Tax Type
Retail Sales and Use Tax
Description
Publishing and broadcasting; Cable television equipment
Topic
Taxability of Persons and Transactions
Date Issued
09-30-1993
September 30, 1993
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear************
This will reply to your letter of July 9,1993 in which you seek correction of sales and use tax assessed to**********( the Taxpayer), as the result of an audit for the period October, 1989 through September, 1992.
FACTS
The Taxpayer is the operator of a cable television system. The Taxpayer contests the application of tax to its purchases of pedestals, pedestal locks, lockboxes, drop tags, locking terminators, sod and various cable equipment. The Taxpayer asserts that the above items are accessories, as defined in P.D.87-208, to amplification, transmission and distribution equipment and are therefore exempt under Va. Code §58.1-609.6(2).
In this third generation audit, the Taxpayer also protests the application of penalty to uncontested items not taxed in prior audits.
DETERMINATION
Cable Equipment
Va. Code §58.1-609.6(2), which is interpreted by Virginia Regulation (VR) 630-10-88, provides an exemption for broadcasting equipment. The exemption provides, in pertinent part, that tax does not apply to equipment and parts and accessories attached to such equipment used directly in broadcasting by cable television systems.
P.D. 87-208 (9/15/87) defines accessory to mean "anything which is joined to another thing as an ornament, or to render it more perfect, or which accompanies it, or is connected as an incident or as subordinate to it, or which belongs to or with it."
The Taxpayer relies upon this definition to support its argument that the contested items are joined to and belong with exempt equipment. However, consideration must be given to this definition in the context of the doctrine of strict construction of sales tax exemptions which requires that the contested items must be scrutinized to the same extent as the exempt equipment. (See Commonwealth, Dep't of Taxation v. Wellmore Coal Corp., 228 Va. 149, 320 S.E.2d 509 (1984)).
Accessories, when attached to exempt coaxial cable or exempt equipment, must act as integral components of the signal distribution and amplification functions in order to qualify for the exemption. While accessories do not have to qualify to the same degree as equipment, they must be a part of, joined to, and render exempt equipment more perfect in disseminating or distributing a signal.
In applying the doctrine of strict construction, and based on the information submitted by the Taxpayer, the tax treatment of the cable equipment, parts, attachments and other items purchased by the Taxpayer is provided below. Those items designated as taxable are viewed as serving an installation, environmental or otherwise incidental or subordinate role and are not directly related to the distribution and amplification functions, nor enhance the quality of the signal disseminated.
- pedestals - exempt
- pedestal locks - taxable
- lockboxes - exempt
- drop tags - taxable
- locking terminators - exempt
- sod - taxable
- roka clips, drive pins, trim and cove molding, wall plates, etc. - taxable
- cable ties - taxable
-
Generally, it is the department's policy to waive penalty on new issues which pertain to groups or classes of items not held taxable in a previous audit. However, in this case, the uncontested items, although not specifically taxed in the previous audit, are of the same general class of items held taxable in the prior audit. As such, l find no basis to waive the penalty applied to the uncontested portion of the assessment. Notwithstanding, I do find basis to waive penalty on the contested purchases held taxable in this determination as those purchases constitute new issues in the current audit.
Accordingly, the audit package will be returned to the**********Virginia District Office for removal of the aforementioned exempt items and the appropriate penalty from the audit. The Taxpayer will receive a revised audit report and "Notice of Assessment" reflecting the revisions and the recomputation of interest accrued to date which should be paid within 30 days to avoid the accrual of additional interest charges and collection activity.
Sincerely,
W; H. Forst
Tax Commissioner
OTP/7111J
Rulings of the Tax Commissioner