201006687H




SOAH DOCKET NO. 304-09-0234.26
CPA HEARING NO. 100,586

RE: **************
TAXPAYER NO.: **************
AUDIT OFFICE: **************
AUDIT PERIOD: July 1, 2000 THROUGH November 30, 2003

Limited Sales, Excise, And Use Tax/RDT

BEFORE THE COMPTROLLER 
OF PUBLIC ACCOUNTS 
OF THE STATE OF TEXAS

SUSAN COMBS
Texas Comptroller of Public Accounts

TREVOR MOORE
Representing Tax Division

**************
Representing Petitioner


COMPTROLLER’S DECISION

************** (Petitioner) seeks redetermination of the sales and use tax 
audit assessment made by the Texas Comptroller of Public Accounts 
(Comptroller).  Comptroller Staff (Staff) has agreed to reduce the initial 
audit assessment, but one disagreement remains.  Petitioner contends audit 
assessments on roaming charges for wireless calls that originated and 
terminated in Mexico should be deleted.  Staff disagrees and contends the 
charges are for telecommunications services deemed to have been provided in 
Texas.  In his Amended Proposal for Decision (PFD), the Administrative Law 
Judge (ALJ) recommends Petitioner’s contention be granted.

I.  PROCEDURAL HISTORY, NOTICE & JURISDICTION

On September 17, 2008, Staff referred the matter to the State Office of 
Administrative Hearings (SOAH).  The hearing convened October 23, 2008, before 
ALJ Victor John Simonds at the William P. Clements Building, 300 West 15th 
Street, Austin, Texas.  Petitioner appeared and was represented by 
**************.  Staff appeared and was represented by Assistant General 
Counsel Trevor Moore.  The ALJ closed the record at the conclusion of the 
hearing.  On November 17, 2008, the ALJ issued a PFD.  Subsequently, Staff 
timely filed exceptions, and Petitioner filed its response.  The Amended PFD 
represents the ALJ’s ruling on Staff’s exceptions.

There are no issues of notice or jurisdiction in this proceeding.  Therefore, 
these matters are set out in the Findings of Fact and Conclusions of Law 
without further discussion here.

II. REASONS FOR DECISION

A. Evidence

Staff presented the audit report, the audit plan, the penalty and interest 
worksheet, and the Texas Notification of Audit Results.  Staff and Petitioner 
each presented various documents related to the legislative history and 
interpretation of the Mobile Telecommunications Sourcing Act (the MTSA or the 
Act). [ENDNOTE: (1)]

B. Agreed Facts and Issue Presented

Petitioner is a retailer of wireless telecommunications services, and maintains 
a network in Texas.  It worked with the Comptroller to complete a managed audit 
for the period July 1, 2000 through November 30, 2003 (the audit period).  On 
January 19, 2007, the Comptroller issued Petitioner a Texas Notification of 
Audit Results that assessed a tax deficiency of $**************.  Penalty and 
interest were waived pursuant to the managed audit agreement.  Petitioner 
subsequently provided additional information, and Staff has agreed to certain 
audit deletions and reductions. [ENDNOTE: (2)]

Customers pay a flat rate in exchange for the right to access Petitioner’s 
network for a specified number of minutes.  However, because Petitioner’s 
network does not cover the globe, it entered into agreements with other 
wireless telecommunications service providers to purchase telecommunications 
services with the expectation that it would resell the services to customers so 
that they could have seamless service even when they travel (roam) outside 
Petitioner’s network.  Some of Petitioner’s customers included roaming 
privileges in their basic plan; others excluded roaming privileges from their 
flat rate and chose instead to pay roaming service charges on an as-needed 
basis.  Petitioner would charge these customers on a per-minute-used basis when 
out-of-network services were used.

During the audit period, Petitioner did not collect (or remit) sales tax on 
itemized charges for “roaming” service when its Texas customers traveled to 
Mexico and used a wireless device to place or receive a call that originated 
and terminated in Mexico.  Petitioner contends such telecommunications services 
are not subject to Texas sales tax because the services were provided in 
Mexico.

Staff agrees that prior to the MTSA the state had no authority to tax calls 
such as those at issue here. Long-standing Comptroller policy has been that 
Texas tax is not due on telecommunications services between points in Mexico, 
which is why Staff did not make any audit assessment against roaming charges 
incurred prior to August 1, 2002. [ENDNOTE: (3)] Staff also agrees that the 
calls originated and terminated in Mexico, but contends the charges are taxable 
because, according to Staff, the MTSA assumes that all mobile 
telecommunications services are provided at the customer’s primary place of 
use, and it is the place of primary use that must be in a taxing jurisdiction; 
the physical location of the customer is not material.  Thus, according to 
Staff, if a customer’s place of primary use is in a taxing jurisdiction, that 
place is considered the point of delivery of the telecommunications service. 
[ENDNOTE: (4)]

C. Authorities and Analysis

Texas imposes a sales tax on the sale of a telecommunications service in this 
state. [ENDNOTE: (5)] Sales tax is a transactional tax so each transaction must 
be examined to determine if tax is due. [ENDNOTE: (6)] Because the question 
presented involves the taxability of a service, Staff has the burden to 
establish a prima facie case that tax is due. [ENDNOTE: (7)]

A telecommunications service that involves a land-line telephone call is 
relatively easy to source, because states and localities can tell where a call 
originated and terminated.  The same cannot always be said of a wireless 
telecommunications service.  For example, a mobile wireless subscriber with 
access to a Texas network might place a call to Oklahoma while driving through 
Virginia, and pass into Maryland during the call.  Determining who can impose 
tax on the call is complex, because the caller has passed through multiple 
taxing jurisdictions.  And because of the nature of wireless technology, it can 
be difficult to determine the precise location the call originated and 
terminated.  In other words, it can be difficult (or impossible) to ascertain 
where the telecommunications service was sold, and which taxing jurisdictions 
have sufficient nexus to impose tax.

The United States Congress, exercising its constitutional authority to regulate 
commerce among the states, enacted the MTSA to address the interstate tax 
sourcing problems related to wireless telecommunications services. [ENDNOTE: 
(8)] The Act provides a uniform national rule for determining the location from 
which mobile telecommunications are provided. [ENDNOTE: (9)] The Texas 
Legislature followed Congress and adopted the MTSA sourcing methodology. 
[ENDNOTE: (10)] In accordance with the MTSA, the Tax Code provides:

(1) mobile telecommunications services provided in a taxing jurisdiction 
[ENDNOTE: (11)] to a customer shall be deemed to be provided by the customer’s 
home service provider, and

(2) all charges for mobile telecommunications services that are deemed to be 
provided by the customer’s home service provider [ENDNOTE: (12)] in accordance 
with this Act are authorized to be subjected to tax, charge, or fee by the 
taxing jurisdictions whose territorial limits encompass the customer’s place of 
primary use, [ENDNOTE: (13)] regardless of where the mobile telecommunications 
services originate, terminate, or pass through, and no other taxing 
jurisdiction may impose taxes, charges, or fees for such mobile 
telecommunications services. [ENDNOTE: (14)]

The legislative history shows that Congress was well aware of the 
constitutional issues such a call presented by mobile telecommunications 
services. [ENDNOTE: (15)] The MTSA, and its place-of-primary-use rule, give 
state and local taxing jurisdictions a consistent rule by which they can 
constitutionally tax multijurisdictional wireless communications.

For example, Texas is authorized to impose sales tax on charges related to a 
wireless call that originates in Maine and terminates in New Hampshire if the 
customer’s place of primary use is Texas, because the service is provided in a 
taxing jurisdiction.  Therefore the MTSA’s place-of-primary-use rule applies. 
[ENDNOTE: (16)] The wireless telecommunications services are deemed to have 
been provided by the home service provider, and the charges are subject to 
sales tax in Texas according to the customer’s place of primary use.  But only 
because the MTSA methodology applies.

The Act, and corresponding Tax Code statute, begins: “mobile telecommunications 
services provided in a taxing jurisdiction” shall be deemed to be provided by 
the customer’s home service provider. [ENDNOTE: (17)] Subsection two is 
similar, and begins: “all charges for mobile telecommunications services that 
are deemed to be provided by the customer’s home service provider” are subject 
to tax according to the place-of-primary-use rule. [ENDNOTE: (18)]

Acts of the Legislature have meaning, and every word used in a statute is 
presumed to have been used for a purpose. [ENDNOTE: (19)] The plain meaning of 
the quoted language is that the drafters were focused exclusively on resolving 
interstate taxation issues presented by competing jurisdictions in the United 
States. [ENDNOTE: (20)] The words “mobile telecommunications services provided 
in a taxing jurisdiction” show the drafters intended to limit application of 
the place-of-primary-use rule to services provided in the United States.  
Staff’s argument that the language requires only that the customer’s place of 
primary use be in the United States is contrary to the plain meaning of the 
statute, and is not what Congress and the Legislature intended.

Services not provided in the United States are not deemed by the MTSA to be 
provided by the customer’s home service provider.  Mobile telecommunications 
services like those presented by the instant matter are not provided in the 
United States, because the calls utilize facilities located in Mexico.

Staff also cites Southwestern Bell Telephone Co. v. Combs and suggests it 
supports its view that the charges at issue should be treated as consideration 
for access to Petitioner’s network, but the case is distinguishable. [ENDNOTE: 
(21)] Southwestern Bell dealt with a period of time in which Southwestern Bell 
was required to allow long-distance providers access to its local networks.  
The charges at issue were specific amounts Southwestern Bell charged its 
customers for accessing its Texas network, and for using its Texas employees.  
The court noted that the Comptroller’s franchise tax policies treat charges 
attributed to facilities located in Texas as Texas receipts; charges attributed 
to out-of-state facilities are not treated as Texas receipts. [ENDNOTE: (22)] 
Charges at issue in the instant matter are roaming charges attributed to 
facilities and employees located in Mexico; thus, according to Southwestern 
Bell, the charges would not be treated as Texas receipts.  Facts presented by 
Southwestern Bell are too dissimilar from those presented by the instant 
matter.  The case is not instructive, and does not provide a basis for changing 
Comptroller policy.

D. Conclusion

The words “mobile telecommunications service provided in a taxing jurisdiction” 
limit application of the MTSA methodology, and require that taxing authorities 
make a preliminary determination that a mobile telecommunications service was 
provided in a taxing jurisdiction before applying the place-of-primary-use 
rule.

The mobile calls at issue originated and terminated in Mexico; they used 
facilities located in Mexico for transmission.  The calls did not involve any 
taxing jurisdiction as that term is defined by the MTSA, therefore services 
cannot be deemed to have been provided by Petitioner, and the 
place-of-primary-use rule does not apply.  Staff cannot use the MTSA as a basis 
for taxing the services.

A separately stated charge for a mobile call that originates and terminates in 
Mexico is consideration for a telecommunication service provided in that 
country, not consideration for access to Petitioner’s network.  Therefore, the 
wireless telecommunications services at issue were provided in Mexico, and 
there is no authority for imposing sales tax on such calls.  Staff has failed 
to meet its burden to show, prima facie, that the services at issue are 
taxable, and Petitioner’s contention should be granted.

III. FINDINGS OF FACT

1. ************** (Petitioner) worked with the Texas Comptroller of Public 
Accounts (Comptroller) to complete a managed audit of Petitioner’s sales and 
use tax compliance for the period July 1, 2000 through November 30, 2003 (the 
audit period).  Petitioner was assessed $************** in tax (penalty and 
interest were waived) pursuant to a Texas Notification of Audit Results dated 
January 19, 2007.

2. Comptroller Staff (Staff) agreed to reduce the assessment in its Position 
Letter, dated April 28, 2008. 

3. Petitioner requested redetermination.

4. On September 17, 2008, Comptroller Staff issued a Notice of Hearing to 
Petitioner.  The notice of hearing contained the time, date, and statement of 
the nature of the hearing; a statement of the legal authority and jurisdiction 
under which the hearing was to be held; a reference to the particular sections 
of the statutes and rules involved; and a short, plain statement of the matters 
asserted.

5. The hearing convened October 23, 2008, before Administrative Law Judge 
Victor John Simonds, at the William P. Clements Building, 300 West 15th Street, 
Austin, Texas.  Staff appeared and was represented by Assistant General Counsel 
Trevor Moore.  Petitioner appeared and was represented by **************.

6. The record closed on October 23, 2008.

7. During the audit period, Petitioner was a wireless telecommunications 
service provider, maintained a Texas network, and sold mobile wireless users 
the right to access its network.

8. During the audit period, Petitioner entered into agreements with other 
wireless telecommunications providers to purchase telecommunications services 
with the intent to resell those services to give its customers seamless service 
even when the customers traveled (roamed) outside Petitioner’s network coverage 
area.

9. During the audit period, some of Petitioner’s customers traveled to Mexico, 
and used a wireless device to place or receive calls that originated and 
terminated in Mexico.  The related charges were separately stated, call 
specific, roaming charges for a telecommunications service that was provided in 
Mexico.

10. Audit Exam 420 includes sales tax assessments on itemized roaming charges 
paid by Petitioner’s customers that traveled to Mexico, and used a wireless 
device to place or receive calls that originated and terminated in Mexico.

IV. CONCLUSIONS OF LAW

1. The Comptroller has jurisdiction over this matter pursuant to TEX. TAX CODE 
ch. 111.

2. The State Office of Administrative Hearings has jurisdiction over matters 
related to the hearing in this matter, including the authority to issue a 
proposal for decision with findings of fact and conclusions of law pursuant to 
TEX. GOV’T CODE ch. 2003.

3. The Comptroller provided proper and timely notice of the hearing pursuant to 
TEX. GOV’T CODE ch. 2001.

4. Texas imposes a sales tax on the sale of a telecommunications service in 
this state.  TEX. TAX CODE Section 151.051; 151.0101(a)(6); and 151.0103(a).

5. The Mobile Telecommunications Sourcing Act (the “MTSA”) provides that a 
mobile telecommunications service provided in the United States will be deemed 
to have been provided at a subscriber’s place of primary use, as defined by the 
Act.  See 4 U.S.C. Section 116 – 126, effective August 1, 2002.  See also TEX. 
TAX CODE Section 151.061.

6. When a wireless telecommunications subscriber travels to a foreign country, 
and uses a wireless device to place or receive calls that originate and 
terminate in the foreign country, the subscriber is not using facilities 
located in the United States, therefore the telecommunications service is not 
provided in a taxing jurisdiction as defined by the MTSA and the Act’s 
place-of-primary-use rule does not apply.  See 4 U.S.C. Section 116 and 
124(12).

7. When a wireless telecommunications subscriber travels to a foreign country, 
and uses a wireless device to place or receive calls that originate and 
terminate in the foreign country, the subscriber is not using a wireless 
telecommunications service that can be deemed to have been provided in Texas.

8. Based upon the above Findings of Fact and Conclusions of Law, in addition to 
adjustments Staff previously agreed to, the roaming charges for wireless calls 
that originated and terminated in Mexico listed in Exam 420 should be deleted.


Hearing No. 100,586

ORDER OF THE COMPTROLLER

On November 17, 2008, the State Office of Administrative Hearings’ 
Administrative Law Judge (ALJ), Victor John Simonds, issued a Proposal for 
Decision in the above referenced matter to which the Tax Division filed 
Exceptions on January 16, 2009.  The Petitioner filed a Response on January 30, 
2009.  An Amended Proposal for Decision was issued on February 9, 2009 and no 
exceptions were filed.  The Comptroller has considered the Exceptions, Response 
and the ALJ’s recommendation letter and determined that the ALJ’s Amended 
Proposal for Decision should be adopted without change, except to correct 
typographical and clerical errors,  and this decision represents the ruling 
thereon.

The above decision resulting in a credit to Petitioner as set out in 
“Attachment A,” which is incorporated by reference, is approved and adopted in 
all respects.  This decision becomes final twenty days after the date 
Petitioner receives notice of this decision.  If either party desires a 
rehearing, that party must file a Motion for Rehearing, which must state the 
grounds for rehearing, no later than twenty days after the date Petitioner 
receives notice of this decision.  Notice of this decision is presumed to occur 
on the third day after the date of this decision.

Signed on this 4th day of June 2010.


SUSAN COMBS
Texas Comptroller of Public Accounts

by: Martin A. Hubert
Deputy Comptroller


ENDNOTE(S):

(1) 4 U.S.C. Section 116 – 126, effective August 1, 2002.  See also TEX. TAX 
CODE Section 151.061, which codifies the Act into the Tax Code.

(2) Staff’s agreed audit reductions are set forth in its Position Letter, April 
28, 2008.

(3) See State Tax Automated Research (“STAR”) Accession No. 9004L0999E05.  See 
also Audit, Exam 420.

(4) See Staff Hearing Exhibit No. 6.

(5) TEX. TAX CODE Section 151.051; 151.0101(a)(6); and 151.0103(a).

(6) See SOAH Docket No. 304-07-3305.26; CPA Hearing No. 45,903 (2008).

(7) Comptroller’s Decision No. 47,246 (2007).

(8) U.S. Const. art. I, section 8, cl. 3; the Commerce Clause.

(9) See Staff Hearing Exhibit No. 12: U.S. Senate Committee on Commerce, 
Science, and Transportation report on the MTSA.

(10) TEX. TAX CODE Section 151.061, effective August 1, 2002.

(11) Taxing jurisdiction is defined as: “any of the several States, the 
District of Columbia, or any territory or possession of the United States, any 
municipality, city, county, township, parish, transportation district, or 
assessment jurisdiction, or any other political subdivision within the 
territorial limits of the United States with the authority to impose a tax, 
charge, or fee.”  See 4 U.S.C. Section 124(12).

(12) Home service provider is defined as the carrier which the customer 
contracts for the provision of mobile telecommunication services.  See TEX. TAX 
CODE Section 151.061(a)(1).

(13) Place of primary use is defined as: “the street address that is 
representative of where the customer’s use of the mobile telecommunications 
service primarily occurs.”  See TEX. TAX CODE Section 151.061(a)(2).

(14) TEX. TAX CODE Section 151.061(c).  

(15) See Staff Exhibit Nos. 10 and 12.  See also 4 U.S.C. Section 125.

(16) See STAR Accession No. 200205076L, May 15, 2002.

(17) TEX. TAX CODE Section 151.061(c)(1).  

(18) TEX. TAX CODE Section 151.061(c)(2).  

(19) See Liberty Mut. Ins. Co. v. Garrison Contractors, Inc., 966 S.W.2d 482, 
485 (Tex. 1998).  See also Cameron v. Terrell & Garrett, Inc., 618 S.W.2d 535 
(Tex. 1987).

(20) See Fleming Foods of Texas, Inc. v. Rylander, 6 S.W.3d 278 (Tex. 1999), 
which held the plain and clear language of a statute must be given effect as 
written; the cardinal rule of statutory interpretation is to give effect to 
legislative intent.  See also, USAA v. Strayhorn, 124 S.W.3d 722 (Tex. App. - 
Austin 2003, pet denied), which held that even when the language of a statute 
is unambiguous, other factors may be considered to determine the legislature’s 
intent, including the object sought to be obtained, and the legislative 
history.

(21) Southwestern Bell Telephone Co. v. Combs, 270 S.W.3d 249, 2008 Tex. App. 
LEXIS 8214 (2008).

(22) See STAR Accession No. 9803494L, March 6, 1998.




ACCESSION NUMBER: 201006687H
SUPERSEDED: N
DOCUMENT TYPE: H
DATE: 06/04/2010
TAX TYPE: SALES