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.
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
H.B. 95 has repealed these exceptions, effective July 1,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
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.
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
*** 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: www.streamlinedsalestax.org.
Telecommunications services will be sourced as follows.
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
(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
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
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
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).