98-042
Response June 10, 1998
REQUEST
LETTER
May
22, 1998
Re: State Telecommunications Taxes and
Surcharges
Dear
Sir:
The purpose for this correspondence
is to obtain information that will be presented publicly, aud upon which
parties may thereafter rely in business and regulatory matters to operate in
the State of Utah. I would appreciate
as rapid a response from the Utah State Tax Commission as possible. In any
event, thank you for your assistance and I anticipate that I will need to
communicate with the Utah State Tax Commission directly after receipt of
information requested in this letter. As a result, your response might indicate a contact person and phone number to
whom such communication may be directed.
State
Sales Tax - Presubscribed Services
First I would like to inquire as to
whether or not the State of Utah requires a state Sales Tax sometimes referred
to as a "Utility User Tax") be assessed against presubscribed
telecommunications services sold to end users in Utah. (Presubscribed telecommunications services
are those services that may be direct dialed from a residential or business
phone. e.g., local, 1+, 800/888, and
calling card calls.) If so: 1) Is the state Sales Tax a combined rate
(i.e., does the state allocate from its collected telecommunications sales tax revenue to the local
taxing
jurisdictions or may local taxing authorities - city and county - assess similar taxes on their own.)
2) What is the current tax rate; 3) Is the tax assessed against all calls originated
in Utah or against only those calls that originate in Utah and terminate in
Utah; and, 4) May the
telecommunications
service provider "flow through" the state Sales Tax to the end user
as a line item on the end user's phone
bill.
If
Utah does not assess a telecommunications services Sales or Utility Users Tax,
but local taxing jurisdictions may assess such a tax, does your agency maintain
information such as that requested in paragraph one on those jurisdictions? If
so, would it be possible to please
provide me with that information. If, however, your agency does not
maintain such information, can your agency
provide me with a mailing list of those local taxing jurisdictions so
that I might directly make inquiry thereto?
Prepaid
Calling Cards
Prepaid calling cards (also referred
to as "debit cards") have become a standard product in the portfolio
of telecommunications services providers. As you may be aware, these calling
cards are distinct from traditional calling cards in that the user pays a fee
"up front" for the privilege of subsequently using the card. (As
compared to the traditional card that is billed after usage to the end user on
the end user's local or long distance bill These traditional cards are usually
assessed any taxes or surcharges on the
bill.)
With the prepaid card, the buyer may
or may not utilize the card (e.g.,
collectors do not use the card and may buyers do not use all of the card) and
therefore not receive immediate value
at the time of purchase, and/or may use the card for calls that would not be
subject to a state or local taxing authority's telecommunication; services
taxes. (For example, if a state or local tax is assessed on against calls that
originate and terminate in the state, and are billed to an address in the
state, a prepaid calling card call that terminates out of the state {and of
course there is no bill} would not be assessed such a tax.)
My question: if Utah
assesses telecommunications sales or utility users tax, regarding these taxes,
at what point does the liability for such a tax occur for prepaid/debit calling
cards? At the point of sale or at the time the buyer receives value - the time
the call is made. As you can see, if the buyer pays an additional amount in the
form of sales or utility user tax at the time of the sale, the buyer bears the
tax burden and may be paying tax that is not directly related to the value. If,
however, the tax is assessed at the time the buyer receives his or her value
(the time of the call), the buyer gets full value and the burden of the tax
falls on the service provider to pay the tax out of card sales revenue.
I appreciate your consideration of
this correspondence and look forward to
your response. Thank you for your assistance.
Sincerely,
NAME
June
10, 1998
NAME
ADDRESS
CITY,
STATE ZIP
RE: Advisory
Opinion - Sales Tax on Telecommunication Services
Dear
NAME,
We have received your request for
information concerning the application of sales tax under Utah law on telecommunication
services. Specifically, you have asked
a number of questions concerning both presubscribed services and prepaid
calling cards. Let us address each of
these categories separately.
Presubscribed Services. Utah does assess a sales tax on
intrastate telephone service, which is defined under Utah Admin. Code
R865-19S-90 (copy attached).
Accordingly, your first four questions are relevant to Utah’s taxation
system.
Question #1. The sales tax rate applied in Utah is, by your definition, a
combined rate. The Tax Commission
receives the total sales tax, then distributes to any city or town its portion
of the sales tax received.
Question #2. Though the current sales tax rate varies, depending upon
location, from 5.75% to 7.00%, a range from 6.00% to 6.35% exists in almost all
areas of the state.
Question #3. As indicated above, intrastate telephone service is
taxable. Intrastate is defined in
Section A.2. of Rule R865-19S-90 to mean a transmission that originates and
terminates in this state, even if the route of the transmission signal itself
leaves and reenters the state.
Question #4. Yes, sales tax may “flow through” as a line item on the end
user’s telephone bill.
Prepaid Calling Cards. You have asked two questions concerning these
cards: (1) whether Utah assesses a sales tax on the cards; and (2) if it does,
at what point is the tax liability incurred.
First, Utah does assess a sales tax on prepaid calling cards, but does
exempt from taxation sales of telephone service charged to a prepaid calling
card. Second, tax liability is incurred
at the time and point of sale, with the seller having the responsibility to
remit the tax.
Please contact us if you have any
other questions. As per your request,
you may contact Customer Service at (801)297-2200 for tax information. By selecting option #5, you will reach a
representative who may answer your tax questions.
For
the Commission,
Joe
B. Pacheco
Commissioner
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