94-016
Request
Dear XXXXX,
This letter is a
follow up to the telephone conversation we had in early January concerning tax
liability for services our business provides.
I'll explain the nature and scope of the business to help you determine
whether or not a tax liability exists for any or all of the services we would
provide. I would appreciate a formal
response which states whether or not we must pay sales tax on the three types
of services we are offering to our clients.
Business
XXXXX is operating a
computer on-line service, where our
customers with their own computer and modem make telephone calls into our
modems to gain access to our computer system. Our on-line service provides an
electronic messaging system (frequently referred to as e-mail) where our
customers generate and receive messages with other participants on our system,
or via computer networks. Information
is available to all users of the service, it is not sold separately, nor is it
offered as advice or in a consulting capacity, it is an integral part of our
service.
We may also in the
future be offering consulting services related directly to the use of our system,
for example assisting a client in determining what their hardware and software
needs may be in order to utilize our on-line service. We may also offer sales
of the hardware recommended, particularly sales of modems and other related
equipment.
Access
Our customers, with
their own computer and modem make telephone calls, at their expense, to gain
access to our computer system. They pay
a monthly fee to have access to our service.
Billing
Currently, customers
using the on-line service are billed on a monthly basis consisting of a flat
fee plus connect time, if usage exceeds the allotted free access time which is
part of the basic access. In other
words, $$$$$ per month offers our users XXXXX hours of connect time, if they
exceed XXXXX hours they pay $$$$$ per hour thereafter, or any fractional
portion thereof, in increments of XXXXX minutes. We will be moving to a credit card payment, where we submit a
bill every month to our customers account.
Billing for consulting
services would be billed on an hourly basis.
The billing for hardware and software sales would be a set price plus
sales tax.
If I can clarify any
of this information further or answer any questions you may have, please don't
hesitate to call me.
Sincerely,
XXXXX
Re: Advisory Opinion - Sales Tax Application to
Charges for On-line Computer Access Services. Consulting Fees, and Hardware
Sales
Dear XXXXX:
Your request for an
advisory opinion as to how sales tax applies to charges for on-line computer
access services, consulting fees, and hardware sales was referred to the
Auditing Division for their analysis.
The division's staff
recommendations are as follows:
1.
Utah Code Annotated Section 59-12-103 (copy attached) imposes the sales tax
on charges for “intrastate telephone service.”
2.
Administrative Rule R865-19-90S (copy attached) defines “telephone
service” as “the transmission for hire of signs, signals, writings, images,
sounds, messages, data or other information of any nature by wire, radio, light
waves, or other electromagnetic means.”
3.
Consequently, the total charges to your customers for accessing your
computer system by use of the customer's computer and modem through the
telephone lines and through your modem are charges subject to the sales tax
when both the sending and receiving modems are located in Utah.
4.
Consulting fees in connection with the taxable use of your system are
also taxable.
5.
Consulting tees in connection with the determination of hardware and
software needs are taxable if you also sell the equipment.
6.
Consulting fees which are not in connection with the use of the system
as described and are not in connection with the taxable sale of services,
software, or hardware are exempt.
Based upon the facts
presented in your letter, we are in agreement with the Auditing Division's
recommendations. Obviously, if there are deviations from these facts, this
opinion may be negated.
If you do not agree
with this determination, you may appeal to the Tax Commission for a formal
hearing. The results of that hearing
would constitute a declaratory judgment and be appealable to the Utah State
Supreme Court. A Notice of Appeal
Rights and a copy of the Utah Taxpayer Bill of Rights are attached.
For The Commission,
Alice Shearer
Commissioner