Tax Type
Retail Sales and Use Tax
Description
Charges for use of master antenna and communications sites
Topic
Taxability of Persons and Transactions
Date Issued
05-16-2001
May 16, 2001
Re: Request for Ruling: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you request a ruling on behalf of an anonymous client (the "Company") concerning the application of retail sales and use tax to charges for the use of communications sites. I apologize for the delay in responding to your letter.
FACTS
The Company owns or leases various communications sites located throughout the United States. The Company charges wireless communications companies a monthly fee for the right to operate communications systems at these sites. The Company's customers own the communications systems. A typical communications system consists of ground based radio frequency transmission and reception equipment that is connected by cable to antennas that are mounted to either a communications tower ("tower site") or the rooftop of a building ("rooftop site"). The Company's customers are responsible for the installation, removal, repair, and maintenance of the communications equipment.
A tower site consists of a communications tower that is typically a steel structure ranging in height from two hundred to four hundred feet. These towers are anchored to or embedded in a concrete pad. Some towers are secured by steel guy wires. In some cases, wooden poles that are embedded in soil or concrete are used as towers. Equipment buildings are located at tower sites and house the transmission and reception equipment that is connected to antennas mounted to the towers. The equipment buildings are usually constructed of brick, concrete block, wood, or metal and range in size from eighty square feet to eight hundred square feet. These buildings are climate controlled and are equipped with telephone and electric service.
The Company's rooftop sites consist of a steel structure known as a grid. The grid is a steel structure that is bolted to the rooftop and lies horizontally across the rooftop. Between twenty and thirty antennas may be connected to the grid. The communications equipment at rooftop sites is housed in an equipment building on the rooftop or in an equipment room inside the building. At some rooftop sites, antennas are mounted to the side of the building rather than to a grid.
The Company provides a "master antenna system" at some of its communications sites. For a monthly fee, the Company's customers can connect their communications equipment to the Company's master antenna system. The master antenna system consists of a distribution hub that is connected to a master antenna. The distribution hub transmits signals and sorts and relays incoming signals to the customers' communications equipment.
RULING
I will now address the questions presented in the Company's ruling request.
Are the Company's communication towers and equipment buildings located at the tower sites considered real property or tangible personal property if affixed to real property that the company owns or that the Company leases?
In determining whether an article of tangible personal property becomes real or personal property upon installation, the intention of the party with respect to the item in question is the paramount consideration. The Virginia Supreme Court, in Transcontinental Gas Pipe Line Corporation v. Prince William County, 210 Va. 550 (1970), has ruled:
Three general tests are applied in order to determine whether an item of personal property placed upon realty becomes itself realty. They are: (1) annexation of the property to the realty, (2) adaptation to the use or purpose to which that part of the realty with which the property is connected is appropriated, and (3) the intention of the parties. The intention of the party making the annexation is the chief test to be considered...
In accordance with the Virginia Supreme Court's decision, the department places great emphasis on the intention of the parties making the annexation in determining whether the annexed property qualifies as tangible personal property or real property. The department has previously ruled in Public Document 99-23 (3/10/99) that the retail sales and use tax does not apply to the lease of space on antenna towers, pads, or in equipment shelters if these structures are permanently attached to realty. The application of the retail sales and use tax remains the same whether the communications site is owned or leased if the party's intention is to permanently affix the tower, pad, or shelter to realty.
The Company has presented several factors that lead me to conclude that the Company's intent when establishing its communications sites is to make the structures on the sites a permanent part of realty. The Company points out that it owns some of the sites and leases other sites. The leased sites may consist of long-term leases or ten to fifteen year leases with an option to renew. The cost of tearing down or building a new site is prohibitive. The Federal Communications Commission licenses transmitters for specific locations. Relocation of a communications site requires approval from the Federal Communications Commission. This process can take three months to three years. Moreover, the amount of time and difficulty in obtaining zoning approval for the establishment of new tower sites and the disruption of current signal coverage discourages the replacement of old communications sites with new sites.
Based on the information presented in the Company's letter, and applying the criteria established by the courts in Transcontinental Pipeline v. Prince William County, the equipment buildings and communications towers become real property when attached to realty. This is true whether the Company leases or owns the real estate to which the buildings and towers are attached. Charges billed by the Company to customers for the use of space on the communications towers and equipment buildings that are permanently affixed to realty are not subject to retail sales and use tax in accordance with P. D. 99-23.
Are grids and equipment buildings that are affixed to building rooftops considered real property or tangible personal property, 1) if owned by the Company, or 2) if owned by the building owner?
As with the tower sites, the factors presented in the Company's letter indicate an intent to permanently attach the grids and equipment buildings to building rooftops. If the property is annexed to the realty and the property is adapted to the use or purpose to which that part of the realty with which the property is connected is appropriated, the grids and equipment buildings would be considered real property. This is true whether the grids and equipment buildings are owned by the Company or the building owner. Based on the information in the Company's letter, the lease of space within an equipment building, on a rooftop, or on a rooftop grid is not subject to the retail sales and use tax.
If the antenna towers, grids, and equipment buildings discussed in the previous questions are considered tangible personal property, will the Company's charges for the right to attach antennas to the towers or grids and place equipment in the equipment houses be subject to sales and use tax?
P. D. 99-23 states that the lease or rental of an antenna tower, pad or shelter that has not been permanently attached to realty constitutes a taxable lease or rental of tangible personal property. Charges for the use of the space to attach antennas or equipment to towers and grids or to place equipment in equipment buildings are subject to sales and use tax when the towers, grids, or equipment buildings are considered to be tangible personal property.
If the customer's equipment is attached to the Company's master antenna, will the monthly charge become subject to sales and use tax?
The Company will provide a master antenna at some of the communication sites. Lessees at these locations will connect their communications equipment to the master antenna system rather than providing their own antenna. The Company asks if the charges for use of the master antenna system constitute a lease of tangible personal property.
P. D. 99-23 states that the lease or rental of an antenna tower, pad or shelter that has not been permanently attached to realty constitutes a taxable lease or rental of tangible personal property. Likewise, charges for the use of a master antenna that has not been permanently attached to realty is a lease or rental of tangible personal property and is subject to the retail sales and use tax.
The department's response to the questions in the Company's ruling request is based on the facts presented. Any change in the facts presented may result in a change to the department's response. The Company should seek a ruling from the department if the facts do change. If you have any questions, please contact ****.
Sincerely,
Danny M. Payne
Tax Commissioner
Re: Request for Ruling: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you request a ruling on behalf of an anonymous client (the "Company") concerning the application of retail sales and use tax to charges for the use of communications sites. I apologize for the delay in responding to your letter.
FACTS
The Company owns or leases various communications sites located throughout the United States. The Company charges wireless communications companies a monthly fee for the right to operate communications systems at these sites. The Company's customers own the communications systems. A typical communications system consists of ground based radio frequency transmission and reception equipment that is connected by cable to antennas that are mounted to either a communications tower ("tower site") or the rooftop of a building ("rooftop site"). The Company's customers are responsible for the installation, removal, repair, and maintenance of the communications equipment.
A tower site consists of a communications tower that is typically a steel structure ranging in height from two hundred to four hundred feet. These towers are anchored to or embedded in a concrete pad. Some towers are secured by steel guy wires. In some cases, wooden poles that are embedded in soil or concrete are used as towers. Equipment buildings are located at tower sites and house the transmission and reception equipment that is connected to antennas mounted to the towers. The equipment buildings are usually constructed of brick, concrete block, wood, or metal and range in size from eighty square feet to eight hundred square feet. These buildings are climate controlled and are equipped with telephone and electric service.
The Company's rooftop sites consist of a steel structure known as a grid. The grid is a steel structure that is bolted to the rooftop and lies horizontally across the rooftop. Between twenty and thirty antennas may be connected to the grid. The communications equipment at rooftop sites is housed in an equipment building on the rooftop or in an equipment room inside the building. At some rooftop sites, antennas are mounted to the side of the building rather than to a grid.
The Company provides a "master antenna system" at some of its communications sites. For a monthly fee, the Company's customers can connect their communications equipment to the Company's master antenna system. The master antenna system consists of a distribution hub that is connected to a master antenna. The distribution hub transmits signals and sorts and relays incoming signals to the customers' communications equipment.
RULING
I will now address the questions presented in the Company's ruling request.
Are the Company's communication towers and equipment buildings located at the tower sites considered real property or tangible personal property if affixed to real property that the company owns or that the Company leases?
In determining whether an article of tangible personal property becomes real or personal property upon installation, the intention of the party with respect to the item in question is the paramount consideration. The Virginia Supreme Court, in Transcontinental Gas Pipe Line Corporation v. Prince William County, 210 Va. 550 (1970), has ruled:
Three general tests are applied in order to determine whether an item of personal property placed upon realty becomes itself realty. They are: (1) annexation of the property to the realty, (2) adaptation to the use or purpose to which that part of the realty with which the property is connected is appropriated, and (3) the intention of the parties. The intention of the party making the annexation is the chief test to be considered...
In accordance with the Virginia Supreme Court's decision, the department places great emphasis on the intention of the parties making the annexation in determining whether the annexed property qualifies as tangible personal property or real property. The department has previously ruled in Public Document 99-23 (3/10/99) that the retail sales and use tax does not apply to the lease of space on antenna towers, pads, or in equipment shelters if these structures are permanently attached to realty. The application of the retail sales and use tax remains the same whether the communications site is owned or leased if the party's intention is to permanently affix the tower, pad, or shelter to realty.
The Company has presented several factors that lead me to conclude that the Company's intent when establishing its communications sites is to make the structures on the sites a permanent part of realty. The Company points out that it owns some of the sites and leases other sites. The leased sites may consist of long-term leases or ten to fifteen year leases with an option to renew. The cost of tearing down or building a new site is prohibitive. The Federal Communications Commission licenses transmitters for specific locations. Relocation of a communications site requires approval from the Federal Communications Commission. This process can take three months to three years. Moreover, the amount of time and difficulty in obtaining zoning approval for the establishment of new tower sites and the disruption of current signal coverage discourages the replacement of old communications sites with new sites.
Based on the information presented in the Company's letter, and applying the criteria established by the courts in Transcontinental Pipeline v. Prince William County, the equipment buildings and communications towers become real property when attached to realty. This is true whether the Company leases or owns the real estate to which the buildings and towers are attached. Charges billed by the Company to customers for the use of space on the communications towers and equipment buildings that are permanently affixed to realty are not subject to retail sales and use tax in accordance with P. D. 99-23.
Are grids and equipment buildings that are affixed to building rooftops considered real property or tangible personal property, 1) if owned by the Company, or 2) if owned by the building owner?
As with the tower sites, the factors presented in the Company's letter indicate an intent to permanently attach the grids and equipment buildings to building rooftops. If the property is annexed to the realty and the property is adapted to the use or purpose to which that part of the realty with which the property is connected is appropriated, the grids and equipment buildings would be considered real property. This is true whether the grids and equipment buildings are owned by the Company or the building owner. Based on the information in the Company's letter, the lease of space within an equipment building, on a rooftop, or on a rooftop grid is not subject to the retail sales and use tax.
If the antenna towers, grids, and equipment buildings discussed in the previous questions are considered tangible personal property, will the Company's charges for the right to attach antennas to the towers or grids and place equipment in the equipment houses be subject to sales and use tax?
P. D. 99-23 states that the lease or rental of an antenna tower, pad or shelter that has not been permanently attached to realty constitutes a taxable lease or rental of tangible personal property. Charges for the use of the space to attach antennas or equipment to towers and grids or to place equipment in equipment buildings are subject to sales and use tax when the towers, grids, or equipment buildings are considered to be tangible personal property.
If the customer's equipment is attached to the Company's master antenna, will the monthly charge become subject to sales and use tax?
The Company will provide a master antenna at some of the communication sites. Lessees at these locations will connect their communications equipment to the master antenna system rather than providing their own antenna. The Company asks if the charges for use of the master antenna system constitute a lease of tangible personal property.
P. D. 99-23 states that the lease or rental of an antenna tower, pad or shelter that has not been permanently attached to realty constitutes a taxable lease or rental of tangible personal property. Likewise, charges for the use of a master antenna that has not been permanently attached to realty is a lease or rental of tangible personal property and is subject to the retail sales and use tax.
The department's response to the questions in the Company's ruling request is based on the facts presented. Any change in the facts presented may result in a change to the department's response. The Company should seek a ruling from the department if the facts do change. If you have any questions, please contact ****.
Sincerely,
Danny M. Payne
Tax Commissioner
Related Documents
Rulings of the Tax Commissioner