December 13, 2017
Re: Request for Ruling: Communications Sales and Use Tax
Dear *****:
This is in response to your letter in which you request a ruling on the application of the communications sales and use tax to various separately stated fees invoiced by (the “Service Provider”) on its monthly billing statements. I apologize for the delay in responding to your correspondence.
FACTS
The ruling request is filed on behalf of a Home Owners Association (the “HOA”), seeking clarification from the Department regarding the application of the communications sales tax to Federal Communications Commission (FCC) regulatory fees and Public Education Government (PEG) grant fees, which are separately stated on bulk billing invoices issued by the Service Provider. Relying on Virginia Code § 58.1-648 and the Communications Sales Tax Guidelines, Public Document (P.D.) 06-138 (11/1/06), the HOA maintains that the fees in question should not be included in the sales price for the purpose of applying the communications sales tax. The Service Provider asserts that the fees are part of the sales price in accordance with the Communications Sales Tax Guidelines.
RULING
Virginia Code § 58.1-647 defines sales price as:
The total amount charged in money or other consideration by a communications services provider for the sale of the right or privilege of using communications services in the Commonwealth, including any property or other services that are part of the sale. The sales price of communications services shall not be reduced by any separately identified components of the charge that constitute expenses of the communications services provider, including but not limited to, sales taxes on goods or services purchased by the communications services provider, property taxes, taxes measured by net income, and universal-service fund fees.
Virginia Code § 58.1-648 A imposes the communications sales tax on “the sales price of each communications service that is sourced to the Commonwealth in accordance with § 58.1-649.” Virginia Code § 58.1-648 B ii provides that the sales price on which the tax is levied shall not include charges for “a fee or assessment levied by the United States or any state or local government, including but not limited to, regulatory fees and emergency telephone surcharges, that is required to be added to the price of service if the fee or assessment is separately stated.” [Emphasis added.]
The charges at issue are fees and the application of the communications sales tax on these fees is governed by Virginia Code § 58.1-648 B ii. In the case of government imposed fees, only fees that are required to be added to the sales price are exempt, provided they are separately stated. Government imposed fees that are allowed to be passed on to the customer at the discretion of the service provider are considered part of the sales price and are subject to the communications sales tax, whether separately stated or not. If the fees at issue are statutorily required to be added to the price of the service to the customer, and are separately stated, they would not be subject to the communications sales tax. However, if the fees are not required to be added to the sales price of the service, they would be subject to the communications sales tax, whether separately stated or not.
The FCC fees are administered and collected by the FCC and not by the Department. The authority for the FCC fees is imposed at the federal level pursuant to federal law (47 U.S.C. §159). As such, the HOA should contact the FCC regarding these fees.
The PEG fees are negotiated at the locality level and are governed by a franchise agreement between the Service Provider and the locality. The determining factor as to how the PEG fees are billed to the customer, which determines the communications sales tax application, is set forth in the franchise agreement between the Service Provider and the locality. The HOA should contact the locality regarding the appropriate application of the communications sales tax to the PEG fees.
The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. If you have any questions about this response, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/730.P