Sales Tax State Activity Update - October 2004

Arizona Clarifies Taxation of Answering Services

A company requested a private letter ruling on the application of the transaction privilege tax on an answering service it provided to customers. The company maintained a call center in Virginia where all calls were received and subsequently forwarded to customers. In providing the answering service, a receptionist answered the call explaining that the customer was unavailable and asked the caller if they wished to leave a message. The receptionist did not transcribe the caller’s message verbatim. Rather, the receptionist would condense the information into a relatively short message and enter it into a computer. The message was then transmitted to the customer via their cell phone, e-mail, fax or to an alphanumeric pager that the customer was able to rent or purchase from the company.

Customers were invoiced a monthly flat rate and a supplemental amount for each call answered above a monthly call allowance. The billable call volume was based upon the number of calls answered rather than on the number of messages transmitted or the distances of each incoming or outgoing call. Invoices to customers did not reflect the separate components of the answering service. Instead, invoices reflected the flat rate amount for the contracted plan and the excess calls or time over the plan. If the customer’s messages were sent to the alphanumeric pager, a separately stated monthly airtime charge of $16.95 was assessed to recoup charges assessed by a third party paging carrier for the transmission of messages over their network. Finally, the company had no sales agents that conducted business within the state. Customers that desired a pager had to contact an out-of-state sales office and one would be shipped from the company’s out-of-state headquarters or sales office.

The Department ruled that the company’s answering and transmission services were not intrastate telecommunication services and the gross income received was not subject to the transaction privilege tax under the telecommunications classification. The company’s gross receipts received from leases of pagers were subject to transaction privilege tax under the personal property classification because the pagers were shipped or delivered to the company’s customers within the state. Finally, based on the presence of leased pagers within the state and their role in establishing and maintaining a market in Arizona for the company’s business activities, the gross proceeds of sales of alphanumeric pagers were subject to transaction privilege tax under the retail classification.

(Private Letter Ruling LR 04-001, Arizona Department of Revenue, 5/19/04)

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