October
4, 1991 Response from Tax
Commission
September
2, 1991 Letter from XXXXX of XXXXX
XXXXX
Secretary,
Treasurer & Controller
Re:
Tax on Data Transmission Service
Dear
Mr. XXXXX:
This
letter is in response to your recent request for a Tax Commission ruling on
whether data transmission services via satellite are taxable when received in
Utah. You also want to know if use tax is due on the value of the XXXXX
receiving equipment.
The
Tax Commission policy is to refer such requests to the division most qualified
to analyze the request and make recommendations concerning it. As such, your
request was referred to the Tax Commission's Auditing Division for their
analysis and recommendations. The division's recommendation is as follows:
1.
The Utah sales and use tax law imposes tax on the retail sale of tangible
personal property or the lease or rental of such, on the repair or renovation
of tangible personal property, and on attaching personal property to other
personal property. Services in connection with the above are also taxable. The
law imposes tax on certain transportation, on telephone and utility services,
on admissions, on cleaning and washing of personal property, on temporary
lodging accommodations and on purchases of personal property used, stored or
otherwise consumed in this state.
2.
The service to send or receive an electronic message or signal transmitted by a
satellite is not considered a telephone service and no tangible personal
property or other taxable service described above is sold or received.
Therefore, none of the services described in the letter from XXXXX are subject
to sales or use tax.
3.
In that XXXXX retains ownership of the data receiving equipment at all times,
XXXXX is the final consumer of the equipment used by their subscribers in Utah
and use tax is due on such equipment based upon XXXXX's purchase price. A list
of combined state, city or county rates is attached.
4. XXXXX is subject to the corporation
franchise tax filing requirement since they own property in the state.
Nationwide net taxable income is apportioned to Utah based upon the percentage
of sales, property ownership and payroll in Utah as compared to total. The tax
rate is 5%.
Based
upon the facts presented in your letter, we are in agreement with the Auditing
Division's recommendations. Obviously, if there are deviations from these
facts, this opinion may be negated.
If
you do not agree with this determination, you may appeal to the Tax Commission
for a formal hearing. The results of that hearing would constitute a
declaratory judgment and be appealable to the Utah State Supreme Court. A
Notice of Appeal Rights and a copy of the Utah Taxpayer's Bill of Rights are
attached.
For
the Commission,
Joe
B. Pacheco
Commissioner
Utah
Department of Revenue
State
Tax Commissioner
160
E 3rd South
Salt
Lake City, UT 84134
REGARDING
- REQUEST FOR WRITTEN RULING ON APPLICABILITY OF
SALES/USE
TAXATION
XXXXX
(XXXXX) is an electronic information and communications services company. Due
to our continuing growth and addition of new services to our customers, we are
requesting a written ruling from your state as to what taxes (ie; sales, use,
telecommunications, excise, consumption, other), if any, our company's services
may generate. We have not requested a written ruling from the Tax Commissioner
in your state in the past, but may have received verbal or written information
from certain sales/use tax department employees. We are requesting a written
opinion from the Tax Commissioner in your state, such that we can be assured
that we are handling these taxes properly.
The
following information, when read in conjunction with the attachments included
herein, give a description of the business we conduct and services we provide.
1. XXXXX generally is an electronic provider of
"information" to our subscribers. The information is either sent from
XXXXX to the subscriber, or from a third party through XXXXX to the subscriber.
The information is sent one-way (from XXXXX to the subscriber), on a
non-interactive basis (ie; the subscriber cannot communicate back to XXXXX).
XXXXX
uses satellite technology to send the information to the subscribers. The
information is sent from or through XXXXX's transmitting equipment in XXXXX, up
to a satellite, and then down to the subscriber. Each subscriber has data
receiving equipment, which receives the data stream and converts the data stream
into video-text which the subscriber can read on a monitor (an example of what
the data receiving equipment looks like is on Attachment A). The data receiving
equipment is not a computer. It has no keyboard and no data storage
capabilities. It merely receives the data stream and converts it to video-text.
XXXXX
retains ownership of the data receiving equipment at all times. If the
subscriber cancels the subscription, the equipment is returned to XXXXX. XXXXX does not own the satellite, but leases
space on it to send information.
The
various services that we provide are described below.
a.
Subscribers sign a contract with XXXXX to receive a "basic information
package" from XXXXX. The subscriber pays a one-time start-up (ie;
initiation) fee, and then pays a monthly fee for the subscription. The basic
information package is exactly the same for every subscriber who signs up for
that service.
b.
Subscribers sign-up for "additional services" (much like HBO is to a
cable TV subscriber). The subscriber must already be subscribing to a
"basic information package" (as noted in 2.a.) in order to receive
these additional services. These "additional services" are provided
by a third party and transmitted through XXXXX to the subscriber. The
additional service information is exactly the same for every subscriber who
signs up for that service. The subscriber pays a monthly fee for the
subscription to the "additional service". The third party providing
the information may or may not reside in the same state as either XXXXX or the
receiving subscriber.
A
third party may contract with XXXXX to send its information ("electronic
mail") to specific XXXXX subscribers it selects. The subscribers must
already be subscribing to a "basic information package" (as noted in
2.a.) in order to receive the electronic mail. Unlike "additional
services" as noted in 2.b., subscribers cannot receive the third parties
electronic mail information unless the third party specifically selects them to
receive it. The electronic mail information is exactly the same for every
subscriber which the third party selects to receive the information. The third
party pays a fixed monthly fee to XXXXX for transmitting the electronic mail
information for the third party through the XXXXX transmitting equipment to the
selected subscribers. The monthly fee is generally a fixed amount and does not
vary based on the number of subscribers receiving the electronic mail
information. The subscriber receiving the electronic mail pays nothing for the
electronic mail. The third party providing the information may or may not
reside in the same state as either XXXXX or the receiving subscriber.
A
third party may contract with XXXXX to send its information ("electronic messages")
to specific XXXXX subscribers it selects. The subscribers must already be
subscribing to a "basic information package" (as noted in 2.a.) in
order to receive the electronic messages. These electronic messages are much
like electronic mail, in that the third party sending the electronic messages
decides which subscribers will receive the electronic messages. These
electronic messages are not like electronic mail though, because each
electronic message is different for each subscriber who receives it (ie; the
third party sends a unique electronic message to each subscriber it selects).
The third party pays a fee to XXXXX for transmitting the electronic message
information for the third party through the XXXXX transmitting equipment to the
selected subscribers. The fee is based on the number and length of the
electronic messages sent. The subscriber receiving the electronic messages pays
nothing for the electronic message. The third party providing the information
may or may not reside in the same information may or may not reside in the same
state as either XXXXX or the receiving subscriber.
We
are requesting a written ruling from your state as to what taxes, if any, are
generated by these types of services. Specifically, but not limited to, we
would request answers to the following questions.
A.
Based on the description of our business and the technology we use to transmit
information to our subscribers, are any of the services described in 2.a.
(basic information package), 2.b. (additional services), 2.c. (electronic mail)
or 2.d. (electronic messages) subject to any sales, telecommunications, excise,
consumption or other type of tax in your state?
B.
If the answer is yes to any part of question A., what types of tax apply and at
what rate? Are there city, local or county taxes that apply? If yes, at what
rate?
C.
If the answer is yes for question A., as it relates to the electronic message
or electronic mail service, how is the tax computed? Ie; is the tax based on
the tax laws of the State from which the information is sent (third party
sender who pays for the service) or the tax laws of the State where the
information is received (subscriber who pays nothing for the electronic message
or electronic mail)?
D.
Is the one-time start up (ie; initiation) fee subject to any sales,
telecommunication, excise, consumption or other type of tax in your State? If
yes, what type of tax applies and at what rate?
E.
Whether or not any of the services described in 2.a., 2.b., 2.c. or 2.d. or the
one-time start up fee are subject to any sales type tax, is there any use tax
applicable on the cost of the equipment shipped to our subscribers in your
state?
F.
XXXXX currently does not specifically differentiate between whether the monthly
subscription fee is a charge for the information the subscriber receives or a
charge for the use of the equipment, or a charge for both. Please advise us as
to whether any of your conclusions regarding the sales type tax or the use tax
(or any other tax) are dependent upon your assumptions as to whether XXXXX is
charging for the service, charging for the equipment, charging for both, or
charging for neither?
G.
If your answers to the questions noted above call for certain taxes to apply,
does your state specifically prohibit a company from charging the subscriber
for that tax, whether the tax is a service type tax or a use tax?
H.
If your answers to the questions noted above call for certain taxes to apply,
does your state specifically require the taxes charged to a subscriber be identified
in a certain manner or description?
I.
The vast majority of our subscribers are agricultural farmers or ranchers. The
information they obtain over the XXXXX system is directly used in the business
and affairs they conduct in their agricultural business. Does your state offer
an exemption from any or all taxes for this type of service directly used in
agriculture?
We
have also included a copy of the contract that each of our subscribers signs
when they subscribe to a basic information package (Attachment B) and some
other literature we are using in marketing our products (Attachment C). Please
understand that certain language in all of our literature is either
specifically intended to stress a marketing point or cover a business aspect of
our operations, and is not intended to portray a certain basis or conclusion
regarding our subscription charges (ie; lease, rent, purchase service,
combination, etc.). Therefore, we request that if there are specific areas in
the literature that you are basing your conclusions on, you contact us directly
to discuss that area.
We
at XXXXX are very interested in collecting and/or paying all taxes that are
legally due. We have been very frustrated in the past with our inability to get
an answer or consistent answers from some states' revenue department or
sales/use tax department employees. Obviously this inconsistency leaves us
exposed to future tax, interest and penalties, and thus the purpose of this
request.
Your
attention to this request would be greatly appreciated. If you have any
questions or comments, please contact either XXXXX, Accounting Manager, or me
at XXXXX.
Sincerely,
XXXXX
Secretary,
Treasurer & Controller