (2) whether “interstate” teleconferencing services are taxed differently from “intrastate” teleconferencing services; and, as a separate issue, (3) whether taxability is affected by “unbundling” the service into two charges, one for the resale of long distance phone service and another for connecting the parties to the teleconference call.

Type of Company. Under Utah Code Ann. §59-12-103(10(b)(ii), Utah imposes sales tax on amounts paid to telephone corporations for intrastate telephone service. A “telephone corporation” is defined in Utah Admin. Rule R865-19S-90(A)(4) (“Rule 90”) to mean “any corporation owning, controlling, operating or managing any telephone service for the shared use with or resale to any person on a regular basis whether or not regulated by the Public Service Commission.” Whether a traditional “brick and mortar” carrier or a company owning no physical plant and equipment, any entity that sells or resells long distance phone time is included in the definition of “telephone corporation.” Accordingly, if either of the two types of companies you describe sells or resells intrastate telephone service in Utah, it is considered a “telephone corporation” and must collect sales tax on that sale.

Interstate Versus Intrastate. Subsection (B)(2) of Rule 90 provides that taxable telephone service charges include charges for optional telephone features, such as call waiting, caller i.d., and call forwarding. You indicate in your letter that “teleconferencing services” is commonly grouped together with such features for taxation purposes. Utah would also consider teleconferencing services a feature that is taxable, but only if it is associated with an intrastate call. Accordingly, if the teleconference call involves a transmission that originates and terminates in Utah, as provided for in Subsection (A)(2) of Rule 90, then the teleconference call is taxable. For example, a Utah entity purchases the teleconference service to connect a call from Utah with four other parties, who are located in Utah, Illinois, California, and New York. As the call originates in Utah and one of the connections terminates in Utah, the entire teleconferencing service would be deemed an intrastate telephone service and, thus, taxable. However, if the call from Utah is connected with various other parties, none of which are in Utah, then the teleconferencing service would be considered an interstate telephone service, which is not taxable in Utah.

Unbundling. In your letter and during a recent telephone conversation, you describe the teleconference service to include two elements: (1) the resale of long distance telephone service; and (2) the service involved with connecting multiple parties to the conference call. This latter “connection” service would either require the entity that purchases the teleconference service to reserve a conference time with the provider, at which time all conference participants would call in and be connected, or require an operator with the provider to call all the conference participants and “bridge” them together for the conference call. In either instance, you propose a hypothetical where the provider would charge $3.00 per minute for the teleconference service. You ask whether there is any affect on taxability if this charge is “unbundled” into a $0.25 per minute charge for the resale of long distance telephone service and a $2.75 per minute charge for the service to “connect” the parties to the call. On the information currently provided, we believe the essence of the transaction to be the sale of taxable telephone service, not the sale of services to connect parties to a teleconference call. Accordingly, we would consider that both charges reflect the purchase of taxable telephone services, whether bundled or unbundled, and, as such, are both taxable when associated with intrastate telephone service.

Please contact us if you have any other questions.

For the Commission,

Marc B. Johnson

Commissioner

MBJ/KC

01-020