Tax Type
Retail Sales and Use Tax
Description
Telecommunications exemption; Broadcasting exemption
Topic
Exemptions
Property Subject to Tax
Date Issued
01-03-2001
January 3, 2001
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This is in response to your letter requesting correction of the sales and use tax audit assessment issued to **** (the "Taxpayer"). I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is licensed by the Federal Communications Commission ("FCC") to provide business, conventional industrial/business pool, and non-nationwide 5 channel trunked radio services. The Taxpayer was also licensed to provide trunked specialized mobile radio services, but sold and re-assigned such licenses to another entity in July 1994. It is my understanding that the Taxpayer primarily provides radio paging services. It is also my understanding that the Taxpayer's sister company rents pagers, and the Taxpayer rents air tower space. You indicate that the Taxpayer owns the towers and transmitter equipment. 1
Although the audit period covers August 1993 through July 1999, a detailed audit resulted in use tax deficiencies found only in the period from July 1996 to September 1998. The Taxpayer takes exception to the consumer use tax assessed on various untaxed equipment and supplies. The Taxpayer maintains that such items are exempt from the tax based on the telecommunications and broadcasting exemptions set out in Code of Virginia §§ 58.1-609.3(3) and 58.1-609.6(2), respectively.
DETERMINATION
Telecommunications exemption
Code of Virginia § 58.1-609.3(3) provides an exemption from the retail sales and use tax for "[t]angible personal property sold or leased to . . . a telecommunications company as defined in § 58.1-400.1. . . for use or consumption by such... company... directly in the rendition of its public service." (Emphasis added.) Thus, the exemption may only apply to entities rendering a public service, which in this context means the Taxpayer must be a public service company.
Effective July 1, 1995, the telecommunications company definition cited above was expanded to include those persons "authorized by the Federal Communications Commission to provide commercial mobile service as defined in § 332(d)(1) of the Communications Act of 1934, as amended, where such service includes cellular mobile radio communications services or personal communications services ...." (Emphasis added.) On July 1, 1998, the term "broadband" was inserted to precede "personal communications services."
Pursuant to Title 47 of the United States Code Annotated (U.S.C.A.) § 332(d)(1), the term "commercial mobile service" is defined as "any mobile service . . . that is provided for profit and makes interconnected service available (A) to the public or (B) to such classes of eligible users as to be effectively available to a substantial portion of the public, as specified by regulation by the Commission."
Printed on most of the Taxpayer's licenses is the FCC regulatory status of "PMRS," an abbreviation for "private mobile radio services." Pursuant to Title 47 of the Code of Federal Regulations ("CFR") § 20.9(a)(i), "[a] mobile service that does not meet the definition of commercial mobile service is presumed to be a private mobile radio service." (Emphasis added.) To overcome this presumption, 47 CFR § 20.9(a)(ii) allows a party to file a petition with the FCC for declaratory ruling to challenge the PMRS treatment. From the facts submitted and in the absence of a FCC declaratory ruling, it is not certain whether the Taxpayer provides commercial mobile services as defined under 47 U.S.C.A. § 332(d)(1).
To be eligible for the above cited telecommunications exemption, the Taxpayer must not only provide some type of commercial mobile service as defined above, but must also be specifically authorized by the FCC to provide public mobile services, such as either (i) cellular mobile radio communications services, or (ii) personal communications services, i.e., PCS. 2 It is our understanding, however, that none of the frequencies allocated to the Taxpayer by the FCC are frequencies for cellular mobile radio communications services, or PCS. Moreover, the licenses presented do not indicate that the Taxpayer is designated by the FCC to provide cellular mobile radio communications services or PCS.3 In addition, no evidence has been submitted that the Taxpayer engages in interconnected services 4 with the public switched network as required to constitute commercial mobile services.
I would further note that the factual situation in this case is quite unlike the factual situation addressed in Public Document 98-190 (11/23/98; copy enclosed). In that case, the radio station authorizations clearly showed that one entity was authorized to provide PCS, and the other entity was authorized to provide domestic public cellular radio telecommunications services. 5 Thus, based on the FCC licenses provided in that case, there was no doubt -- unlike the present case -- that such entities qualified for the telecommunications exemption for the time period that those licenses were in effect.
Absent evidence that the Taxpayer in the instant case was authorized to provide cellular mobile radio communications services or PCS during the period in question, and pursuant to the strict construction principles adopted by the courts for exemptions from the retail sales and use tax, I must conclude that the Taxpayer is not entitled to the telecommunications exemption cited above.
Broadcasting exemption
Code of Virginia § 58.1-609.6(2) provides an exemption from the retail sales and use tax for "[b]roadcasting equipment and parts and accessories thereto and towers used or to be used by commercial radio and television companies, . . . or concerns which are under the regulation and supervision of the (FCC) . . . ."
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 into the air, as in radio or television signals, to 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. Furthermore, none of the licenses presented show that the Taxpayer holds an authorization to engage in "broadcasting" for FCC licensing purposes, such as a license for a broadcast station, broadcasting station, or radio broadcasting station.
Based on all of the foregoing, I find no basis to revise the audit findings. Under separate cover, the Taxpayer will receive an updated bill for the outstanding liabilities. To avoid further interest charges, the updated bill should be paid in full within 30 days of receipt of the updated bill.
If you should have any questions about this response, please contact **** of the department's Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/25791R
1 Taxpayer's licenses show federal service code designations of "IB" for business, "IG" for conventional industrial/business pool, "QT" for non-nationwide 5 channel trunked, and "YX" for trunked specialized radio services.
2 After July 1, 1998, the exemption for PCS is limited to broadband licenses only.
3 The federal service code "CL" is the license designation for cellular mobile radio communications services. Personal communication services are designated by "W' for PCS Broadband or "CN" for PCS Narrowband. The telecommunications exemption applies to the "CW" and "CN" designations in effect during the period July 1, 1995 through June 30, 1998. However, the telecommunications exemption does not apply to "CN" license designations in effect from July 1, 1998 to present.
4 As defined by 47 CFR 20.3.
5 Domestic public cellular radio telecommunications service is now known as cellular radiotelephone service in which "common carriers are authorized to offer and provide cellular service for hire to the general public." Definitions set out by 47 CFR ' 22.99.
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This is in response to your letter requesting correction of the sales and use tax audit assessment issued to **** (the "Taxpayer"). I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is licensed by the Federal Communications Commission ("FCC") to provide business, conventional industrial/business pool, and non-nationwide 5 channel trunked radio services. The Taxpayer was also licensed to provide trunked specialized mobile radio services, but sold and re-assigned such licenses to another entity in July 1994. It is my understanding that the Taxpayer primarily provides radio paging services. It is also my understanding that the Taxpayer's sister company rents pagers, and the Taxpayer rents air tower space. You indicate that the Taxpayer owns the towers and transmitter equipment. 1
Although the audit period covers August 1993 through July 1999, a detailed audit resulted in use tax deficiencies found only in the period from July 1996 to September 1998. The Taxpayer takes exception to the consumer use tax assessed on various untaxed equipment and supplies. The Taxpayer maintains that such items are exempt from the tax based on the telecommunications and broadcasting exemptions set out in Code of Virginia §§ 58.1-609.3(3) and 58.1-609.6(2), respectively.
DETERMINATION
Telecommunications exemption
Code of Virginia § 58.1-609.3(3) provides an exemption from the retail sales and use tax for "[t]angible personal property sold or leased to . . . a telecommunications company as defined in § 58.1-400.1. . . for use or consumption by such... company... directly in the rendition of its public service." (Emphasis added.) Thus, the exemption may only apply to entities rendering a public service, which in this context means the Taxpayer must be a public service company.
Effective July 1, 1995, the telecommunications company definition cited above was expanded to include those persons "authorized by the Federal Communications Commission to provide commercial mobile service as defined in § 332(d)(1) of the Communications Act of 1934, as amended, where such service includes cellular mobile radio communications services or personal communications services ...." (Emphasis added.) On July 1, 1998, the term "broadband" was inserted to precede "personal communications services."
Pursuant to Title 47 of the United States Code Annotated (U.S.C.A.) § 332(d)(1), the term "commercial mobile service" is defined as "any mobile service . . . that is provided for profit and makes interconnected service available (A) to the public or (B) to such classes of eligible users as to be effectively available to a substantial portion of the public, as specified by regulation by the Commission."
Printed on most of the Taxpayer's licenses is the FCC regulatory status of "PMRS," an abbreviation for "private mobile radio services." Pursuant to Title 47 of the Code of Federal Regulations ("CFR") § 20.9(a)(i), "[a] mobile service that does not meet the definition of commercial mobile service is presumed to be a private mobile radio service." (Emphasis added.) To overcome this presumption, 47 CFR § 20.9(a)(ii) allows a party to file a petition with the FCC for declaratory ruling to challenge the PMRS treatment. From the facts submitted and in the absence of a FCC declaratory ruling, it is not certain whether the Taxpayer provides commercial mobile services as defined under 47 U.S.C.A. § 332(d)(1).
To be eligible for the above cited telecommunications exemption, the Taxpayer must not only provide some type of commercial mobile service as defined above, but must also be specifically authorized by the FCC to provide public mobile services, such as either (i) cellular mobile radio communications services, or (ii) personal communications services, i.e., PCS. 2 It is our understanding, however, that none of the frequencies allocated to the Taxpayer by the FCC are frequencies for cellular mobile radio communications services, or PCS. Moreover, the licenses presented do not indicate that the Taxpayer is designated by the FCC to provide cellular mobile radio communications services or PCS.3 In addition, no evidence has been submitted that the Taxpayer engages in interconnected services 4 with the public switched network as required to constitute commercial mobile services.
I would further note that the factual situation in this case is quite unlike the factual situation addressed in Public Document 98-190 (11/23/98; copy enclosed). In that case, the radio station authorizations clearly showed that one entity was authorized to provide PCS, and the other entity was authorized to provide domestic public cellular radio telecommunications services. 5 Thus, based on the FCC licenses provided in that case, there was no doubt -- unlike the present case -- that such entities qualified for the telecommunications exemption for the time period that those licenses were in effect.
Absent evidence that the Taxpayer in the instant case was authorized to provide cellular mobile radio communications services or PCS during the period in question, and pursuant to the strict construction principles adopted by the courts for exemptions from the retail sales and use tax, I must conclude that the Taxpayer is not entitled to the telecommunications exemption cited above.
Broadcasting exemption
Code of Virginia § 58.1-609.6(2) provides an exemption from the retail sales and use tax for "[b]roadcasting equipment and parts and accessories thereto and towers used or to be used by commercial radio and television companies, . . . or concerns which are under the regulation and supervision of the (FCC) . . . ."
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 into the air, as in radio or television signals, to 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. Furthermore, none of the licenses presented show that the Taxpayer holds an authorization to engage in "broadcasting" for FCC licensing purposes, such as a license for a broadcast station, broadcasting station, or radio broadcasting station.
Based on all of the foregoing, I find no basis to revise the audit findings. Under separate cover, the Taxpayer will receive an updated bill for the outstanding liabilities. To avoid further interest charges, the updated bill should be paid in full within 30 days of receipt of the updated bill.
If you should have any questions about this response, please contact **** of the department's Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/25791R
1 Taxpayer's licenses show federal service code designations of "IB" for business, "IG" for conventional industrial/business pool, "QT" for non-nationwide 5 channel trunked, and "YX" for trunked specialized radio services.
2 After July 1, 1998, the exemption for PCS is limited to broadband licenses only.
3 The federal service code "CL" is the license designation for cellular mobile radio communications services. Personal communication services are designated by "W' for PCS Broadband or "CN" for PCS Narrowband. The telecommunications exemption applies to the "CW" and "CN" designations in effect during the period July 1, 1995 through June 30, 1998. However, the telecommunications exemption does not apply to "CN" license designations in effect from July 1, 1998 to present.
4 As defined by 47 CFR 20.3.
5 Domestic public cellular radio telecommunications service is now known as cellular radiotelephone service in which "common carriers are authorized to offer and provide cellular service for hire to the general public." Definitions set out by 47 CFR ' 22.99.
Rulings of the Tax Commissioner