Matter of T-Mobile Northeast LLC, New York State Division of Tax Appeals, Case No. 850185
An administrative law judge for the New York State Division of Tax Appeals determined that a wireless telecommunications service provider was required to collect and remit New York sales tax on fees charged to its customers in connection with the Federal Universal Service Fund (“FUSF”). The taxpayer sold New York customers calling, texting, and internet- access services for a single charge. In addition, the taxpayer separately charged the customers a “FUSF fee,” which covered a portion of the taxpayer’s federally mandated contributions to the FUSF. The FUSF was created to ensure affordable telecommunication services to rural and low- income areas of the United States. The amount of the taxpayer’s contribution to the FUSF was based on its revenue from interstate and international calling services.
The taxpayer collected no sales tax from its customers on the FUSF fees. The ALJ ruled that this was improper because: (1) under Tax Law § 1105(b)(2), the taxpayer could not unbundle the FUSF fees from its taxable charges for mobile telecommunication services; and (2) the FUSF fees were merely a component of the taxable mobile telecommunication services. Thus the FUSF fees were taxable. (Note: the ALJ distinguished the taxpayer’s case from Matter of Time Warner (discussed below) because the taxpayer’s services were subject to tax under Section 1105(b)(2), which subjects all calling services to sales tax, whereas the services in Time Warner were subject to tax under Section 1105(b)(1), which subjects only intrastate calling services to tax.)