REQUEST LETTER

 

Response 1/14/03

02-029

 

NAME

ADDRESS

 

The COMPANY, a retail drug store chain, requests a written opinion as to the sales taxability to our customers on the purchases of the following items:

 

1.                  AT&T Prepaid Internet Service – a prepaid card that the consumer purchases for a specified amount of internet access time. This card comes with a Start-Up CD, which needs to be loaded initially on the computer to gain access to the service. There is no monthly fee. However, the consumer is still subject to any related charges and taxes for use of the telephone line to connect to the service. These charges are billed separately by the telecommunications carrier.

 

2.                  AT&T Prepaid Internet Service Refill Card – a prepaid card that consumer's purchase to add additional minutes to their "already established" prepaid internet service account. This product is similar to the above item, except that there is no Start-Up CD.

 

Please find attached additional detailed information regarding this "prepaid card." This information was taken directly from AT&T's website.

 

Thank you for your assistance in this matter. If you have any questions please feel free to contact me at PHONE.

 

 

RESPONSE LETTER

 

January 14, 2003

 

NAME

ADDRESS

 

RE: Private Letter Ruling – Sale of AT&T Prepaid Internet Service Cards

 

Dear NAME,

 

We have received your request for a private letter ruling concerning COMPANY'S sale of AT&T prepaid Internet service cards. The sale of Internet service is not considered a taxable “telephone service” as defined in Utah Code Ann. §59-12-102(34)(c) and, accordingly, is not taxable. When a prepaid Internet service card is sold, the Commission considers the object of that transaction not to be the card itself but the Internet service to which the purchaser is entitled. As the purchase of the card represents the purchase of nontaxable Internet service, the purchase of the card is nontaxable.

 

We distinguish the sale of a prepaid Internet service card from the sale of a prepaid telephone calling card, the latter of which is taxable under Utah Code Ann. §59-1-103(1)(m). First, the language imposing a tax on the sale of prepaid telephone calling cards is specific and does not refer to sales of prepaid Internet service cards. Also, the Legislature has specifically distinguished nontaxable Internet service from taxable “telephone service” in Section 59-12-102(34)(c). For these reasons, the Commission does not find a legislative intent to tax Internet service, whether the service is paid for at the time it is received or prepaid by purchasing the Internet service cards at issue.

 

You mention that the prepaid Internet service card comes with a Start-Up CD that must first be downloaded on the purchaser’s computer before accessing the prepaid Internet service. Were this CD to be sold separately, it would be considered canned computer software and, thus, taxable under Utah Admin. Rule R865-19S-92. However, when the CD is included in the price of the prepaid Internet service card, we would not consider it to be separately taxable, but rather to be incidental to the nontaxable purchase of the prepaid Internet service card.

 

Although we have determined the sale of the prepaid Internet service card to be a nontaxable sale of services, the tangible personal property that is used in providing this service, i.e., the card and the Start-Up CD, is taxable to either AT&T or COMPANY. While we assume these items are consumed by AT&T in producing the nontaxable prepaid Internet service card, we raise this issue in case COMPANY and AT&T have structured their marketing agreement so that COMPANY is considered the consumer of these items.

 

Please contact us if you need other information.

 

For the Commission,

 

 

 

Marc B. Johnson

Commissioner

 

 

02-029