Alert
New York Tax Appeals Decisions on Sales Tax Treatment of FUSF Fees
A recent decision from the New York Division of Tax Appeals and Tax Appeals Tribunal addresses whether fees recovered from mobile telecommunications customers for contributions to the Federal Universal Service Fund (FUSF) are subject to New York sales tax under Tax Law § 1105(b). This decision highlights distinctions based on service type relative to the Time Warner Decision earlier this year, with differing outcomes for mobile providers versus VoIP telecommunications providers.
Background
The FUSF is a federally mandated fee that requires telecommunications providers to contribute based on interstate and international revenues to support universal access. Providers may pass these costs to customers as separately stated fees. At the state level, New York imposes sales tax on intrastate telephony and telephone services but exempts interstate/international services. However, mobile voice telecommunications services are taxed in their entirety.
August 7, 2025, T-Mobile Decision—FUSF Fees Taxable
In the matter of T-Mobile Northeast LLC (DTA No. 850185, ALJ Determination, August 7, 2025), the administrative law judge (AJL) upheld a $1.8 million assessment on FUSF fees recovered from customers for bundled mobile services (CMRS, text messaging, and data). T-Mobile bundled intrastate, interstate, and international mobile services for a flat fee. FUSF fees were calculated on interstate/international revenues and passed through.
The ALJ ruled that FUSF fees are part of the taxable receipt because mobile services are wholly taxable, distinguishing from VoIP cases like Time Warner. Equal protection arguments were rejected, citing mobile telecommunications sourcing act allowances for differential treatment.
May 20, 2025, Time Warner Decision—FUSF Fees Exempt
In the matter of Time Warner Cable Information Services (NY), LLC (DTA No. 830442, Tribunal Decision, May 20, 2025), the Tax Appeals Tribunal reversed a $6.7 million assessment, holding FUSF fees nontaxable. Time Warner provided bundled intrastate and interstate/international VoIP services for a flat fee. Invoices allocated ~26% of charges to interstate/international activity; FUSF fees were tied solely to these revenues.
The Tribunal found FUSF fees are receipts from nontaxable interstate/international services (exempt under § 1105[b][1][B]), not an expense of the overall bundle. It distinguished this case from mobile cases like Helio, LLC, where bundles are fully taxable.
Reconciliation of the Cases
The differing outcomes stem from statutory treatment of mobile services, which are taxable in their entirety, and other telecommunications services, which can be unbundled into taxable and nontaxable intrastate and interstate components, respectively.
Mobile telecom (T-Mobile) is taxed holistically under § 1105(b)(2), including FUSF as a component of the receipt. VoIP/wireline (Time Warner) allows unbundling, linking FUSF directly to exempt interstate/international portions.
Both cases affirm FUSF ties to interstate revenues but diverge on bundling rules. Providers should review service classifications and invoicing to align with these precedents.
Key Takeaways
Mobile providers face broader taxation on FUSF recoveries in bundles. VoIP/wireline providers can exempt FUSF if tied to interstate revenues via records/invoices, and refund opportunities still exist under certain fact patterns. That said, audit risks persist, and it is important to maintain detailed allocations for FCC filings and state tax compliance.
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