Tax Type
Retail Sales and Use Tax
Description
Telecommunications exemption; Refund of taxes paid in error
Topic
Exemptions
Payment and Refund
Date Issued
05-23-2001
May 23, 2001
Re: Request for Ruling: Retail Sales and Use Tax
Dear ****
This responds to your letter of January 19, 2001, requesting a ruling as to whether ***** (the "Taxpayer") qualifies for the exemption from the retail sales and use tax granted by Code of Virginia §58.1-609.3(3). If eligible for the exemption, the Taxpayer requests a refund of the retail sales and use tax erroneously paid on exempt purchases of tangible personal property.
FACTS
The information provided indicates that the Taxpayer is a provider of wireless communications services, including digital personal communications services. To perform its telecommunication services, the Taxpayer purchases various equipment, including antennas, personal computers, computer software and computer servers. You indicate that all of these items are exempt from the tax and that sales tax erroneously paid on the cost price of these items by the Taxpayer is refundable to the Taxpayer.
It is my understanding that you are presently working with the department's audit staff on obtaining refunds of tax erroneously paid on the antennas mentioned above. As for the other items noted above, you request a ruling as to whether they are exempt from the tax.
RULING
Exemption Eligibility
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... (ii) 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 ....
Code of Virginia § 58.1-400.1 defines, in pertinent part, the term "telecommunications company" as "a person 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 broadband personal communications services."
Based on the information provided, the department has confirmed that the Taxpayer is specifically authorized by the Federal Communications Commission ("FCC") to provide broadband personal communications services ("PCS"). Accordingly, the Taxpayer meets the statutory definition of a "telecommunications company" and qualifies for the exemption from the retail sales and use tax granted by Code of Virginia § 58.1-609.3(3).
Publicly available information obtained from the FCC also indicates that the Taxpayer became authorized to provided broadband PCS on December 19, 1997, for call sign ("CW1") and on November 17, 1998, for call sign ("CW2"). As such, the telecommunications exemption may only apply to qualifying equipment purchased on or after the license authorization dates.
Application of Exemption
Title 23 of the Virginia Administrative Code 10-210-3020 addresses the telecommunications company exemption cited above. This regulation establishes that a "public utility service" includes all steps of a utility's production, generation or initiation process as well as a utility's transmission or distribution process. For purposes of the exemption, public utility service does not include incidental functions, such as administration and management.
As provided in subsection D of the above regulation, the exemption applies to tangible personal property that is both indispensable to the actual provision of a public service and used or consumed immediately in the performance of such service. However, tangible personal property used in administrative and managerial activities and activities other than exempt activities noted in the regulation are deemed not to be used directly in the rendition of a public service.
When equipment is used for both taxable and exempt activities, the tax may be prorated between the percentage of time the property is used in a taxable manner and the percentage of time used in an exempt manner. When using tax proration, a taxpayer must be able to document the use of the equipment to show the amount of time used for exempt and taxable purposes.
Based on the foregoing, the application of the telecommunications company exemption to the items for which the exemption is sought, is as follows:
An auditor from the department's **** District Office will contact you to arrange for a review of the Taxpayer's records related to its refund request. Although the statute of limitations for requesting refunds is three years (i.e., the normal period would have started on December 1, 1997), the FCC license grant dates limit the refund request to tax erroneously paid on exempt purchases made on or after: (1) December 19, 1997, for use with call sign CW1 exempt activities, and (2) November 17, 1998, for use with call sign CW2 exempt activities.
It is the responsibility of the Taxpayer to furnish complete documentation to confirm that the sales or use tax has been erroneously paid on exempt property. Once the refund has been confirmed, the Taxpayer may request the refund from vendors to whom the tax was erroneously paid. If any vendor refuses to provide the Taxpayer with such refund or to credit the Taxpayer's account, or if a vendor is no longer in business, the Taxpayer may request a refund directly from the department. For any refund issued directly by the department, the refund amount will be the tax paid minus any applicable dealer's discount, as such amount is not remitted to the department.
If you have any questions about this response, please contact **** in the department's Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/32409R
Re: Request for Ruling: Retail Sales and Use Tax
Dear ****
This responds to your letter of January 19, 2001, requesting a ruling as to whether ***** (the "Taxpayer") qualifies for the exemption from the retail sales and use tax granted by Code of Virginia §58.1-609.3(3). If eligible for the exemption, the Taxpayer requests a refund of the retail sales and use tax erroneously paid on exempt purchases of tangible personal property.
FACTS
The information provided indicates that the Taxpayer is a provider of wireless communications services, including digital personal communications services. To perform its telecommunication services, the Taxpayer purchases various equipment, including antennas, personal computers, computer software and computer servers. You indicate that all of these items are exempt from the tax and that sales tax erroneously paid on the cost price of these items by the Taxpayer is refundable to the Taxpayer.
It is my understanding that you are presently working with the department's audit staff on obtaining refunds of tax erroneously paid on the antennas mentioned above. As for the other items noted above, you request a ruling as to whether they are exempt from the tax.
RULING
Exemption Eligibility
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... (ii) 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 ....
Code of Virginia § 58.1-400.1 defines, in pertinent part, the term "telecommunications company" as "a person 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 broadband personal communications services."
Based on the information provided, the department has confirmed that the Taxpayer is specifically authorized by the Federal Communications Commission ("FCC") to provide broadband personal communications services ("PCS"). Accordingly, the Taxpayer meets the statutory definition of a "telecommunications company" and qualifies for the exemption from the retail sales and use tax granted by Code of Virginia § 58.1-609.3(3).
Publicly available information obtained from the FCC also indicates that the Taxpayer became authorized to provided broadband PCS on December 19, 1997, for call sign ("CW1") and on November 17, 1998, for call sign ("CW2"). As such, the telecommunications exemption may only apply to qualifying equipment purchased on or after the license authorization dates.
Application of Exemption
Title 23 of the Virginia Administrative Code 10-210-3020 addresses the telecommunications company exemption cited above. This regulation establishes that a "public utility service" includes all steps of a utility's production, generation or initiation process as well as a utility's transmission or distribution process. For purposes of the exemption, public utility service does not include incidental functions, such as administration and management.
As provided in subsection D of the above regulation, the exemption applies to tangible personal property that is both indispensable to the actual provision of a public service and used or consumed immediately in the performance of such service. However, tangible personal property used in administrative and managerial activities and activities other than exempt activities noted in the regulation are deemed not to be used directly in the rendition of a public service.
When equipment is used for both taxable and exempt activities, the tax may be prorated between the percentage of time the property is used in a taxable manner and the percentage of time used in an exempt manner. When using tax proration, a taxpayer must be able to document the use of the equipment to show the amount of time used for exempt and taxable purposes.
Based on the foregoing, the application of the telecommunications company exemption to the items for which the exemption is sought, is as follows:
- Antennas qualify for the exemption. However, lights, platforms, steps, grounding wire or rods, and other items not an integral part of the tower are deemed used indirectly in the provision of telecommunication services.
- Personal computers and computer software dedicated exclusively for establishing and activating new customer accounts qualify for exemption only to the extent that the activation activity actually initiates and makes available the public services to the customers. However, the property would be considered used in a taxable function if used to set up or activate billing accounts of customers or to perform other necessary administrative functions. If used for dual purposes, the tax must be prorated.
- Personal computers used in the Call Center to provide directory assistance, technical advice on phone use or maintenance, scheduling of service to perform maintenance, or other customer service related to maintenance of customer phones or other service devices, are used in an exempt function. However, when used to provide billing or other administrative assistance, technical sales advice, or for any type of non-exempt purpose, the tax applies. If the property is used in both exempt and taxable functions, the tax must be prorated.
- The tax applicable to dual use computer servers must be prorated. Taxable functions include using servers for internal E-mail and voice mail. Exempt functions may include using servers to provide wireless voice mail services for customers.
An auditor from the department's **** District Office will contact you to arrange for a review of the Taxpayer's records related to its refund request. Although the statute of limitations for requesting refunds is three years (i.e., the normal period would have started on December 1, 1997), the FCC license grant dates limit the refund request to tax erroneously paid on exempt purchases made on or after: (1) December 19, 1997, for use with call sign CW1 exempt activities, and (2) November 17, 1998, for use with call sign CW2 exempt activities.
It is the responsibility of the Taxpayer to furnish complete documentation to confirm that the sales or use tax has been erroneously paid on exempt property. Once the refund has been confirmed, the Taxpayer may request the refund from vendors to whom the tax was erroneously paid. If any vendor refuses to provide the Taxpayer with such refund or to credit the Taxpayer's account, or if a vendor is no longer in business, the Taxpayer may request a refund directly from the department. For any refund issued directly by the department, the refund amount will be the tax paid minus any applicable dealer's discount, as such amount is not remitted to the department.
If you have any questions about this response, please contact **** in the department's Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/32409R
Rulings of the Tax Commissioner