Matter of Time Warner Cable Information Services (NY), LLC, New York State Tax Appeals Tribunal, Case No. 830442
In a two-to-one decision, the New York State Tax Appeals Tribunal held that a provider of voice-over-internet protocol (VoIP) services need not collect New York sales tax on fees charged to its customers in connection with the Federal Universal Service Fund (“FUSF”). The taxpayer provided intrastate, interstate, and international VoIP services to customers in New York for a single charge. 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 VoIP services—not intrastate VoIP services.
The taxpayer did not collect and remit sales tax on the FUSF fee charged to its customers. The state argued that this was improper, but the Tribunal’s majority disagreed. Per Tax Law § 1105(b)(1), only that portion of the taxpayer’s charge for intrastate VoIP services was subject to sales tax. The portion of the charge for interstate and international VoIP services was expressly excluded from sales tax under Section 1105(b)(1)—on this point there was no dispute. The majority characterized the taxpayer’s FUSF contributions as a federal “regulatory surcharge . . . on revenue related to its interstate and international services,” and reasoned that if charges for interstate and international services were exempt from sales tax, the federal surcharge on such services passed through to the customer must also be exempt. The Tribunal thus sided with the taxpayer.