Tax Type
Retail Sales and Use Tax
Description
Publishing and broadcasting; Direct-broadcast-satellite equipment
Topic
Taxability of Persons and Transactions
Date Issued
03-28-2000
March 28, 2000
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This is in response to your letter in which seek correction of a retail sales and use tax assessment issued to **** (the "Taxpayer") for the period March 1994 through December 1996. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is licensed and regulated by the Federal Communications Commission to provide direct-broadcast-satellite ("DBS") television services to subscribers in Virginia and North Carolina. In addition to the television programming, the Taxpayer also furnishes equipment (primarily satellite dishes and decoding boxes) to its subscribers. The Taxpayer purchases the equipment from vendors outside of Virginia and has it shipped to its Virginia warehouse. This warehouse serves as the Taxpayer's central distribution point. Equipment typically remains at the Taxpayer's warehouse for less than 30 days before it is shipped to individual subscribers in Virginia and North Carolina.
The Taxpayer was assessed tax and interest on its untaxed purchases of the equipment. You contend that the equipment may be purchased exempt of the tax under the "broadcasting" exemption set out in Code of Virginia § 58.1-609.6(2). Alternatively, you note that subscribers in North Carolina are subject to sales tax for the satellite dishes and decoding boxes furnished to them by the Taxpayer as part of the television programming services. Accordingly, you maintain that the equipment placed in service in North Carolina can be purchased exempt of the tax for resale.
DETERMINATION
Broadcasting Exemption
The exemption set out in Code of Virginia § 58.1-609.6(2) applies to:
Broadcasting equipment and parts and accessories thereto and towers used or to be used by commercial radio and television systems, wired or land based wireless cable television systems, common carriers ... or concerns which are under the regulation and supervision of the Federal Communications Commission....
The Department has consistently held that "broadcasting" applies to the dissemination of a signal to the general public, and not merely to customers or subscribers. This position was upheld by the Virginia Supreme Court in the case of Winchester TV Cable Co. v. State Tax Commissioner, 216 Va. 286, 217 S.E. 2d 885 (1975) and WTAR Radio-TV Corp. v. Commonwealth, 217 Va. 877, 234 S.E. 2d 245 (1977). In both cases, the court held that "broadcasting" as used in § 58.1-609.6(2) means the distribution of a signal, as in radio or television, for an unlimited number of receivers and making public by means of radio or television. In both instances, the court placed great weight on the fact that a public or general distribution of a signal is required in order for a person to be broadcasting.
The Taxpayer transmits its signals to its subscribers, but not to the general public. Therefore, the contested equipment in this case is not "broadcasting" equipment as described in the exemption. Further, the Tax Commissioner addressed the distinctions between exempt cable systems and taxable satellite systems in Public Document 97-392 (9/29/97) and found that satellite systems are not "wired or land based wireless cable television systems" as addressed in the exemption.
Sales to North Carolina Subscribers
I have confirmed that satellite dishes and decoding boxes which the Taxpayer furnishes to North Carolina subscribers in connection with its satellite television services represent taxable sales or rentals of tangible personal property. That is, the Taxpayer must charge and collect North Carolina sales tax on charges for the equipment furnished to North Carolina subscribers provided that such charges are separately stated. Therefore, the equipment which is placed in service in North Carolina may be purchased by the Taxpayer exempt of the tax for resale. None of that equipment is subject to Virginia sales and use tax as long at it remains in the Taxpayer's resale inventory.
Accordingly, the assessed equipment which was withdrawn from the Virginia warehouse and sold, leased, or rented to North Carolina subscribers will be removed from the assessment. Equipment which is withdrawn from inventory and furnished to Virginia subscribers as part of the Taxpayer's television service is taxable and will remain in the assessment.
Further, the Virginia tax will apply to any equipment used by the Taxpayer to provide its services in Virginia, even if that same equipment was initially leased or rented to a North Carolina subscriber. In such instances, the tax will apply to either the cost price of the equipment or the current market value of the equipment as addressed in Code of Virginia § 58.1-604. For the future, if the Taxpayer does not know at the time of purchase which equipment will be used in Virginia or sold in North Carolina, it may make all purchases exempt of the tax for resale. When equipment is withdrawn from inventory for use in Virginia, the Taxpayer must remit the applicable use tax.
It should be noted further that the resale exemption applies only to that equipment which may actually be sold, leased, or rented to North Carolina subscribers. The Taxpayer must pay the tax on all purchases of tools, equipment and supplies used and consumed in installing its satellite television systems. Therefore, the Taxpayer may not use a resale exemption certificate when making purchases of such items if these items are stored in Virginia.
The audit staff will contact the Taxpayer as soon as possible to review the audit assessment in accordance with this determination. Based on that review, a revised assessment will be issued as warranted. In the meantime, please contact **** in the department's Office of Tax Policy at **** if you have any questions regarding this letter.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22389I
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This is in response to your letter in which seek correction of a retail sales and use tax assessment issued to **** (the "Taxpayer") for the period March 1994 through December 1996. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is licensed and regulated by the Federal Communications Commission to provide direct-broadcast-satellite ("DBS") television services to subscribers in Virginia and North Carolina. In addition to the television programming, the Taxpayer also furnishes equipment (primarily satellite dishes and decoding boxes) to its subscribers. The Taxpayer purchases the equipment from vendors outside of Virginia and has it shipped to its Virginia warehouse. This warehouse serves as the Taxpayer's central distribution point. Equipment typically remains at the Taxpayer's warehouse for less than 30 days before it is shipped to individual subscribers in Virginia and North Carolina.
The Taxpayer was assessed tax and interest on its untaxed purchases of the equipment. You contend that the equipment may be purchased exempt of the tax under the "broadcasting" exemption set out in Code of Virginia § 58.1-609.6(2). Alternatively, you note that subscribers in North Carolina are subject to sales tax for the satellite dishes and decoding boxes furnished to them by the Taxpayer as part of the television programming services. Accordingly, you maintain that the equipment placed in service in North Carolina can be purchased exempt of the tax for resale.
DETERMINATION
Broadcasting Exemption
The exemption set out in Code of Virginia § 58.1-609.6(2) applies to:
Broadcasting equipment and parts and accessories thereto and towers used or to be used by commercial radio and television systems, wired or land based wireless cable television systems, common carriers ... or concerns which are under the regulation and supervision of the Federal Communications Commission....
The Department has consistently held that "broadcasting" applies to the dissemination of a signal to the general public, and not merely to customers or subscribers. This position was upheld by the Virginia Supreme Court in the case of Winchester TV Cable Co. v. State Tax Commissioner, 216 Va. 286, 217 S.E. 2d 885 (1975) and WTAR Radio-TV Corp. v. Commonwealth, 217 Va. 877, 234 S.E. 2d 245 (1977). In both cases, the court held that "broadcasting" as used in § 58.1-609.6(2) means the distribution of a signal, as in radio or television, for an unlimited number of receivers and making public by means of radio or television. In both instances, the court placed great weight on the fact that a public or general distribution of a signal is required in order for a person to be broadcasting.
The Taxpayer transmits its signals to its subscribers, but not to the general public. Therefore, the contested equipment in this case is not "broadcasting" equipment as described in the exemption. Further, the Tax Commissioner addressed the distinctions between exempt cable systems and taxable satellite systems in Public Document 97-392 (9/29/97) and found that satellite systems are not "wired or land based wireless cable television systems" as addressed in the exemption.
Sales to North Carolina Subscribers
I have confirmed that satellite dishes and decoding boxes which the Taxpayer furnishes to North Carolina subscribers in connection with its satellite television services represent taxable sales or rentals of tangible personal property. That is, the Taxpayer must charge and collect North Carolina sales tax on charges for the equipment furnished to North Carolina subscribers provided that such charges are separately stated. Therefore, the equipment which is placed in service in North Carolina may be purchased by the Taxpayer exempt of the tax for resale. None of that equipment is subject to Virginia sales and use tax as long at it remains in the Taxpayer's resale inventory.
Accordingly, the assessed equipment which was withdrawn from the Virginia warehouse and sold, leased, or rented to North Carolina subscribers will be removed from the assessment. Equipment which is withdrawn from inventory and furnished to Virginia subscribers as part of the Taxpayer's television service is taxable and will remain in the assessment.
Further, the Virginia tax will apply to any equipment used by the Taxpayer to provide its services in Virginia, even if that same equipment was initially leased or rented to a North Carolina subscriber. In such instances, the tax will apply to either the cost price of the equipment or the current market value of the equipment as addressed in Code of Virginia § 58.1-604. For the future, if the Taxpayer does not know at the time of purchase which equipment will be used in Virginia or sold in North Carolina, it may make all purchases exempt of the tax for resale. When equipment is withdrawn from inventory for use in Virginia, the Taxpayer must remit the applicable use tax.
It should be noted further that the resale exemption applies only to that equipment which may actually be sold, leased, or rented to North Carolina subscribers. The Taxpayer must pay the tax on all purchases of tools, equipment and supplies used and consumed in installing its satellite television systems. Therefore, the Taxpayer may not use a resale exemption certificate when making purchases of such items if these items are stored in Virginia.
The audit staff will contact the Taxpayer as soon as possible to review the audit assessment in accordance with this determination. Based on that review, a revised assessment will be issued as warranted. In the meantime, please contact **** in the department's Office of Tax Policy at **** if you have any questions regarding this letter.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22389I
Rulings of the Tax Commissioner