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Policy letter expected on Texas transaction revenue issue

At issue in Texas is whether ATM surcharge and interchange revenue is taxable under state law. An attorney representing Texas ISO ATM Payment Systems called a recent meeting with state tax officials 'constructive.'

April 3, 2002

It's not yet clear whether ATM surcharge and interchange revenue is taxable under Texas law, but the state Comptroller's Office is working on a policy letter addressing the issue following a recent meeting with several representatives of the ATM industry.

J. Scott Morris, an Austin, Texas tax attorney representing Giddings, Texas-based ISO ATM Payment Systems, called the March 21 meeting "constructive" and "low key."

ATM Payment Systems President Dan Stone hired Morris to represent him after an auditor in the Comptroller's Office reviewed his business records and indicated that transaction revenue might be taxable. The auditor's opinion was based on his belief that ATM transactions could be considered data processing, which is taxable under state law.

During the one-and-a-half-hour meeting with tax officials, Morris said he emphasized that the essence of an ATM transaction is an electronic funds transfer, which is not taxable under state law.

"We helped the Comptroller's Office get up to speed on exactly how the ATM transaction process works and on which portions of the process are already taxed," he said.

According to Morris, the Comptroller's staff - including Assistant Director of Tax Administration Eleanor Kim - was particularly interested in who pays the fees and how they are divided. "They were not aware that the convenience fee, or surcharge, is paid 100 percent, or almost 100 percent, to the owner of the premises and of the machine," he said.

He added, "Some of them were not aware that all telephone transmissions and other communications are already taxed and that the transaction processor already separates its charges for reports and any other taxable items and pays use tax on them."

Morris said that representatives from Core Data Resources, Stone's transaction processor, and the PULSE EFT Association explained the role of processors and networks in an ATM transaction.

Morris said that Kim will call him if she requires additional information; he will obtain the information from an appropriate person in the industry and convey it, in writing, to her.

"All inquiries will pass through me to avoid duplication and to maintain consistency," he said.

No date has been set for the issuance of the policy letter, Morris said.

Stone first went public with his audit, and the related tax issue, at last month's ATM Industry Association (ATMIA) conference in Hollywood, Fla., because of his belief that many other ATM deployers, both independents and financial institutions, could be affected. 

"This isn't just about our company. This is about the entire ATM industry," said Stone, whose company has about 400 machines under contract. "You can rest assured that if other states see Texas collecting revenue on this industry, they're going to try to do the same thing."

Stone believes that not just deployers would suffer. Additional taxation could result in a reduction in ATMs, he said, which would obviously impact processors, cash carriers, manufacturers and all other companies that do business with deployers.

Nick Autrey, a member of ATMIA's North American Board and chief executive officer of Auburn, Ala.-based First National Online Processing, believes the Texas tax issue is especially problematic because, unlike previous efforts to eliminate surcharging elsewhere around the country, there is no public forum on the issue. "They're giving it the backdoor treatment," he said.

Based on Stone's experiences and recognizing the need to represent the interests of the ATM industry as a whole, the ATMIA has established an Industry Mutual Defense Fund. According to Lana Harmelink, ATMIA's director of operations international, the fund will be tapped in instances such as Stone's case, when individual legal cases involving ATMIA members have clear repercussions for all members.

"The purpose of this fund is to employ legal resources to defend, represent and promote the national and international interests of the ATM industry, for the protection of all its members," Harmelink said.

The fund will consist of donations and accrued income, Harmelink said, and will only be available for use by members. The ATMIA's International Board must authorize any use of monies from the fund.

Autrey said the fund is a good first step toward more industry cooperation. "This industry is only as good as its weakest link," he said.

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ATM Industry Association (ATMIA)

The ATM Industry Association, founded in 1997, is a global non-profit trade association with over 10,500 members in 65 countries. The membership base covers the full range of this worldwide industry comprising over 2.2 million installed ATMs.

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