Texas Comptroller of Public Accounts    STAR System


201008847L



August 6, 2010

**************
**************
**************

Dear **************:

This is in response to your inquiry regarding line item descriptions related to 
certain surcharges and fees included on PHONE COMPANY’s customer billing 
invoices (“Recovery Charges”).

Specifically, you seek confirmation that PHONE COMPANY and its affiliates 
(“PHONE COMPANY”) may collect and retain such Recovery Charges from its 
customers as long as PHONE COMPANY does not represent (within the meaning of 
Tex. Tax Code Ann. Section 111.016) to the consumer that these amounts are 
taxes imposed on the consumer.  You also seek confirmation that the phrase 
“State Cost-Recovery Fee” is an acceptable way to describe the Recovery 
Charges.

The Comptroller’s Office recognizes that a company may elect to collect and 
retain certain charges from its customers as a way of recovering its business 
costs, so long as the company does not represent to the customer that these 
charges are taxes imposed on the customer.  This letter does not prohibit PHONE 
COMPANY from explaining to its customers that amounts charged by PHONE COMPANY 
to recover its Texas franchise tax liability are charged by PHONE COMPANY to 
recover taxes that are imposed on PHONE COMPANY.

Your letter correctly points out that Recovery Charges should not be described 
as taxes that are imposed on the consumer.  Indeed, if a seller collects and 
retains amounts that are represented to the customer as being a tax on the 
customer, then those amounts must generally be paid over to the state.  See 
Tex. Tax Code Ann. Section 111.016 (a) (2008) (providing that “[a]ny person who 
receives or collects a tax or any money represented to be a tax from another 
person holds the amount so collected in trust for the benefit of the state and 
is liable to the state for the full amount collected plus any accrued penalties 
and interest on the amount collected”).

This letter confirms that your proposed use of the line item description 
“State Cost-Recovery Fee” does not trigger liability under the Comptroller’s 
enforcement authority, including Sections 111.011 and 111.016, Tax Code.  We 
offer the following guidance:

First, any such Recovery Charge must not appear in the section of the customer’s
bill entitled “Government fees and Taxes” PHONE COMPANY should not represent,
directly or by labeling, that the Recovery Charge is a tax or government fee
which the State of Texas obligates consumers to pay, and should disclose to its
customers, as part of PHONE COMPANY’s explanation of the Recovery Charge, that
the Recovery Charge is not a tax that PHONE COMPANY is required to collect from
its customers by law.

Second, PHONE COMPANY should not use the word “reimbursement” to describe any 
line item charge assessed by PHONE COMPANY to recoup costs of the Texas 
franchise tax or to describe any line item charge represented to be related to 
the Texas franchise tax.  In addition, PHONE COMPANY should avoid using any of 
the following phrases, or any variation thereof, as a description of the 
amounts charged by PHONE COMPANY to recover PHONE COMPANY’s Texas franchise tax 
liability: “Texas Margin Fee Reimbursement,” “Gross Receipts,” “Franchise Tax,” 
“Margin Fee,” “Texas Margin Fee,” unless a state or federal law, or rule, or 
regulation or Comptroller letter ruling specifically required or allows PHONE 
COMPANY to use such phrases (or description), or requires or allows PHONE 
COMPANY to assess or impose the franchise tax on its customers.  PHONE COMPANY 
should not make representations to its customers that are inconsistent with 
this letter.

This opinion is based on the facts presented.  Other facts, though similar, may 
yield different results.  If we can assist you by providing additional 
information, you may contact me at Kevin.koller@cpa.state.tx.us or (800) 
531-5441, ext. 5-0613.

Sincerely, 


Kevin Koller
Assistant Director of Tax Administration


NOTE: This item is also listed under 201008851L as SALES TAX.




ACCESSION NUMBER: 201008847L
SUPERSEDED: N
DOCUMENT TYPE: L
DATE: 08/06/2010
TAX TYPE: FRANCHISE