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Telecommunications, , and Related Services 119

Sales Tax Fact Sheet 119 Fact Sheet

What’s new in 2017 Starting , 2017, purchases of fiber and conduit services used to provide or pay television Fax services and electronic fax services are taxable. services are exempt from sales tax. Local and long distance This fact sheet explains how sales tax applies to: Local and long distance telephone service, including in-  services ternational service, and 800 and 900 telephone service, is taxable.  ancillary services associated with telecommu-

nications services 911 emergency charges  pay television services (previously known as 911 emergency telephone charges, Telephone Assis- and direct satellite services) tance Plan (TAP), and Telecommunications Access  equipment used directly in providing these Minnesota Fund (TAM) charges are not taxable. services  The services listed above are taxable whether Mobile telecommunication services provided by a telecommunications service pro- Mobile telecommunications services including mobile vider (telephone company) or by any other , cellular telephone, satellite , pag- seller. ing, cellular roaming charges, and beeper services are Taxable telecommunications services taxable.

Telecommunications services means the electronic Prepaid calling services transmission, conveyance, or routing of voice, data, Prepaid calling services including prepaid call- audio, , or any other information or signals to a ing services are taxable. point, or between or among points. Examples of tele-

communications services include: Prepaid telephone calling cards  air-to- service Prepaid telephone calling cards and fees to recharge  local and long distance telephone service them are taxable.  mobile telecommunication service  postpaid calling service Private service  prepaid calling service Private communication services means a telecommuni-  prepaid wireless calling service cation service that entitles the customer to exclusive or  private communications services priority use of a communication channel or group of channels between or among termination points, regard- Data processing and information services less of the manner in which the channel or channels are Data processing and information services that allow connected, and includes switching capacity, extension data to be generated, acquired, stored, processed, or re- lines stations, and any other services that are provided trieved and delivered electronically are not taxable tel- in connection with the use of the channel or channels. ecommunications services when the purchaser’s pri- mary purpose is the processed data or information. Private communications services are taxed based on where the customer channel termination points are lo- Air-to-ground radiotelephone services cated. A customer channel termination point is the loca- Air-to-ground radiotelephone services (radio telecom- tion where the customer either inputs or receives the munications services in aircraft) are taxable. communications.

Sales and Use Tax Division – Mail Station 6330 – St. Paul, MN 55146-6330 This fact sheet is intended to help you become more familiar with Minnesota tax Phone: Twin Cities 651-296-6181 or 1-800-657-3777 laws and your rights and responsibilities under the laws. Nothing in this fact sheet Email: [email protected] supersedes, alters, or otherwise changes any provisions of the tax law, administrative rules, court decisions, or revenue notices. Alternative formats available upon request.

Stock No. 2800119, Revised August 2017 Minnesota Revenue, Telecommunications Services If all of the customer channel termination points are ing) – services that link participants of an audio located in the same taxing jurisdiction, the sale is sub- or video conference call and may include ject to the sales tax imposed in that jurisdiction. When providing a telephone number. Conference customer channel termination points are located in bridging service does not include telecommuni- more than one taxing jurisdiction, the charges are pro- cations services used to reach the conference rated to the different taxing jurisdictions based on the bridge. number of termination points in each jurisdiction. For  Detailed telecommunications billing service – more information, see Minnesota Statutes 297A.669, service of separately stating information per- subd. 3(d). taining to individual calls on a customer’s bill.  Directory services – providing telephone num- Private communication service ber and/or address information. Private communication service purchased by an agent  Vertical services – advanced calling features acting on behalf of the state lottery is not taxable. such as caller ID, call waiting, conference calls, and conference bridging services. Ring tones  Voice mail service - services that allow custom- Ring tones are taxable. Ring tones are digitized sound ers to store, send, or receive recorded . files (digital products) downloaded onto a device to Voice mail service does not include vertical alert the customer of a communication. Ring tones do services required to utilize the voice mail ser- not include digital audio files not stored on a commu- vice. nication device.

Pay television service Ring tones were not taxable from October 1, 2011 Pay television service is taxable. Beginning July 1, through June 30, 2013, and were taxable prior to Octo- 2013, pay television service replaces the terms cable ber 1, 2011. television service and direct satellite service. Pay televi-

sion service includes all “pay” television services re- Telegraph services gardless if delivery is via cable, direct satellite, or oth- Telegraph services are taxable. Telegraph services in- erwise. clude any process of providing transmission and repro- duction over a distance of documentary matter, such as Pay television means transmission of video, audio, and written or printed matter, fixed , or information all other programming services to subscribers. All pro- by the use of a signal code. gramming services including subscriptions to basic, ex-

tended, premium, pay-per-view, recorder Telephone answering services (DVR) services, and music services are taxable. Telephone answering services are taxable if they are It also includes point-to-multipoint distribution direct to automated. Answering services provided by live oper- satellite services by which programming is trans- ators are not taxable. mitted or broadcast by or other equipment

directly to the subscriber's premises. Teletype services

Teletype services are taxable. A teletypewriter is a Direct satellite service printing telegraph instrument that has a signal-actuated Direct satellite service is included in the definition of mechanism for automatically printing received mes- pay television service. This pay television service trans- sages. mits or broadcasts by satellite directly to the subscribers

premises. Examples of services broadcast directly by Voice over Protocol (VOIP) satellite include television, security, phone, or music. VOIP services are taxable.

Federal law exempts direct-to-home satellite (DTH) Taxable related services services from any tax or fee imposed by local govern- Ancillary services ments. Direct-to home satellite service is subject to Ancillary services associated with or incidental to tele- state sales or use tax, but is not subject to local sales or communications services are taxable. Ancillary ser- use tax. vices include, but are not limited to the following:  Conference bridging services (teleconferenc- services Teleconference services (audio or video) are taxable.

2 Minnesota Revenue, Telecommunications Services Sourcing rules features charges Sourcing rules are rules for determining which taxing  connection and  minimum jurisdictions involved in a sale may impose sales or disconnect charges use tax. The following rules apply to sales of telecom- charges  one-time munications and related services.  demand charges charges  detailed billing  priority call- Mobile telecommunication services, ancillary services charges ing and other services that are not billed on a call-by-call  directory assis-  reconnection basis, such as prepaid calling services, cable television tance charges fees service and direct satellite service, are subject to the  FCC fees  service sales tax rate imposed in the taxing jurisdiction at the  fixed or basic charges customer’s place of primary use. “Place of primary monthly charges  standby fees use” is defined as the residential street address or the  franchise fees  surcharges primary street address of the customer.  hookup fees  TDD charges  universal ser- Telecommunications services that are billed on a call- vice fees by-call basis (price is measured by each individual  voice call) are sourced as follows: mail/messag-  When the call originates and terminates in the ing same taxing jurisdiction, the call is subject to the sales tax rate imposed in that jurisdiction. Note: Federal excise tax directly imposed on the cus-  When the call either originates or terminates at tomer is not included in the base price subject to sales the customer’s service address, the call is sub- tax if it is separately stated on the customer’s bill. ject to the sales tax rate imposed in the juris- diction where the service address is located. Internet access charges  When the call is paid for using a credit or Internet access charges are not taxable when they are debit card, or is charged to a telephone number separately stated from other taxable charges. not associated with the origination or termina- Charges for telephone line access used only for internet tion point, the call is subject to the sales tax access are not taxable. If the provider charges for access rate imposed in the taxing jurisdiction where to one telephone line and that line will be used for both the call originated. telecommunications services and internet access, the

following rules apply: See the section on page 1 titled “Private communica-  If the provider separately states the charges for tion service” for the special sourcing rules that apply each on the billing statement, the internet ac- to those services. cess charge is exempt. The telephone line

charge is taxable. Taxable charges  If the provider charges a single charge for both All charges for telecommunications services and for internet access and the telephone line charge on ancillary services associated with telecommunications the billing statement the entire charge is taxa- services must be included in the sales price when de- ble, unless the service provider has books and termining the amount subject to sales tax, except sepa- records to reasonably identify the charges for rately stated charges for 911 emergency system, Tele- internet access as described below in “Bundled phone Assistance Plan (TAP), Telecommunications services.” Access Minnesota Fund (TAM) which provides access services for communications impaired persons (for- Bundled services merly known as TACIP), and federal excise tax im- Telecommunications services providers sometimes sell posed directly on the consumer. Examples of taxable taxable telecommunications services along with internet charges include: access for a monthly lump-sum or bundled charge.  call forwarding  line charges  call waiting  local tele- Since the state is currently prohibited by federal law  caller ID phone number from taxing internet access, telecommunications ser-  custom calling portability vices providers that can reasonably identify the charges

3 Minnesota Revenue, Telecommunications Services for internet access from books and records kept in the 3. Ancillary machinery, equipment, and fixtures regular course of business are allowed to deduct that that regulate, control, protect, or enable the ma- amount from the sales price before applying sales tax chinery in items 1 and 2 above to accomplish to the bundled charge. This applies only to the amount its intended function, such as auxiliary power attributable to internet access charges. Any other non- supply, test equipment, towers, heating, venti- taxable charges included in the bundled price remain lating, and equipment neces- taxable. sary to the operation of the telecommunications or pay television services equipment; and soft- Resale ware necessary to the operation of the telecom- Telecommunication charges purchased solely for re- munications or pay television services equip- sale, or to be used as a component of another telecom- ment; and munication service to be sold at , may be pur- 4. Repair and replacement parts, including acces- chased exempt. This includes purchases of telecommu- sories, whether purchased as spare parts, repair nications services by an internet service provider to parts, or as upgrades or modifications to quali- provide internet service to subscribers. To claim ex- fied machinery or equipment. emption, provide the seller with a completed Form ST3, Certificate of Exemption. Specify the Resale ex- What machinery and equipment does not qualify? emption. Machinery and equipment is taxable when used by the following service providers: Telecommunications and pay  Internet service providers (ISPs), because they television machinery and equipment provide data processing and information ser- vices. Starting April 1, 2014, machinery and equipment are  Radio and television stations, and others that exempt when purchased or leased for use directly by a provide services because they are not sell- telecommunications or pay television service provider ing their telecommunications services. to provide services that are sold at retail.  Coin-operated and telephone access This machinery and equipment was taxable July 1, charges. 2013 - March 31, 2014. (It was exempt before July 1, 2013.) Coin-operated telephones Owners of coin-operated telephones must collect and Note: Pay television means “cable television and di- pay sales tax on the gross receipts from charges for tele- rect satellite.” phone service. Since the tax is included in the gross re- What machinery and equipment qualifies? ceipts, owners may subtract the tax from the total re- Telecommunications and pay television machinery and ceipts when reporting the sales. For instructions on how equipment includes, but is not limited to: to subtract sales tax from your receipts, see the Minne- 1. Machinery, equipment, and fixtures utilized in sota Sales and Use Tax Instruction Booklet. receiving, initiating, amplifying, processing, Owners of coin-operated telephones must pay tax on transmitting, retransmitting, recording, switch- the purchase of the phones. However, charges for line ing, or monitoring telecommunications or pay service for the phones may be purchased exempt by television services, such as , trans- giving the seller a completed Form ST3, Certificate of formers, , routers, bridges, repeaters, Exemption. Specify the Resale exemption. multiplexers, and other items performing com- parable functions; Telephone access charges 2. Machinery, equipment, and fixtures used in Charges by hotels and other lodging establishments to the transportation of telecommunications or guests for access to telephone services are taxable. pay television services, radio and Charges to guests for the actual cost of telephone ser- receivers, satellite equipment, microwave vices are not taxable if the charge is separately stated on equipment, fiber, conduit, and other transport- the guest’s bill because the actual charge from the ing , but not , cable, or poles. Fiber phone company to the hotel includes the sales tax. and conduit became exempt July 1, 2017. Pre- viously, fiber and conduit were taxable.; Many hotels use “call accounting systems” to track and determine the amount to charge guests for long distance telephone calls. Using these systems, the hotel may not

4 Minnesota Revenue, Telecommunications Services know how much the actual telephone service costs un- adjustment to the taxable amount reported on the sales til they receive their bill from the telephone company. tax return to subtract the amount billed by the telephone In this situation, the hotel must charge sales tax on the company for the actual cost of long distance calls made total amount billed to guests for the long distance tele- by guests. This practice is only allowable when the ho- phone service. tel can distinguish between telephone calls billed to guests and their own administrative costs for telephone The hotel must also continue to pay sales tax on the service. purchases of telephone service from the telephone company. However, the hotel is allowed to make an

Legal References Minnesota Statutes 297A.61 subd. 3(i), Sale and purchase subd. 4(m), Retail sale/bundled transaction subd. 24, Telecommunications services subd. 25, Pay television service subd. 26, Private communication service subd. 38, Bundled transaction subd. 39, Ancillary services subd. 40, Conference bridging service subd. 41, Detailed telecommunications billing service subd. 42, Directory assistance subd. 43, Vertical service subd. 44, Voice mail service subd. 45, Ring tone Minnesota Statutes 297A.669, Telecommunications and related services sourcing

Revenue Notices 02-14, Exemption for Purchases of Telecommunications Equipment – Internet Service Providers 03-10, Telecommunications Services 05-03, Voice over Internet (VOIP) Service 08-02, Internet Access Charges

Other Fact Sheets 103, Capital Equipment 142, Sales to Governments 164, Local Sales and Use Taxes 177, Digital Products

5 Minnesota Revenue, Telecommunications Services