Tax Type
Retail Sales and Use Tax
Description
Providing voice and data communications from VA to overseas locations
Topic
Accounting Periods and Methods
Exemptions
Date Issued
11-04-2003
November 4, 2003
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ***********:
This is in response to correspondence submitted to request correction of the retail sales and use tax assessment issued to ************ (the Taxpayer) as a result of an audit. I apologize for the delay in the Department's response.
FACTS
The Taxpayer provides voice and data communications from a Virginia location to overseas locations. An audit for the period November 1999 through April 2001 resulted in the assessment of tax on office and computer equipment and other items of tangible personal property.
The Taxpayer takes exception to the entire assessment. By virtue of the overseas common carrier § 214 certification issued by the Federal Communications Commission ("FCC"), the Taxpayer maintains that it is grandfathered as a telecommunications company eligible for exemption under Va. Code § 58.1-609.3(3)(ii). Alternatively, the Taxpayer contends that the 1998 amendments to the definition of a "telecommunications company" discriminate against telephone service providers that offer services directed solely at interstate and international markets and are thus unconstitutional.
DETERMINATION
Virginia Code § 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 common carrier directly in the rendition of its public service."
Prior to January 1, 1999, Va. Code § 58.1-400.1 defined "telecommunications company" to include "a telephone company or other person ... holding a certificate issued pursuant to § 214 of the Communications Act of 1934, as amended, authorizing telephone service ...." Under this prior definition, the Taxpayer appears to have been a "telecommunications company" for purposes of the sales and use tax exemption.
Effective January 1, 1999, the above-cited definition of "telecommunications company" in Va. Code § 58.1-400.1 was amended to apply to:
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- a person holding a certificate issued pursuant to § 214 of the Communications Act of 1934, as amended, authorizing domestic telephone service and belonging to an affiliated group including a person holding a certificate of convenience and necessity granted by the State Corporation Commission authorizing telephone service ....
The FCC certificate is issued to the Taxpayer for international authority pursuant to § 214 of the Communications Act of 1934. Although the Taxpayer may provide common carrier service from points within the United States to points outside the country, the FCC certificate does not expressly provide authorization for domestic telephone service, (e.g., interstate markets). Furthermore, the Taxpayer has not presented any separate FCC certificate authorizing domestic telephone service.
You indicate that the Taxpayer does not hold a certificate of convenience and necessity granted by the State Corporation Commission ("SCC"). The Taxpayer does not belong to an affiliated group that includes a person holding a certificate of convenience and necessity granted by the SCC authorizing telephone service.
Based on the facts presented and pursuant to the doctrine of strict construction for construing exemptions mandated by the courts, the Taxpayer does not meet the definition of a "telecommunications company" set out in Va. Code § 58.1-400.1 and, therefore, is not entitled to the exemption in Va. Code § 58.1-609.3(3). The Taxpayer is also not grandfathered under the current exemption, as no grandfathering provision exists for this exemption.
In regard to your constitutional concerns, the Taxpayer acknowledges that it is not competing in the local markets. Rather, the Taxpayer competes against telecommunications companies in the interstate and international marketplace. Further, there is a clear distinction between the products offered by the Taxpayer and intrastate phone service. Analogous differences in markets and products were at issue in General Motors Corp. v. Tracy, 519 U.S. 278 (1997). In this case, the U. S. Supreme Court found no violation of the Commerce Clause because state-regulated natural gas "utilities provided a different product, natural gas bundled with state-mandated rights and benefits, and served a substantially different market, residential customers, than did unregulated natural gas vendors, which sold natural gas at market rates to bulk customers like the automobile manufacturer." Clearly, substantial differences exist between the international markets served by the Taxpayer and the local markets served by telecommunications companies providing domestic telephone services.
Consequently, I find no basis to conclude that the Taxpayer, with its international telephone service, is competing against and thus is similarly situated to those telecommunications companies that are governed by the above-cited statutory definition of a "telecommunications company." Moreover, I have seen no indication from the Office of the Attorney General or from the courts that the exemption set out in Va. Code § 58.1-609.3(3) discriminates against the Taxpayer or other similarly certificated overseas common carriers.
Lastly, every presumption is made in favor of the constitutionality of an act of the General Assembly. A reasonable doubt as to its constitutionality must be solved in favor of the validity of the law, and the courts have nothing to do with the question whether the legislation is wise and proper, as the General Assembly has plenary power, except where the constitution of the state or of the United States forbids; it is only in cases where the statute in question is plainly repugnant to some provisions of the constitution that the courts can declare it to be null and void. City of Charlottesville v. DeHaan, 228 Va. 578, 323 S.E.2d 131 (1984); Roanoke v. Michaels Bakery Corp., 180 Va. 132, 21 S.E.2d 788 (1942).
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- Based on this determination, the assessment is correct. A consolidated bill, with interest accrued to date, will be mailed shortly to the Taxpayer. I understand that the Taxpayer is under Chapter 11 bankruptcy protection. Because of these circumstances, the Taxpayer should contact ***** with the Department's Legal Unit at ***** concerning its account.
The Code of Virginia sections, regulations and public documents cited are available on-line in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us. If you have any questions about this determination, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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Kenneth W. Thorson
Tax Commissioner
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AR/39743R
Rulings of the Tax Commissioner