Tax Type
Retail Sales and Use Tax
Description
Telecommunications; Subscriber validation equipment
Topic
Taxability of Persons and Transactions
Date Issued
04-14-2000
April 14, 2000
Re: Ruling Request: Retail Sales and Use Tax
Dear ****
This is in response to your letter requesting a ruling on the application of the sales and use tax to subscriber validation equipment ("SVE") used by a FCC licensed telecommunications company qualifying for the public service exemption under Code of Virginia § 58.1-609.3(3). I apologize for the delay in responding to your letter.
FACTS
Based on the facts presented, the SVE is a central database containing mobile subscriber and call status information necessary to validate each call and control and transmit the proper disposition of calls and subscriber services. It is our understanding that the SVE also maintains roaming communications during the cell handoff process.
RULING
Code of Virginia § 58.1-609.3(3) provides an exemption from the retail sales and use tax for tangible personal property sold or leased to a telecommunications company "for use or consumption by such...company...directly in the rendition of its public service...." This exemption is addressed in Title 23 of the Virginia Administrative Code (VAC) 10-210-3020 which provides that:
Items of tangible personal property that are used directly in the rendition of a public utility service are those which are both indispensable to the actual provision of a utility service and used or consumed immediately in the performance of such service. The fact that a particular item may be considered essential to the rendering of a public utility service because its use is required either by law or practical necessity does not, of itself, mean that the property is used directly in the rendition of a public utility service.
This regulation also provides that "tangible personal property used in administrative and managerial activities and activities other than those noted above are deemed not to be used directly in the rendition of a public service." When tangible personal property is used in both taxable and exempt activities, the tax due is prorated between the percentage of the item's use in exempt activities and the percentage of the item's use in taxable activities.
It is my understanding that the subscriber validation functions are performed to verify the caller as an existing customer and the extent of prepaid services available to the customer. It is also my understanding the SVE monitors the caller's cell locations and connection time for billing purposes and tracks these calls to ensure continuous transmission of telecommunication services. This validation and approval process and the call monitoring performed for billing purposes constitute taxable administrative functions. However, to the extent that the SVE equipment is actually used to ensure the distribution of telecommunication services, it is used directly in a public service function. As the SVE equipment is used in both taxable and exempt activities, the tax must be prorated based on the percentage of the item's usage in administrative activities.
You are encouraged to work with ****, Audit Supervisor of the department's **** District Office, to derive a reasonable taxable percentage based on this ruling. **** may be reached at ****.
I trust the foregoing answers your concerns. If you have any questions about this response, please contact **** of the department's Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/23300R
Re: Ruling Request: Retail Sales and Use Tax
Dear ****
This is in response to your letter requesting a ruling on the application of the sales and use tax to subscriber validation equipment ("SVE") used by a FCC licensed telecommunications company qualifying for the public service exemption under Code of Virginia § 58.1-609.3(3). I apologize for the delay in responding to your letter.
FACTS
Based on the facts presented, the SVE is a central database containing mobile subscriber and call status information necessary to validate each call and control and transmit the proper disposition of calls and subscriber services. It is our understanding that the SVE also maintains roaming communications during the cell handoff process.
RULING
Code of Virginia § 58.1-609.3(3) provides an exemption from the retail sales and use tax for tangible personal property sold or leased to a telecommunications company "for use or consumption by such...company...directly in the rendition of its public service...." This exemption is addressed in Title 23 of the Virginia Administrative Code (VAC) 10-210-3020 which provides that:
Items of tangible personal property that are used directly in the rendition of a public utility service are those which are both indispensable to the actual provision of a utility service and used or consumed immediately in the performance of such service. The fact that a particular item may be considered essential to the rendering of a public utility service because its use is required either by law or practical necessity does not, of itself, mean that the property is used directly in the rendition of a public utility service.
This regulation also provides that "tangible personal property used in administrative and managerial activities and activities other than those noted above are deemed not to be used directly in the rendition of a public service." When tangible personal property is used in both taxable and exempt activities, the tax due is prorated between the percentage of the item's use in exempt activities and the percentage of the item's use in taxable activities.
It is my understanding that the subscriber validation functions are performed to verify the caller as an existing customer and the extent of prepaid services available to the customer. It is also my understanding the SVE monitors the caller's cell locations and connection time for billing purposes and tracks these calls to ensure continuous transmission of telecommunication services. This validation and approval process and the call monitoring performed for billing purposes constitute taxable administrative functions. However, to the extent that the SVE equipment is actually used to ensure the distribution of telecommunication services, it is used directly in a public service function. As the SVE equipment is used in both taxable and exempt activities, the tax must be prorated based on the percentage of the item's usage in administrative activities.
You are encouraged to work with ****, Audit Supervisor of the department's **** District Office, to derive a reasonable taxable percentage based on this ruling. **** may be reached at ****.
I trust the foregoing answers your concerns. If you have any questions about this response, please contact **** of the department's Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/23300R
Rulings of the Tax Commissioner