NOTICE: Under IC 4-22-7-7, this document is required to be published in the Indiana Register and is effective on its date of publication. It shall remain in effect until the date it is superseded or deleted by the publication of a new document in the Indiana Register. The publication of this document will provide the general public with information about the Department's official position concerning a specific issue.

Sales and Use Tax - Prepaid Phone Cards & Services

Authority: IC 6-2.5-1-22.4; IC 6-2.5-2-1; IC 6-2.5-3-1; IC 6-2.5-4-1; IC 6-2.5-4-13; IC 36-8-16.6 et seq.; IC 36-8-16.6-7.

A company ("Taxpayer") is seeking an opinion as to the following issues:

Taxpayer is a grocery store. Taxpayer sells "traditional prepaid telephone calling cards" and "international prepaid phone service." Taxpayer provides the following additional details concerning these products:

Indiana imposes an excise tax called "the state gross retail tax" (or "sales tax") on retail transactions made in Indiana. IC 6-2.5-2-1(a). Indiana also imposes a complementary excise tax called "the use tax" on "the storage, use, or consumption of tangible personal property in Indiana if the property was acquired in a retail transaction, regardless of the location of that transaction or of the retail merchant making that transaction." IC 6-2.5-3-2(a).

Additionally, IC 6-2.5-4-13 states:

Pursuant to IC 36-8-16.6 et seq., an enhanced prepaid wireless charge is imposed on retail transactions representing the purchases of prepaid wireless telecommunications service. IC 36-8-16.6-7 defines "prepaid wireless telecommunications service" to mean "a prepaid wireless calling service (as defined in IC 6-2.5-1-22.4) that allows a user of the service to reach emergency services by dialing the digits nine (9) one (1) one (1)."

Based on the foregoing facts, the traditional phone cards meet the statutory definition of a "prepaid calling service" as set out in IC 6-2.5-12-11, as it grants the user the right to exclusively access telecommunication services, which are paid for in advance and in predetermined amounts, and which are accessed via an access number. This means that Taxpayer is acting as a retail merchant when it sells the cards, and therefore must charge sales tax on the transaction. However, the traditional phone cards do not meet the definition of a "prepaid wireless calling service," because these cards do not provide the right to use nontelecommunications services, and therefore they are not subject to the enhanced prepaid wireless charge. Taxpayer does not state whether it also sells phone cards that do provide the right to broadband access (which would constitute nontelecommunications per IC 6-2.5-1-22.4(a)) in addition to telecommunication services. Those types of cards would be subject to sales tax, as it constitutes a prepaid wireless calling service, and the prepaid wireless charge.

With regards to the international phone service, as the Department understands it, the card is purchased, and after the transaction is complete, the purchaser enters into a separate transaction where they can add a specific number of minutes to a prepaid international mobile phone account. The Department interprets this product to be neither a "prepaid calling service" nor a "prepaid wireless calling service" because the product does not grant the user the right to access telecommunications services or use mobile wireless service, respectively, on its own. The prepaid mobile phone account itself possibly allows the user to access those services, but the international phone service card on its own allows no access to these services. It merely allows the purchaser access to a service to purchase additional minutes for an international prepaid phone account.

However, the international phone service would be considered a "reauthorization of a prepaid calling service," so the plastic card itself is subject to sales and use tax if there is a charge for the card. As for the transaction for adding minutes, if it is as described above, it is a separate transaction involving the purchaser and a third party, and the Taxpayer is not responsible for collecting Indiana sales or use tax. Further, since the international phone service is not a "prepaid wireless calling service," it is not subject to the enhanced prepaid wireless charge.

Having said that, if the international phone service card does include a predetermined amount of minutes (and no other right to access nontelecommunication services) as part of the initial transaction, the international phone service would be considered a "prepaid calling service," as it is essentially the same type of product as the traditional phone card. In that case, the transaction would be subject to Indiana sales or use tax. Even though it is an international number, the transaction would still be sourced to Indiana per IC 6-2.5-13-1. However, the international phone service would still not be subject to the enhanced prepaid wireless charge.

This ruling is issued to the taxpayer requesting it on the assumption that the taxpayer's facts and circumstances as stated herein are correct. If the facts and circumstances given are not correct, or if they change, then the taxpayer requesting this ruling may not rely on it. However, other taxpayers with substantially identical factual situations may rely on this ruling for informational purposes in preparing returns and making tax decisions. If a taxpayer relies on this ruling and the Department discovers, upon examination, that the fact situation of the taxpayer is different in any material respect from the facts and circumstances given in this ruling, then the ruling will not afford the taxpayer any protection. It should be noted that subsequent to the publication of this ruling a change in statute, regulation, or case law could void the ruling. If this occurs, the ruling will not afford the taxpayer any protection.