Tax Type
Corporation Income Tax
Description
Telecommunications; Mobile satellite communications system
Topic
Computation of Income
Date Issued
04-05-1995
April 5, 1995
Re: Request for Ruling: Miscellaneous Taxes
Dear**********
This will reply to your letter seeking a ruling on the applicability of the sales and use tax, gross receipts taxes, telecommunications excise taxes and/or utility taxes to the various telecommunications services provided by your client, the "Taxpayer."
FACTS
The Taxpayer provides a full range of voice and date services via satellite to various customers. Its mobile satellite communications system will provide communications services, including voice, facsimile, and data communications, on a nationwide basis. The company's key markets are customers who travel into or reside in geographic areas that lack cellular coverage, customers who require seamless nationwide mobile communication services and point-to-multipoint voice service. Typical customers of the company will be trucking fleets, boats, people traveling between different states and cellular systems, and various other transportation companies.
The Taxpayer is not subject to the traditional public utility rate of return regulations as it is a nondominant common carrier. Most services of the system will be marketed and distributed through third party telecommunications companies.
You seek a ruling on the application of the various taxes to the Taxpayer's business.
RULING
I will address the application of the various taxes to the services provided by the Taxpayer.
Sales and Use Taxes
Telecommunications services generally -- Telecommunications services are generally exempt from the sales and use tax in Virginia under Code of Virginia § 58.1609.5(1) which provides an exemption from the tax for "[p]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made...." Accordingly, the Taxpayer's charges for the following services are not subject to the tax: access, activation, airtime, voice mail, call forwarding, conference calling, trunk line purchases (bulk purchases of time on the communications system), roaming (special charges for customers moving between cellular zones), and private networks (charges for dedicated communications channels for a single customer).
Furthermore, charges by local telephone companies for the use of blocks of telephone numbers are nontaxable.
Equipment leases -- The rental of telecommunications equipment by the Taxpayer in connection with the rendition of its monthly service to a customer is not subject to the tax as the "true object" of the transaction is the receipt of telecommunications services rather than the rental of a telephone, pager, etc. (See P.D. 86-91 (5112186) and P.D. 90-228 (12/19/90), copies enclosed.) Furthermore, charges made to customers in addition to the standard monthly service fee generally will not be subject to the tax. Such charges include charges for additional usage, monthly equipment maintenance fees on leased equipment, monthly fees for waiver of liability on lost or damaged leased equipment, charges for lost or damaged leased equipment, equipment repair and labor charges on leased equipment, connect fees, long distance call charges, returned check fees, finance charges on leased equipment and security deposits on leased equipment. However, charges that do not relate to the provision of service are taxable. Specifically, monthly equipment maintenance fees that entitle the customer to receive parts or other tangible personal property and charges for equipment repairs and parts made in connection with the maintenance and repair of customer owned equipment are taxable. Installation and repair labor charges that are separately stated on customers' invoices are not taxable, however.
The rental of telecommunications equipment not in connection with monthly services and the sale of such to customers are subject to the tax. (See Virginia Regulation (VR) 630-10-102.2, copy enclosed.) In addition, charges for the above, not in connection with the provision of a service are taxable to the extent that they are included in the "sales price"of the equipment or the "gross proceeds" from the lease of such equipment. Code of Virginia §58.1-603(2) imposes the sales tax on "the gross proceeds derived from the lease or rental of tangible personal property." "Gross proceeds is defined in Code of Virginia §58.1-602 as "the charges made or voluntary contributions received for the lease or rental of tangible personal property or for furnishing services, computed with the same deductions, where applicable, as for sales price as defined in this section over the term of the lease..." In addition, B of VR 63010-57 provides in part that "[t]he term 'gross proceeds' includes any finance or interest charges, insurance charges, charges for property tax on property being leased, and other similar charges."
However, separately stated charges for repair labor or for the installation of such systems are not subject to the tax.
You should note that beginning January 1, 1996, one-half of the total charges for maintenance contracts which provide for both repair or replacement parts and repair labor will be exempt from the tax.
Gross Receipts/Income Taxes
If the Taxpayer has property or employees in Virginia, income derived in the state from the provision of the various services and tangible property would generally be subject to the corporation income tax. (See VR 630-3441 regarding reports required by corporations and VR 630-3402 regarding Virginia taxable income, copies enclosed.)
The taxation of telecommunications companies which hold a certificate of convenience and necessity granted by the State Corporation Commission is explained in Code of Virginia § 58.1400.1, copy enclosed.
Utility Taxes
There are no state utility taxes affecting telecommunications service providers, however, localities may impose local utility taxes. Code of Virginia §58.1 -3812 permits any county, city or town to impose a tax on the consumers of utility services provided by telegraph and telephone companies or other corporations subject to the gross receipts tax imposed by the State Corporation Commission pursuant to Chapter 26 of Title 56 of the Code of Virginia. Furthermore, §58.1-3813 permits localities to impose a local tax for enhanced emergency telephone service 911. However, both of these taxes are imposed on consumers and not the service providers.
Excise Taxes
There currently are no state excise taxes on telecommunications services.
I trust this answers your questions, but should you have any others, please
contact*************.
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- Sincerely,
Danny M. Payne
Tax Commissioner
- Sincerely,
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OTP/7707H
Rulings of the Tax Commissioner