Tax Type
Retail Sales and Use Tax
Description
Telecommunications; Collectible prepaid telephone cards
Topic
Taxability of Persons and Transactions
Date Issued
08-28-1997
See 2004 updated Tax Code 58.1- 602
August 28, 1997
Re: Request for Ruling: Retail Sales and Use Tax
Dear************
This will reply to your letter in which you request a ruling regarding the application of the retail sales and use tax to long distance selling cards sold by ***** (the "Taxpayer"). I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a telecommunications company selling long distance calling cards and long distance service. Some of its calling cards will be advertised as collectibles. The cost is $100 for a 200-minute card, or 50 cents a minute. Other cards not advertised as collectible cost $25 for 60 minutes, or 42 cents a minute. You ask if any of the cards are taxable and, if so, what is the basis for computing the tax.
RULING
Generally: The department ruled in Public Document (P.D.) 93-105 (4/19/93), copy enclosed, that the retail sales of telephone calling cards which enable the purchasers to make prepaid long distance telephone calls are nontaxable. The "true object" in purchasing a calling card is the long distance service. The card, when nonrefundable with no surrender value, serves only as a medium for securing the telephone service.
Accordingly, cards sold by the Taxpayer which are not advertised as collectible and which are nonrefundable and have no surrender value are not subject to the retail sales and use tax.
Collectible calling cards: For calling cards which are advertised as collectible, the purchaser is receiving access to nontaxable telephone service and tangible personal property with value beyond the securing of the telephone service. In this instance, the true object of the transaction is the purchase of tangible personal property. If this were not the case, the purchaser would have no reason to purchase the "collectible" cards.
Under Title 23 of the Virginia Administrative Code (VAC) 10-210-4040(D), which explains the application of the "true object" test, if the object of a transaction is to secure tangible personal property, then the entire charge, including the charge for any services provided, is taxable. Therefore, tax should be collected by the Taxpayer on the entire sales price for "collectible" calling cards.
Sales in interstate commerce: You indicate that the Taxpayer may be selling calling cards to out-of-state residents. Code of Virginia § 58.1-609.10(4) exempts from the sales and use tax interstate sales of tangible personal property. To qualify for the exemption, the sale must involve (1) delivery of the tangible personal property outside Virginia, and (2) no use or consumption of the property in Virginia. The Taxpayer will not be required to collect the sales tax from an out-of-state customer when delivery of the collectible calling card is made to the customer outside Virginia by the U.S. Post Office or by common carrier.
If you have any questions regarding this ruling, you may contact***** of the department's Office of Tax Policy at ******* .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11870F
Rulings of the Tax Commissioner