Sales Tax Articles
Sales Tax State Activity Update - January 2006
"New York Phone Home" - Calling Cards Examined
A telephone service provider's purchase of plastic telephone calling cards that provided information on its prepaid calling service were excluded from sales tax as purchases for resale.
The plastic telephone calling cards offered information concerning the provider's prepaid telephone calling service to customers. The cards contained such information as the transfer of the authorization code verifying payment for the telephone service, and instructions and codes for accessing the service.
The company was audited for sales and use tax and subject to additional tax due on its purchase of the plastic prepaid telephone calling cards, including the printing, bundling, storage and packaging of the cards.
The company argued that the plastic telephone cards were tangible personal property and were in fact transferred to their customers. The cards served as an integral part of the sale for the taxable telecommunication service, without which, customers could not access the information to utilize the service. The Tax Division argued that the company was not in the business of selling plastic cards. The provider reminded the tax division that the cards were simply an incidental part of the company's primary business of supplying prepaid telephone service.
The Division of Tax Appeals held that the resolution of the issue in this case revolved around whether the plastic cards were an incidental or ancillary part, as opposed to an essential or critical element of the taxpayer's business of providing a prepaid telephone calling service.
The tax division held that the plastic cards contained the information essential to enable the consumer to access and utilize the prepaid telephone service. It was ultimately decided that the company's purchase of plastic telephone cards were purchases for resale and not subject to tax.
(US Telecom, Inc., New York Division of Tax Appeals, Administrative Law Judge Unit, DTA No. 820160, 12/01/05)
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