Tax Type
Retail Sales and Use Tax
Description
Telecommunications; Prepaid telephone cards
Topic
Taxability of Persons and Transactions
Date Issued
01-04-1996
January 4, 1996
Re: Request for Ruling : Prepaid telephone cards
Dear**************
This will reply to your letter in which you request a ruling on the application of the retail sales and use tax to prepaid telephone cards.
Scenario #1: A company purchases prepaid telephone cards to give away as part of a promotion. The 800 number that people will be using is located out of state. You ask if use tax is applicable and, if so, is the tax imposed on the cost of the entire amount of minutes on the telephone card or only on the cost of the minutes actually used.
Code of Virginia § 58.1-604 imposes a use tax on services which are expressly stated as taxable. Telephone communication services are not among the services enumerated as subject to the tax.
The department has previously ruled that the "true object" in purchasing a prepaid telephone card is the phone service. The card serves as a medium for securing the telephone service. If no separate charge is made for the cost of the card and the card has no surrender value, the retail sale of the prepaid telephone card is not subject to the sales and use tax. See P. D. 93-105 (4/19/93) (copy enclosed). Similarly, the use tax does not apply to a company that gives the cards away for promotion purposes because the true object of the transaction is the telephone service, which is not subject to tax.
Scenario #2: Prepaid telephone cards are sold to another company that is going to resell the cards. Should the company be charging the tax or should the store charge the tax on the sale of the card to the consumer?
The first transaction (cards are sold to a company for resale) is not subject to the sales tax, as there is no sale of tangible personal property or taxable services to the consumer. The second transaction (store sells the telephone card to the consumer) is not subject to the sales and use tax because the "true object" of the prepaid telephone card is the phone service, which is not taxable in Virginia. See P.D. 93-105 (4/19/93). Therefore, neither the company nor the store should charge tax.
If you have any questions regarding this matter, you may contact****** at ****** .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10611F
Rulings of the Tax Commissioner