Tax Type
Retail Sales and Use Tax
Description
Publishing and broadcasting; Cable television equipment
Topic
Taxability of Persons and Transactions
Date Issued
02-23-1996
February 23, 1996
Re: Request for Ruling: Retail Sales and Use Tax
Dear**********
This is in response to your letter of December 18, 1995 in which you seek a ruling on the application of the tax to transactions conducted by*******(the "Taxpayer").
FACTS
The Taxpayer provides cable television services within the Commonwealth through a wholly-owned subsidiary. Prior to 1993, the Taxpayer billed its subscribers a single monthly amount which included charges for cable TV services and the use of certain equipment such as converter boxes and hand-held remote controls. Beginning in September 1993, and as required by passage of the Cable Television Consumer Protection and Competition Act of 1992, the Taxpayer began separately stating to subscribers the amount charged for rental of this equipment.
You suggest that charges to subscribers for the equipment are exempt from the tax regardless that such charges are separately stated, and you request a ruling on this issue.
RULING
Leases/rentals of equipment: As you indicate, in Public Document 87-208 (9/15/87) the department determined that rentals of equipment by a provider of cable television services were inconsequential elements of the provider's television service. It was further determined that the true object of the customer was to obtain the service provided by the seller rather than the tangible personal property accompanying that service.
An analogous issue was addressed in Public Document 88-299 (10/31/88) in which a separate charge was made for equipment rented in connection with the provision of database services. Again, the department determined that the provider was not required to add the tax to such leases or rentals of equipment made in connection with the provision of services.
Accordingly, the Taxpayer in the instant case is not required to add the tax to its separately stated charges for cable television equipment. However, if equipment is leased or rented without the provision of television services, the Taxpayer is required to add and collect the tax on the lease or rental charges. Similarly, the Taxpayer is required to add and collect the tax on any sales of equipment or other tangible personal property.
Purchases of equipment: As the provider of a nontaxable service, the Taxpayer is subject to the tax on tangible personal property used or consumed in providing its service. In this regard, however, Code of Virginia § 58.1-609.6(2) provides an exemption from the tax for amplification, transmission and distribution equipment used by cable television systems. The converters supplied by the Taxpayer are used in distributing the cable signal to customers and are therefore exempt equipment which may be purchased exempt of the tax.
Conversely, the department has determined that hand-held remote control units are not used in an exempt amplification, transmission or distribution activity. See, for example, Public Document 90-48 (3/20/90). Accordingly, the Taxpayer is required to pay the tax on the purchase of these hand-held units.
I trust that this information addresses your concerns. Please contact ***** in my Office of Tax Policy at **** if you have further questions.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10686I
Rulings of the Tax Commissioner