Tax Type
Retail Sales and Use Tax
Description
Personal television services
Topic
Taxability of Persons and Transactions
Date Issued
12-21-2001
December 21, 2001
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****
This is in response to your letter of September 18, 2001, submitted on behalf of an unidentified client (the "Client'). You request a ruling on the application of the retail sales and use tax and other state and local taxes to personal television services sold by the Client. Cited sources can be reviewed at "http://www.tax.state.va.us" by accessing the Tax Policy Library.
FACTS
The Client plans to offer personal television services to subscribers located in Virginia. These television services will allow subscribers to: 1) automatically record television shows and view them at a later time, 2) pause and record live television broadcasts, 3) create personalized programming based on the subscribers' viewing patterns, and 4) receive special data and video content. Included with these services is the provision of electronic magazines and viewing guides that may, for example, organize upcoming television shows by topic (e.g., sports, comedy, etc.).
To obtain the Client's personal television service, each paid subscriber must purchase or have access to the following:
-
- a personal video recorder ("PVR") or direct-to-home satellite television combo box ("DSCB") purchased from an unrelated third party retailer;
television service via cable, satellite, or antennae; and
a telephone line connected to the PVR's built-in modem or DSCB modem.
- a personal video recorder ("PVR") or direct-to-home satellite television combo box ("DSCB") purchased from an unrelated third party retailer;
In order for a subscriber to receive the Client's services, the subscriber must pay a subscription fee directly to the Client. The subscription fee is separately billed by the Client from the PVR or DSCB purchased from the unrelated third party retailer. Further, you indicate that persons purchasing PVR or DSCB hardware are not obligated to subscribe to the Client's services.
There are three subscription (billing) methods: lifetime (one-time payment), annual, and monthly. The subscription fees entitle the subscriber to the Client's personal television services. Delivery of these electronic services is made by telephone modem or satellite transmission without the transfer of any tangible personal property. These services originate from an operations center located outside Virginia that has a series of computer servers that store and transmit the Client's information and services to subscribers.
RULING
Sales Tax
Personal television services: For sales and use tax purposes, Code of Virginia § 58.1-602 defines the term "sale" as "any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property and any rendition of a taxable service for a consideration ...."
The department has consistently held that the provision of television programming represents the provision of a nontaxable service. Similarly, and as set out in Title 23 of the Virginia Administrative Code 10-210-4040(D), the transmittal of information through electronic means is deemed to be a nontaxable service. Accordingly, the Client's sales of personal television services to subscribers in Virginia are not subject to sales and use taxation. However, sales of PVR or DSCB hardware by the third party retailers to Virginia customers are taxable. Also, the Client would be liable for the tax on any tangible personal property used in Virginia to provide its services.
Other services: You indicate that in some instances the Client may offer its television services in conjunction with "other taxable and non-taxable services." I am unclear what taxable services you contemplate. Again, the department has previously determined that the provision of television programming is not taxable. This extends to the provision of television programming delivered via satellite.
Generally, the sale of personal television services in conjunction with other nontaxable services is not taxable. Exempt service charges generally remain exempt from the tax regardless of the billing method utilized and regardless of whether separately stated on a customer's invoice or billed as a lump-sum amount with other exempt services.
Future services: You indicate that in the future the Client may receive additional revenue from targeted advertising, promotional content programming, electronic delivery of premium programming, and the sale of audience research and development. Provided that these items are delivered to customers electronically, they will be exempt from the Virginia retail sales and use tax. However, if any future products entail the provision of tangible personal property, the tax may apply. For example, the sale of standard reports on audience research and development via a tangible medium is generally taxable. You may wish to contact the department for a ruling when the specific details of these future activities are known.
Corporate Income Tax
An annual corporate income tax is imposed on the Virginia taxable income of every corporation organized under the laws of Virginia and every foreign corporation having income from Virginia sources. See Code of Virginia § 58.1-400. Although the client's operational facility and computer servers are located outside Virginia, the Taxpayer would become subject to the Virginia corporate income tax if it ever engages in any income-producing activity (e.g., computer servers, operational facilities, or other income-producing property or personnel) in Virginia.
Gross Receipts Tax
The State Corporation Commission ("SCC") administers certain gross receipts taxes applicable to public service corporations, including telecommunications companies. See Code of Virginia § 58.1-2600 et seq. You may wish to contact the SCC to see if the Client's activities fall under that agency's jurisdiction. The SCC may be contacted through its website at www.scc.state.va.us or at (804) 371-9733.
Local Taxation
The Consumer Utility Taxes set out by Code of Virginia §§ 58.1-3812 through 58.1-3816.1, and the Video Programming Excise Tax set out by Code of Virginia
§§ 58.1-3818.1 through 58.1-3818.7, are administered by local tax officials. Therefore, you will need to contact the localities regarding the application of these taxes in a particular locality. A listing of phone numbers and addresses for local Commissioners of the Revenue is attached.
If you have any questions about this ruling, you may contact ***** of the Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/37122R
Rulings of the Tax Commissioner