Tax Type
Retail Sales and Use Tax
Description
Publishing and broadcasting; Exemptions
Topic
Taxability of Persons and Transactions
Date Issued
11-08-1996
November 8, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*********
This will reply to your letter in which you seek correction of the retail sales and use tax audit of *********(the "Taxpayer") for the period of February 1993 through January 1996.
FACTS
The Taxpayer is in the business of providing wireless satellite television service. A wireless satellite system is a specialized microwave radio system. This differs from coaxial cable systems which rely on wire cable to transmit programming to subscribers. A wireless satellite system transmits programming over the airwaves and requires clear "line of site" between the transmission and receiving antennas.
Wireless systems also use addressable subscriber authorization technology. The addressing system centrally controls programming which is available to each subscriber. The addressing system authorizes a subscribers level of service, controls the transmission of pay-per-view and special event programming, and manages de-scrambling and channel assignments to each subscriber's set-top converter.
The Taxpayer receives the majority of their programming directly from the satellite source and re-transmits the signals over distances between 20 and 40 miles. The Taxpayer's receiving station consists of satellite receiving equipment, decoders, encoders, down converters, transmitters, and remote system controllers with billing and converter addressing software.
The Taxpayer also provides to it's subscribers home receiving equipment. Such equipment includes a receive antenna, down-converter, set-top converter and hand-held wireless remote control unit. Wireless in-home receiving equipment is generally the same type of equipment used in coaxial cable systems.
The Taxpayer is seeking the same exemption afforded to coaxial cable television companies and requests that the audit be adjusted accordingly.
DETERMINATION
Code of Virginia § 58.1-609.6(2) provides an exemption from the retail sales and use tax for the following:
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- Broadcasting equipment and parts and accessories thereto and towers used or to be used by commercial radio and television companies, cable television systems..., 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 cable television systems...
Virginia Regulation (VR) 630-10-88.D (copy enclosed) addresses the broadcasting exemption as it applies to cable television services and provides that "the tax does not apply to broadcasting, amplification, transmission, and distribution equipment and parts and accessories thereto and towers purchased for use by cable television systems." We interpret VR 630-10-88 to apply only to providers of coaxial cable television service. While the statute set forth above specifically exempts "cable television systems", it has been the longstanding policy of the department to tax equipment used in satellite broadcasting to subscribing customers [see P.D. 88-294 (10/31/88) enclosed].
I am also enclosing a copy of the Exemption Analysis for the broadcasting exemption which appeared in the department's December 1991 Virginia Sales and Use Tax Expenditure Study. This document explains in detail the department's interpretation of the broadcasting exemption. As provided on the second page (page 69) of this analysis under the heading of "Similar Taxpayers", the department lists similar taxpayers who do not enjoy the broadcasting exemption. The first listing under this heading denies the broadcasting exemption to "businesses providing satellite communication services to a limited number of subscribing customers as they do not disseminate signals directly to the general public."
In 1980, the statutory exemption found in Code of Virginia § 58.1-609.6(2) was expanded to include cable television system and amplification, transmission, and distribution equipment used by such systems. The department has interpreted the cable television exemption to be applicable to "coaxial" cable systems and not to "satellite" systems. For this reason, the department finds no basis for revising the audit.
If you should have any questions, please contact ******* Office of Tax Policy, at***********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11305K
Rulings of the Tax Commissioner