DRS: Ruling 91-21, Sales and Use Taxes / Telecommunications Service

 

STATE OF CONNECTICUT
DEPARTMENT OF REVENUE SERVICES

450 Columbus Blvd
Hartford CT 06103
 
 
 
 
 
 

 
 

Ruling 91-21

Sales and Use Tax
Telecommunications Service


FACTS:

1. A corporation engaged in business as a long-distance carrier and subsidiaries thereof [hereinafter collectively referred to as "the Company"] provide a telecommunications service known as "900 Commercial Service".

2. The Company has not submitted any of its contracts with the businesses [hereinafter referred to as "900 Sponsors"] for which 900 Commercial Service is designed, but characterizes this service as enabling a 900 Sponsor to offer its goods and services for a fee to telephone callers [hereinafter referred to as "end users"] calling the 900 number assigned to the 900 Sponsor by the Company.

3. The Company further characterizes its contractual obligations as follows:

  • The Company is required to bill and collect from an end user purchasing goods or services from a 900 Sponsor the fee established by the 900 Sponsor for placing a call to the 900 number. (If the end user has not chosen the Company as his or her long-distance carrier, the Company provides the Local Exchange Carrier with the billing information, and the Local Exchange Carrier collects the fee from the end user.)
  • For an aggregate charge that is either a flat charge for placing a call, or a charge based on the duration of a call, to the 900 number, the Company is providing (i) telecommunications service to the 900 Sponsor and (ii) billing and collection service to the 900 Sponsor.
  • The Company will pay over to the 900 Sponsor the amounts collected, offset by (i) the amount due to the Company for telecommunications service; (ii) the amount due to the Company for billing and collection service; and (iii) an amount estimated to equal the uncollected amount billed end users.

4. The Company will contract with 900 Sponsors that conduct opinion polls [hereinafter referred to as Product 1]. By calling a selected 900 number, a Product 1 end user will be able to vote without speaking. The fee established by 900 Sponsors will be a flat charge for making the call. Some 900 Sponsors will conduct opinion polls for end users with touch-tone telephones, who, by touching appropriate numbers on the telephone touch-pad, will be able to answer specific questions.

5. The Company will contract with 900 Sponsors that provide a recorded message service [hereinafter referred to as Product 2]. By calling a selected 900 number, a Product 2 end user will be able to listen to a prerecorded message. The fee established by 900 Sponsors will be either a flat charge for making the call or a variable charge based on the duration of the call.

6. The Company will contract with 900 Sponsors that provide financial or other information [hereinafter referred to as Product 3] to end users with touch-tone telephones. By calling a selected 900 number and by entering a personal identification number, a Product 3 end user will be able to gain access to various data files by touching appropriate numbers on the telephone touch-pad. The fee established by 900 Sponsors will be either a flat charge for making the call or a variable charge based on the duration of the call.

7. The Company will contract with 900 Sponsors that provide interactive conversation [hereinafter referred to as Product 4]. By calling a selected 900 number, a Product 4 end user will be able to converse with one person, or with a number of other end users. The fee established by 900 Sponsors will be a variable charge based on the duration of the call.

8. The Company will contract with 900 Sponsors that solicit donations thereto [hereinafter referred to as Product 5]. Some of the 900 Sponsors may be organizations described in 26 U.S.C. 501(c)(3). By calling a selected 900 number, a Product 5 end user will be able to pledge a specific amount. Some 900 Sponsors will play a prerecorded message thanking Product 5 end users for their pledge. The fee established by 900 Sponsors will be a flat charge that equals the amount of the pledge.

9. The Company will contract with 900 Sponsors that sell tangible personal property [hereinafter referred to as Product 6]. By calling a selected 900 number, a Product 6 end user will be able to purchase particular goods. The fee established by 900 Sponsors will be a flat charge that equals the purchase price of the goods.

10. The Company's 900 Commercial Service is provided on an interstate basis pursuant to a tariff on file with the Federal Communications Commission and on an intrastate basis pursuant to a tariff on file with the Department of Public Utility Control, State of Connecticut. Rates for the Company's 900 Commercial Service are established in those tariffs.


ISSUES PRESENTED:

1. Are the Company's charges for telecommunications service subject to sales and use taxes?

The Company's charges for telecommunications service will be subject to sales and use taxes as follows: (A) the Company's charges for telecommunications service will be that portion of the fee established by the 900 Sponsor that equals the amount that the Company is allowed to charge for 900 Commercial Service pursuant to the tariffs on file and (B) the Company will be treated as providing telecommunications service to end users, whose telephone numbers or accounts are being charged, and not to the 900 Sponsor.

Notwithstanding the Company's characterizations of its contractual obligations, it is proper to examine "the character of the agreement rather than the phrasing of the contract involved ..."; Columbia Pictures Industries, Inc. v. Tax Commissioner, 176 Conn. 604, 607, 410 A.2d 457 (1979); in order to determine "the true object of the contracts between the parties"; American Totalisator Co. v. Dubno, 210 Conn. 401, 406, 555 A.2d 414 (1989). It is also proper to consider that the transaction between the Company and the 900 Sponsor is shaped by the end users and their relationship with the Company. CCH Computax, Inc. v. Dubno, 18 Conn. App. 434, 438-439, 558 A.2d 270 (1989).

The Company is engaged in the business of providing telecommunications service as a long-distance carrier, generally to those end users who have chosen the Company as their long-distance carrier. The "essence of the [Company's] service"; Hartford Parkview Associates Limited Partnership v. Groppo, 211 Conn. 246, 252, 558 A.2d 993 (1989); to the 900 Sponsor is, through its provision of (1) telecommunications service to end users placing a call to the 900 number and (2) billing and collection service to the 900 Sponsor, to enable the 900 Sponsor to market its goods and services to a wide audience perhaps unreachable by any other means. (The 900 Sponsor, in establishing the fee for placing a call to the 900 number, takes into consideration the amount that the Company will retain for providing telecommunications service to the end user and billing and collection service to the 900 Sponsor.)

When an end user originates a call in Connecticut to a 900 Sponsor and the call terminates in another state, the Company's charges for telecommunications service will be subject to sales and use taxes as long as the service is charged to a telephone number or account, usually that of the end user, located within Connecticut.

When the call to a 900 Sponsor terminates in Connecticut and the call originates in another state, the Company's charges for telecommunications service will be subject to sales and use taxes only if the service is charged to a telephone number or account, usually that of the end user, located in Connecticut.

When an end user originates a call in Connecticut to a 900 Sponsor and the call terminates in Connecticut, the Company's charges for telecommunications service will be subject to sales and use taxes.

2. Are the Company's charges for billing and collection service subject to sales and use taxes?

As long as 900 Commercial Service is provided pursuant to federal and state tariffs, the Company's charges for its billing and collection service will not be subject to sales and use taxes.

Under Conn. Gen. Stat. 12-407(26)(b)(2)(B), gross receipts from the rendering of telecommunications service do not include any charge which is specifically related to a service or the sale of a product that is not a telecommunications service, as defined in Conn. Gen. Stat. 12-407(26)(a), "provided the charge is stated separately on the customer's bill from the charge for telecommunications service rendered or is stated separately from such charge for telecommunications service in a federal or state tariff or related contract or agreement."

The tariffs on file provide that the Company, pursuant to a separate contract with a 900 Sponsor, may undertake to bill and collect from end users on behalf of those Sponsors. Consequently, the charge for the billing and collection service is "stated separately from such charge for telecommunications service in a federal or state tariff"; Conn. Gen. Stat. 12-407(26)(b)(2)(B).

3. Are the charges made by the Company (or by the Local Exchange Carrier, if the end user has not chosen the Company as his or her long-distance carrier) for Products 1 through 5, inclusive, subject to sales and use taxes?

The charges made by the Company (or by the Local Exchange Carrier, if the end user has not chosen the Company as his or her long-distance carrier) for Products 1 through 5, inclusive, are not subject to sales and use taxes, as long as the services that are being provided are not treated as sales under Conn. Gen. Stat. 12-407(2)(i). However, that portion of the fee collected by the Company (or the Local Exchange Carrier) from end users that is attributable to its charge for telecommunications service will be subject to sales and use taxes.

4. With respect to Product 6--

A. If the 900 Sponsor is a retailer engaged in business in the state, as the term is defined in Conn. Gen. Stat. 12-407(15), and, as such, responsible for collecting Connecticut use tax on its Connecticut sales, will the Company (or the Local Exchange Carrier) be jointly and severally liable with the 900 Sponsor for the collection of such tax?

Whether the Company (or the Local Exchange Carrier) will be jointly and severally liable with the 900 Sponsor for the collection of such tax is mooted by the fact that, as "a person with whose assistance any seller is enabled to solicit orders within this state"; Conn. Gen. Stat. 12-407(12)(f); the Company (or the Local Exchange Carrier) is itself fully liable for the collection of such tax.

B. If the 900 Sponsor, considered alone, is not a retailer engaged in business in the state, as defined in Conn. Gen. Stat. 12-407(15), will the provision of telecommunications service by the Company (or the Local Exchange Carrier) cause the 900 Sponsor to be considered to be a retailer engaged in business in Connecticut?

If the 900 Sponsor, considered alone, is not a retailer engaged in business in the state, as defined in Conn. Gen. Stat. 12-407(15), the fact that the Company (or the Local Exchange Carrier) is, under Conn. Gen. Stat. 12-407(12)(f), "a person with whose assistance any seller is enabled to solicit orders within this state" and, hence, a retailer, will not cause the 900 Sponsor to be considered to be a retailer engaged in business in Connecticut; however, with respect to sales of Product 6, the Company (or the Local Exchange Carrier) will be treated as a retailer engaged in business in the state.

5. If the Company (or the Local Exchange Carrier) bills and collects Connecticut use tax for any products or services, and such taxes are remitted to the 900 Sponsor, will the Company (or the Local Exchange Carrier) be liable for such taxes in the event that the 900 Sponsor does not remit such taxes to the Department of Revenue Services?

Because the Company (or the Local Exchange Carrier) is a retailer with respect to sales of products and services of the 900 Sponsor, it will be liable if collected taxes are not remitted to the Department of Revenue Services. As discussed, supra, the Company (or Local Exchange Carrier) will also be fully liable for sales and use taxes on charges for telecommunications service.

6. If the Company (or the Local Exchange Carrier) bills and collects Connecticut use tax for any products or services, and such taxes are remitted to the Department of Revenue Services, will the Company (or the Local Exchange Carrier) be liable for additional taxes in the event that the taxes collected are less than the taxes actually due on the sale of such products or services?

There is no statutory authority for restricting the Company's (or the Local Exchange Carrier's) liability to the amount of taxes actually collected.

7. If the Company (or the Local Exchange Carrier) bills and collects Connecticut use tax for any products or services, and such taxes are remitted to the Department of Revenue Services, will the Company (or the Local Exchange Carrier) have any liability in the event that the taxes collected are more than the taxes actually due on the sale of such products or services?

If the Company (or the Local Exchange Carrier) bills and collects Connecticut use tax for a 900 Sponsor's products or services, and such taxes are remitted to the Department of Revenue Services, the Company (or the Local Exchange Carrier) will not have any liability in the event that the taxes collected are more than the taxes actually due on the sale of such products or services. (If the requirements of Conn. Gen. Stat. 12-425 are met, the Company (or the Local Exchange Carrier) may claim a refund.)

This ruling is based on provisions of the Sales and Use Taxes Act in force and effect on the date of issuance hereof. To the extent that relevant provisions of the Act are amended or repealed, this ruling will have no force or effect from the effective date of such amendment or repeal.


LEGAL DIVISION

July 2, 1991