August 8, 2018
Re: § 58.1-1821 Refund Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** (the “Taxpayer”), in which you appeal the denial of a refund request for the retail sales and use tax remitted to the Department for the period August 2010 through July 2014. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is a retailer of broadcasting equipment. During the period at issue, the Taxpayer sold broadcasting equipment to ***** (the “Customer”) and charged the retail sales tax on these sales. The Customer provides content and programming via a satellite system to subscribers. Relying on Virginia Code § 58.1-609.6 2 and Title 23 of the Virginia Administrative Code (VAC) 10-210-3030, the Taxpayer submitted a request to the Department for refund of the sales tax charged, collected and remitted on sales of equipment to the Customer.
The Department’s auditor denied the refund request, finding that the Customer does not meet the requirements set forth in the statute and regulation to qualify for the exemption. Relying on Public Document (P.D.) 05-70 (5/6/05), the auditor concluded that the Customer’s satellite based system is not exempt under the statute, and the exemption is not applicable because the Customer only sends signals to its subscribers and not to the general public.
The Taxpayer disputes the auditor’s position and maintains that a refund of the sales tax collected and remitted is due. The Taxpayer has issued a credit memo to the Customer with respect to the sales tax refund claim at issue.
DETERMINATION
Broadcasting Exemption
Virginia Code § 58.1-609.6 2 provides that the retail sales and use tax does not apply to:
Broadcasting equipment and parts and accessories thereto and towers used or to be used by commercial radio and television companies, wired or land based wireless cable television systems, common carriers or video programmers using an open video system or other video platform provided by telephone common carriers, or concerns which are under the regulation and supervision of the Federal Communications Commission and amplification, transmission and distribution equipment used or to be used by wired or land based wireless cable television systems, or open video systems or other video systems provided by telephone common carriers.
Title 23 VAC 10-210-3030 A provides that “The tax does not apply to broadcasting equipment (and parts and accessories to that equipment) and towers used or to be used directly in broadcasting by commercial radio and television companies or concerns which are under the regulation and supervision of the Federal Communications Commission.”
Title 23 VAC 10-210-3030 B provides that “Broadcasting as used in this section means transmitting and not programming (program preparation). The exemption applies only to broadcasting equipment and accessories to such equipment used directly in disseminating a signal into the air. Equipment and accessories used to create the material to be disseminated are taxable.”
The Taxpayer maintains that the exemption applies in this instance for a number of reasons. First, the equipment at issue is used by the Customer to broadcast signals into the air. Second, the Customer is regulated by the Federal Communications Commission. Lastly, the signal is received by public consumers or subscribers. The Taxpayer further maintains that the Customer is a satellite television system and that it is like other broadcasters that enjoy the broadcasting exemption. The Taxpayer states that the Customer has an earth station in Virginia used to broadcast signals to its subscribers and that the Customer does not create its own programming.
The Department has consistently held that “broadcasting,” as considered in the authorities cited above, 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 Winchester TV Cable Co. v. State Tax Commissioner, 216 Va. 286, 217 S.E.2d 885 (1975) and WTAR Radio-TV Corp. v. Commonwealth of Virginia, et aI., 217 Va. 877, 234 S.E.2d 245 (1977). In both cases, the Court held that “broadcasting” as used in Virginia Code § 58.1-609.6 2 means the distribution of a signal into the air to an unlimited number of receivers and making public by means of radio or television. 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. See, P.D. 01-3 (1/3/01).
Based on the information provided, it is my understanding that the Customer’s signal is disseminated through the air to the Customer’s paying subscribers, and not to the general public. A corporate brochure indicates that the Customer’s subscribers are carriers (other telecommunications companies), government entities and businesses. In P.D. 88-294 (10/31/88), the Tax Commissioner ruled, based upon the opinions rendered in Winchester TV Cable and WTAR Radio-TV, that the taxpayer, a provider of satellite communication services, was not eligible for the broadcasting exemption because the taxpayer distributed its services to a limited number of subscribing customers. The Tax Commissioner ruled similarly in P.D. 96-323 (11/8/96), denying the broadcasting exemption to a taxpayer that provided satellite communication services to a limited number of subscribers, rather than disseminating its signal directly to the general public. The rulings in PD 88-294 and P.D 96-323 are further supported by the Tax Commissioner’s ruling in P.D. 05-70 (5/6/05) relied upon by the auditor in denying the Taxpayer’s refund claim.
In this instance, the Department’s longstanding policy that the Customer’s signal be disseminated to the general public has not been met. Accordingly, the broadcasting exemption is not applicable to the sales made by the Taxpayer to the Customer.
Cable Television Systems
Cable television systems have been specifically listed in the statute and eligible for the exemption since 1980. The Taxpayer contends that its Customer is similar to cable television systems that are eligible for the exemption. The Tax Commissioner’s ruling in P.D. 97-392 (9/29/97) is instructive in this instance. In P.D. 97-392, the taxpayer provided satellite television programming to subscribers within and without Virginia. The taxpayer was held taxable in an audit on untaxed purchases of equipment that it provided to its subscribers, in addition to the television programming. The taxpayer maintained that the broadcasting exemption applied to the equipment at issue. In ruling that the exemption was not applicable to the equipment purchased by the taxpayer, the Tax Commissioner cited P.D. 96-323, which concluded that the exemption for cable television systems is applicable to coaxial cable systems, but not to other technologies such as satellite based systems.
The discussion in P.D. 97-372 goes on to cite the 1991 Virginia Sales and Use Tax Expenditure Study, which sets out the Department’s longstanding position that satellite communications providers do not enjoy the broadcasting exemption. Additionally, P.D. 97-372 provides a discussion of the 1997 amendment that expanded the exemption to include wired or land based wireless cable television systems. In addressing the amendment, the Tax Commissioner concluded that the reference to “wireless cable” in no way encompasses a satellite television service, and that “wireless cable” refers to a specific technology in which television programming is delivered via a microwave beam. The Tax Commissioner further concluded that the reference to “land based” would specifically exclude satellite delivery systems. Just as the taxpayer in P.D. 97-392 that provided satellite television programming was excluded from eligibility for the exemption, likewise the Customer’s satellite based system in this instance is excluded by the statutory language resulting from the 1997 amendment. Therefore, based upon the aforementioned authorities, I find that the Customer is not similar to other broadcasters, like cable television systems, that are eligible for the broadcasting exemption.
Other Taxpayer Concerns
In its appeal, the Taxpayer raises concerns regarding the manner in which the broadcasting exemption has been applied in the past. These concerns are addressed below.
Virginia Case Law
Notably, the Taxpayer contends that Virginia case law has provided multiple requirements starting in 1975 that have never been adopted by the legislature through statute or by the Department in its regulations, to include that the requirement to broadcast to the general public is not applied to cable television systems. Rather, the Taxpayer states it has largely been used in recent rulings to prevent satellite companies from enjoying the benefits of the broadcasting exemption.
Virginia courts interpret Virginia statutes and create case law. Article VI, § 1 of the Virginia Constitution, vests the judicial power of the Commonwealth in the Virginia Supreme Court. It is well settled that the opinions issued by the Virginia Supreme Court are binding Virginia law, unless overturned through statute by the Virginia General Assembly. Therefore, the Tax Commissioner can properly use the Court’s opinions to make determinations regarding the application of the broadcasting exemption without the requirements of those opinions being codified in the exemption statute or adopted in the Department’s regulations.
Additionally, the public documents issued by the Tax Commissioner regarding the broadcasting exemption are consistent with the Virginia Supreme Court opinions. The Taxpayer’s position, however, that the case law has been used to prevent satellite companies from enjoying the benefits of the exemption is unsupported. The Tax Commissioner’s rulings apply the criteria set forth in the exemption statute and applicable case law. In this instance, the exemption does not apply to satellite delivery systems or technologies such as satellite systems because such systems are not specifically listed or stated in the statutory language of the exemption.
Public Document 96-7 (2/23/96)
The Taxpayer argues that the exemption has been applied to entities that broadcast signals to the general public and to those that broadcast signals to paid subscribers. Citing P.D. 96-7, the Taxpayer questions whether the recipient of the broadcasted signal matters in determining eligibility for the exemption. The Taxpayer states that the exemption was allowed in P.D. 96-7 for equipment that was provided for subscribers. The Taxpayer further contends that the 1997 amendment was applied to the cable industry, which provided services to paying subscribers.
In P.D. 96-7, the Tax Commissioner addressed the application of the broadcasting exemption to a cable television system. At the time the ruling was issued by the Department, cable television systems were specifically enumerated in the statute as being eligible for the exemption that applies to broadcasting equipment. As stated earlier, cable television systems have been specifically listed in the exemption statute and eligible for the exemption since 1980. As previously discussed, the 1997 amendment to Virginia Code § 58.1-609.6 2 broadened the existing exemption for broadcasting equipment by making it applicable to wired or land based wireless cable television systems. The statute provides the exemption specifically for cable television systems without requiring that the cable provider send its signal to a specific type of customer. Accordingly, the broadcasting exemption was applicable to the taxpayer in P.D. 96-7 because the taxpayer offered services that the exemption statute specifically provided were eligible for the exemption. While I understand the Taxpayer’s concerns, the exemption statute clearly does not extend the exemption to include satellite television systems.
Title 23 VAC 10-210-3030
The Taxpayer further argues that rulings of the Department contradict the regulation that provides that the exemption applies to equipment used directly in disseminating a signal into the air. See, subsection B of Title 23 VAC 10-210-3030. The Taxpayer cites the rulings in P.D. 97-392 (see the previous discussion) and P.D. 00-23 (3/28/00) in support of its argument.
In P.D. 00-23, the taxpayer provided direct-broadcasting-satellite television services to its subscribers in Virginia and North Carolina. The Tax Commissioner held that the broadcasting exemption did not apply to equipment purchased by the taxpayer because the signal was not transmitted to the general public. Referencing P.D. 97-392, the Tax Commissioner also addressed the distinction between exempt cable television systems and taxable satellite based systems and the Department’s policy that concludes that satellite television programming is not a type of wireless cable or land based cable system that would enjoy the broadcasting exemption.
The broadcasting exemption provided by Virginia Code § 58.1-609.6 2 is applicable to certain tangible personal property for use by specific entities in providing specific services. The statute governs the application of the exemption. Title 23 VAC 10-210-3030 provides interpretation and clarification of the exemptions set out in the statute. In order for the exemption to apply, the party seeking the exemption must meet the criteria set forth in the statute. The determinations rendered in the aforementioned public documents do not contradict the regulation, rather, they reflect the Department’s longstanding policy regarding the application of the broadcasting exemption to satellite television systems and explain the differences between such systems and cable television systems.
CONCLUSION
Based upon the foregoing, the broadcasting exemption does not apply to the Taxpayer’s Customer and to the sale of equipment to that Customer. Accordingly, the Taxpayer’s request for refund cannot be granted.
The Code of Virginia section, regulation and public documents 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 Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/680P