Texas – Advertising E-Mails Were Taxable as Telecommunication Services

SALT Report 2500 – The Texas Comptroller issued a ruling regarding an audit assessment against a Taxpayer who produces real estate television shows for homebuilders. The Taxpayer also owns and operates website, through which it offers internet-based services for the homebuilders.

In 2009, the Taxpayer was audited for sales and use tax compliance at which time the auditor determined that certain internet-based services were taxable as telecommunication services. At the conclusion of the audit the Comptroller sent the Taxpayer a Texas Notification of Audit Results which assessed taxes, penalties, and interest.

The Taxpayer filed a petition for redetermination claiming that his Broadcast E-Mails and Hot Sheets were part of an “internet response market response system” and therefore constituted nontaxable, internet-based advertising services.

The Taxpayer describes the Broadcast E-Mail and Hot Sheet transactions as features of his “Focus Follow-Up marketing system”, which are available to its clients for a fee. According to the Taxpayer, the Broadcast E-Mails advertise upcoming events that are organized by homebuilders, who are promoting homes for sale. The Broadcast E-Mails target realtors who have attended the homebuilder’s events and have agreed to receive the builder’s e-mails. The Broadcast E-Mails have an RSVP button, which the realtors click indicating that they will attend an event. The homebuilders are sent an e-mail with the names of the realtors who have RSVP’d.

The Hot Sheet is a weekly e-mail advertisement sent to a database of retailers and customers who register with the Taxpayer’s website. The weekly e-mail advertises the builders’ homes and residential communities. The homebuilders pay a fee to be advertised on the Hot Sheet.

Upon review of the case the Comptroller referred to Texas Tax Code Section 151.0103(a) which defines telecommunications services as “the electronic or electrical transmission, conveyance, routing, or reception of sounds, signals, data, or information utilizing wires, cable, radio waves, microwaves, satellites, fiber optics, or any other method now in existence or that may be devised, including but not limited to long-distance telephone service.”

Based on that definition, the Comptroller must determine whether the Hot Sheet and Broadcast email customers were paying for advertisements placed in the emails, or if they were paying solely for the electronic transmission of information via e-mail. The latter of which would constitute a taxable telecommunication service under Tax Code Section 151.0103.

In the case of the Hot Sheet, the Comptroller determined that the Taxpayer’s sole responsibility was to electronically transmit its customers’ weekly advertisements. In the case of the Broadcast e-mails, the issue was more complicated because the content of the e-mails had to be approved by the customer, which might suggest that the Taxpayer was engaged in designing the advertisement.

However, the evidence the Taxpayer provided was insufficient to establish that it was engaged in anything more than the electronic transmission via e-mail of advertisements provided by its customers.

As a result, the Comptroller determined that both services were e-mail transmissions and therefore taxable as telecommunication services; thereby rejecting the Taxpayer’s claim that its services were nontaxable, Internet-based advertising services.

For Further Information

Texas Comptroller of Public Accounts – Decision, Hearing No. 105,515


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