93-001

Response February 9, 1993

Request

January 7, 1993

UTAH STATE TAX COMMISSION

160 E. 300 S. HEBER WELLS BUILDING

SALT LAKE CITY, UT 84134

RE: REQUEST FOR RULING OR INFORMATION

Dear Sir or Madam:

This letter is being written requesting information and/or a ruling on the certain issues affecting a client. Our client (“Client”) is located in Texas and wishes to provide the following services to commercial establishments (“Establishment”) located in your state. Such locations may be Nightclubs, Sports Bars, Hotels, etc. IN all cases, the event being distributed/sold is a satellite delivered television signal.

ISSUE 1: SUBSCRIPTION PROGRAMS

The Client, owns the rights to certain entertainment programs which he wishes to distribute to local establishments. The establishment will contract with the Client to provide such programming via satellite. The Establishments will be required to pay an annual or quarterly subscription fee for this service. There may be three different ways of arranging this service, please comment on each (and provide other relevant information which you deem necessary):

(A) The contract is made and consummated by telephone or mail.

(B) The contract is negotiated and consummated by an independent third party, not on the Client’s payroll.

ISSUE 2: SPECIAL EVENTS

The Client owns the rights to certain special events such as a sporting event which the Establishment wishes to broadcast into his location for the benefit of his patrons. The Establishment will pay to Client a fixed fee for said special event. At the Establishment’s option the programming will be offered free to patrons or will be included in the “cover charge” normally charged by the Establishment.

(A) The contract is made and consummated by telephone or mail.

(B) The contract is negotiated and consummated by an independent third party, not on the Client’s payroll.

(D) A separate, one time “access fee” is billed to the Establishment to enable the Establishment’s decoder to receive the signal.

ISSUE 3: PAY PER VIEW EVENTS

The Client owns the rights to certain major sporting events which are offered to the Establishment on a Pay-Per-View basis. The Establishment will remit a portion of the amount collected or expected to be collected from its patrons from the special viewing of the event. The Establishment will charge a special price to the patrons when showing this even.

(A) The contract is made and consummated by telephone or mail.

(B) The contract is negotiated and consummated by an independent third party, not on the Client’s payroll.

(D) A separate, one time “access fee” is billed to the Establishment to enable the Establishment’s decoder to receive the signal.

On each of the above situations, please provide your riling of the tax responsibilities of the Client. Furthermore, do any of the above situations require the Client to obtain a “Promoter’s or Exhibitor’s” license?

Thank you for your prompt attention to this matter.

Sincerely,

XXXXX

MEMORANDUM

TO: XXXXX, Director

FROM: XXXXX, Secretary

DATE: XXXXX

SUBJECT: Request for Ruling or Information - No. 93-001DJ

Attached is a request for information and/or ruling from XXXXX. Will you please review the request of XXXXX regarding a client who is located in Texas and wishes to provide services to commercial establishments located in Utah.

Please prepare the response for signature by the Commission as per the guidelines established by them.

Thank you.

February 9, 1993

XXXXX

Re: Request for ruling regarding satellite delivered television signals to establishments located in Utah

Dear XXXXX:

This letter is in response to your XXXXX request for a ruling regarding the taxability for Utah corporation franchise tax purposes, of a corporation providing a satellite delivered television signal to customers in Utah. This matter involves the providing of services to customers in Utah from outside this state in contrast to the sale of tangible property, which is generally governed by the provisions of Public Law 86-272.

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 recommendation. The division’s recommendation is as follows:

The subject of this advisory opinion is “sales, other than sales of tangible personal property” which is covered under U.C.A. 59-7-319. In this type of matter there are generally two distinct determination which must be made. This first is whether the state has jurisdiction to tax the particular corporation in the first instance (i.e. does such corporation have nexus with the taxing state?). The second question is, assuming that jurisdiction to tax is present, how are such gross receipts or sales to be treated for purposes of the Utah sales numerator?

The format of your request includes three separate but related issues with several alternative possibilities as to how the contract may be negotiated. All three issues involve alternatives in types of programs or contracts between the parties. However, all of the above programs or contracts involve the same basic matter which is the delivery of the satellite television signal. Therefore, our determination as to the taxability of the three different issues will be the same regardless of how the contract is negotiated.

Since Public Law 86-272 applies only to the sale of tangible personal property, the manner in which such contract is negotiated will be irrelevant in the determination as to taxability of the corporation in Utah or how such receipts are treated for purposes of the Utah sales factor of the three-factor apportionment formula. Therefore, the corporation would either be subject to the tax in all alternatives or not be subject to tax in any of the alternatives. In other words, the focal point in this determination is the delivery of the signal to the Utah customer rather than the form of the contract for such delivery.

JURISDICTION TO TAX

The client is clearly transacting business with a Utah customer and there is no preclusion on the state from asserting its tax since this is not a sale of tangible personal property governed by Public Law 86-272. Therefore, Utah has jurisdiction to tax the client.

APPLICATION OF UTAH SALES FACTOR

The amounts of sales other than the sales of tangible personal property includable in the Utah sales and receipts factor are controlled by U.C.A. 59-7-319 and Utah Administrative Rule R865-6-8F(I)(6). The above statute provides that such sales are in this state if: (1) the income- producing activity is performed in this state; or (2) the income-producing activity is performed both in and outside this state and a greater proportion of the income-producing activity is performed in this state than in any other state, based on the costs of performance. There is no specific provision in the code or rules relating to the transmission of a satellite delivered television signal into the state of Utah. Under the alternatives presented in your letter the income-producing activity is being performed outside of Utah and under current statute and rule, none of the revenues are assignable to the Utah sales numerator.

CONCLUSION

Based on the above rationale, although Utah clearly has jurisdiction to tax a corporation engaged in delivering the television signal via satellite into this state, current statutes and rules do not require such a corporation to file and include the revenues or any of the property or payroll in the Utah numerators of the XXXXX apportionment formula at this time. The type of business engaged in by your client is relatively modern and the statute as written did not appear to contemplate the types of issues and concerns relating to this enterprise. A number of states are considering new rules which will potentially change current practice and deal with the unique concerns of this type of industry. Utah does not currently have any proposed rules being considered relating to this area. However, the possibility exists that a rule could be adopted in the future which would change the Utah requirements for this industry.

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 Bill of Rights are attached. In addition, if you have additional questions or need additional clarification, please contact XXXXX of the Auditing Division (telephone XXXXX).

In contacting the Tax Commission, if special accommodations are needed in accordance with the Americans with Disabilities Act, please call (801) 530-6920, (801) 530-6077 or TDD (801) 530-6269 allowing three working days notice.

For the Commission,

Joe B. Pacheco

Commissioner