Sales Tax Articles
Sales Tax State Activity Update - July 2007
New York Enters the Conversation on VoIP
The New York State Department of Taxation and Finance has issued guidance advising that telecommunication services provided through Voice over Internet Protocol (VoIP) are subject to sales tax just like telephone service provided over conventional phone lines.
VoIP service enables a user to make and receive calls to and from any domestic telephone number. Such service can either be billed on a call-by-call basis or on a flat fee basis. For either method, the provider may not be an able to identify whether a call was intrastate or interstate. Finally, VoIP may be offered separately or can be bundled with other services (i.e. internet access, voice mail) or with tangible personal property.
Tax Law section 1105(b)(1)(B) imposes sales tax on receipts from every sale, other than sales for resale, of "telephony and telegraphy and telephone and telegraph service of whatever natures" except interstate and international telephone service and any mobile telecommunications service taxed under section 1105(b)(2). The words "of whatever nature" indicate that a broad construction is to be given to the term describing the items taxed. Accordingly, such service constitutes "telephony and telegraphy and telephone and telegraph service" for sales tax purposes. The use of the Internet or internet routing protocols for transmission of all or part of the call does not change this result.
Services provided to a New York service address that are billed on a flat fee basis where the fee remains constant for a fixed billing period regardless of the number or duration of calls, are subject to New York state and local sales taxes, because the fees represent receipts from the sale of access to telecommunications service in New York. If intrastate telephone service is provided with interstate and/or international telephone services for a single charge, the entire charge is subject to sales tax, unless there is a reasonable, separately stated charge for the interstate and/or international services on the invoice or other statement of the price given to the customer. If the service offered is entirely interstate and/or international, the charges for such service would be excluded from tax. Interstate and international calls billed on a call-by-call basis are not subject to sales tax, provided the service provider maintains call records to indicate the origination and terminations of the exempt calls.
Finally, if non-taxable property or discrete services (other than Internet access) are bundled with taxable VoIP services and sold to the customer for a single charge, the entire charge will be subject to sales tax unless the charge for such property and/or discrete services is reasonable and separately stated on the customer's invoice. If VoIP is bundled with Internet access for a single charge, the entire charge will be subject to sales tax unless the Internet access provider can reasonably identify the charges for Internet access from its books and records kept in the regular course of business. In order to be reasonably identified, the charges must be objective and verifiable and reasonable in relation to the total charge.
(NYT-G-07(3)S, New York State Department of Taxation and Finance, Technical Service Division, dated 6/20/07)
Subscribe to CyberTax News and receive the latest indirect tax news, including rate changes, rule updates, compliance issues, and more, delivered directly to your email.
Call 800.355.3500 to Speak to a Sales Representative.
