Information Release

ST 2003-09 - Telecommunication Charges - July 10, 2003

Sales & Use Tax

H.B. 95 – Telecommunications changes

Am. Sub. H.B. 95 makes a number of changes to Ohio’s sales and use tax laws. Several of those changes deal with the application of the tax to telecommunications services. Many of these changes are effective July 1, 2003, with others taking effect August 1, 2003 and January 1, 2004. The purpose of this Information Release is to provide information on these changes enacted in H.B. 95.

Repealed Exemptions

R.C. 5739.01(AA) provides the definition of taxable telecommunications service. Prior to the enactment of H.B. 95, that section contained exemptions for:


(1) Sales of incoming or outgoing wide area transmission service or wide area transmission type service, including eight hundred or eight-hundred-type service, to the person contracting for the receipt of that service;

(2) Sales of private communications service to the person contracting for the receipt of that service that entitles the purchaser to exclusive or priority use of a communications channel or group of channels between exchanges; ***

H.B. 95 has repealed these exceptions, effective July 1, 2003. Thus, providers of telecommunications service must collect tax on these services for all customer billing periods beginning on or after July 1, 2003.

The exemption in R.C. 5739.01(AA)(3) for sales of telecommunications service by local exchange telephone companies that are subject to the public utilities gross receipts tax has been revised to limit the exemption to:

Sales of telecommunications service billed to persons before January 1, 2004, by telephone companies subject to the excise tax imposed by Chapter 5727. of the Revised Code;

Thus, sales of telecommunication services billed on and after January 1, 2004 by telephone companies (providers primarily of local exchange service) are subject to sales and use tax. After June 30, 2004, those companies will no longer be subject to the public utilities excise tax levied by R.C. Chapter 5727.

Related Fees and Ancillary Services

H.B. 95 has amended the definition of a "telecommunications service" in R.C. 5739.01(AA) and the definition of a "mobile telecommunications service" in R.C. 5739.01(VV) [formerly (WW)] primarily to clarify that telecommunications and mobile telecommunications service:

*** includes related fees and ancillary services, including universal service fees, detailed billing service, directory assistance, service initiation, voice mail service, and vertical services, such as caller ID and three-way calling.

Most of these types of charges, such as universal service fees or three-way calling, were taxable under prior law.

The effective date for this change depends on whether the service provider is providing mobile telecommunications service or telecommunications service. For mobile telecommunications service, section 5739.01(VV) specifically provides that this change applies "on and after August 1, 2003." There is no similar delay language in the provisions of R.C. 5739.01(AA). So, for providers of telecommunications service, the tax must be charged on all listed services beginning with customer billing periods that begin on and after July 1, 2003.


Sourcing rules (situs/location of a sale) determine which jurisdiction’s tax a vendor or service provider must charge. Prior to H.B. 95, R.C. 5739.034 provided sourcing provisions for mobile telecommunications service. H.B. 95 amends that section to adopt the sourcing provisions of the Streamlined Sales and Use Tax Agreement. Information on the Streamlined Agreement can be found at:

Telecommunications services will be sourced as follows.

1. Call-by-call

Unless otherwise provided in R.C. 5739.034(E), R.C. 5739.034(C) sources telecommunications services sold on a call-by-call basis as follows

*** to each level of taxing jurisdiction where the call originates and terminates in that jurisdiction, or each level of taxing jurisdiction where the call either originates or terminates and in which the service address is also located.

R.C. 5739.034(A)(9) defines the term "service address" as follows:

(a) The location of the telecommunications equipment to which a customer's call is charged and from which the call originates or terminates, regardless of where the call is billed or paid.

(b) If the location in division (A)(9)(a) of this section is not known, "service address" means the origination point of the signal of the telecommunications service first identified by either the seller's telecommunications system or in information received by the seller from its service provider, where the system used to transport such signals is not that of the seller.

(c) If the locations in divisions (A)(9)(a) and (b) of this section are not known, "service address" means the location of the customer's place of primary use.

R.C. 5739.034(A)(6) defines "place of primary use" as:

*** the street address representative of where the customer’s use of the telecommunications service primarily occurs, which must be the residential street address or the primary business street address of the customer. In the case of mobile telecommunications services, "place of primary use" must be within the licensed service area of the home service provider.

2. Other than call-by-call basis

Unless otherwise provided by R.C. 5739.034(E), R.C. 5739.034(D) provides that:

*** telecommunications services sold on a basis other than a call-by-call basis shall be sourced to the customer’s place of primary use.

See the preceding section for the definition of Place of Primary Use.

3. Exceptions

R.C. 5739.034(E) provides sourcing rules for several special types of telecommunications services.

Division (1) of that section states that mobile telecommunications service is sourced to the customer’s place of primary use as required by the Mobile Telecommunications Sourcing Act.

Division (2) of that section addresses the sourcing of what is called "post-paid calling service," which is defined by R.C. 5739.034(A)(7) as:

*** the telecommunications service obtained by making a payment on a call-by-call basis either through the use of a credit card or payment mechanism such as a bank card, travel card, credit card, or debit card, or by charge made to a telephone number that is not associated with the origination or termination of the telecommunications service. "Post-paid calling service" includes a telecommunications service that would be a prepaid calling service, but for the fact that it is not exclusively a telecommunications service.

Such services are sourced as follows:

*** to the origination point of the telecommunications signal as first identified by the service provider’s telecommunications system, or information received by the seller from its service provider, where the system used to transport such signals is not that of the seller.

Finally, Division (3) of that section addresses the sourcing of prepaid calling service. Prepaid calling service is defined in R.C. 5739.034(A)(8) as:

*** the right to access exclusively a telecommunications service that must be paid for in advance, that enables the origination of calls using an access number or authorization code, whether manually or electronically dialed, that is sold in predetermined units or dollars of which the number declines with the use in a known amount.

Such services are sourced to the location of the vendor that sells a prepaid authorization number or prepaid card to the consumer. If the prepaid card or authorization number is sold through a telephone call, electronic commerce, or another form of remote commerce, the sale is sourced to the consumer’s shipping address or, if no item is shipped, to the consumer’s billing address. Please note, this provision for sourcing prepaid calling services is only in effect until January 1, 2004. At that time, the new general sourcing language becomes effective. Information on the revisions that take effect on that date will be provided later.

4. Private communications services

While H.B. 95 does not include provisions on sourcing private communications services, providers of private communications services should source those transactions according to the provisions of section 314(C)(4) of the Streamlined Agreement, which bases sourcing on the channel termination points to which the service relates. Please refer to the above link to the Streamlined Sales Tax Agreement for that specific provision.

Call Center Exemption

Effective July 1, 2003, H.B. 95 provides a new exemption for sales of telecommunication service that is used directly and primarily to perform the functions of a call center. The new exemption can be found at R.C. 5739.02(B)(46). Call center is defined to be:

*** any physical location where telephone calls are placed or received in high volume for the purpose of making sales, marketing, customer service, technical support, or other specialized business activity, and that employs at least fifty individuals that engage in call center activities on a full-time basis, or sufficient individuals to fill fifty full-time equivalent positions.

If you have questions regarding any matter covered in this release, please call 1-888-405-4039 (Ohio relay Service for the Speech or Hearing Impaired: 1-800-750-0750).