95-049
August
29, 1995
Request
XXXXX
Utah
State Tax Commission
160
East 3rd Street - South
Salt
Lake City, UT 84134-3330
Dear
XXXXX:
We
are seeking a letter ruling as to your state’s sales and use tax treatment on
the sales of direct to home (DTH) satellite services by our clients, XXXXX
(XXXXX) and the XXXXX (XXXXX). Fore
reference purposes, we are enclosing a copy of your department’s response to
our request for a nonbinding letter ruling.
The
relevant facts of our client’s operations, as previously submitted on a no name
basis, are discussed below:
STATEMENT
OF FACTS
Overview
Both
XXXXX and XXXXX are planning to offer direct to home (DTH) satellite television
services to end-users (consumers), some of which may be located in your
state. DTH services will provide the
end-user with up to 150 channels of programing. The services will include basic network channels, pay per view
movies, concerts, sporting events as well as other commercial supported
programming.
Operational
Aspects
The
operational aspects of XXXXX’s and XXXXX’s DTH services are as follows:
Satellites,
located above the continental United States will receive signals and then
broadcast the signals to the end-users throughout the continental United
States. The transmissions to the
satellites will originate from earth stations located in jurisdictions other
than your state. In some instances,
such as live sporting events or concerts, our client or a third party may
initiate programming from a location within or outside your state, transmit it
to a primary earth station, format it and transmit to the satellites for
broadcast to the customers.
The
customer will receive the DTH service through a receiver/decoder system. This system consists of a satellite dish
antenna, a set top receiver/decoder unit and a remote control which are
purchased from retailers. Included with
the set top receiver/decoder is a removable “access card” encoded with the
information necessary to descramble the programing which the consumer purchases
or subscribes. Neither XXXXX nor XXXXX
will own or lease the satellite dish antenna, set top receiver/decoder unit or
the “access card.” The equipment will
be the property of the consumer. The
access card will remain the property of an unrelated third party.
Independent
parties have been given a licence to manufacture the satellite receiver/decoder
system and it will bear the manufacturer’s name. The manufacturer and XXXXX or XXXXX will jointly market the
service. XXXXX and XXXXX will have
independent representatives marketing and soliciting on their behalf. Also, they may from time to time have
employees marketing in your state.
Programming
As
discussed earlier, the programming will consist of basic and premium network
channels, pay per view, etc., and in some locations network programming. The consumer may elect to purchase pay per
view programs (movies, sports, concerts, etc.), a package of scheduled
programming (i.e., basic and premium network channels), or a combination
thereof.
The
consumer may order pay per view programming utilizing a remote control, or
contact XXXXX or XXXXX for each program purchased.
Billing
The
consumer will be billed on a monthly basis.
The access card, on an embedded chip, will contain consumer information
and may include certain services purchased during the billing cycle. The receiver/decoder will in most cases be
connected to a telephone line. In those
cases, at a prescribed time and date the access card will call the information
center at the expense of our client.
The information concerning the services purchased during the billing
cycle will then be extracted from the access card. An unrelated third party has been engaged to generate and send
the invoices to all subscribers.
ANALYSIS
Utah
imposes sales and use tax on sales of tangible personal property and specified
services, which include intrastate telephone and telegraph services [Utah Code
Annotated S9-12- 103(4)(b)].
A
“telephone service” is defined as the transmission for hire of signs, signals,
writing, images, sounds, messages, data or other information of any nature by wire,
radio, light waves, or other electromagnetic means [Utah Code Annotated
R865-19-90S].
While
the Utah Code Annotated does impose tax on telephone services, there are no
provisions addressing DTH services or cable television services. DTH services do not meet the definition of a
telephone service. Under the Utah Code
Annotated, only specifically enumerated services are subject to sales and use
tax.
Conclusion
The
sales of DTH services are not specifically enumerated in the Utah Sales and Use
Tax Code. Additionally, DTH services do
not meet the definition of taxable telephone and telegraph services, because
they are not a telephone service, nor are they considered a conduit of two-way
communication. Finally, DTH services
are not intrastate, since a majority of the services originate outside the
State of Utah. Based upon the above
analysis, XXXXX’s and XXXXX’s DTH services are not subject to sales and use tax
within the State of Utah.
ISSUES
1. What is the state’s sales and use tax treatment
of XXXXX’s and XXXXX’s sales of direct to home programming to customers located
in your state as described in the statement of facts as presented?
2. Are there any other state taxes which may be
applicable to our clients?
Due
to the fact that our clients are expected to begin business in the near future,
we respectfully request a response to this inquiry as soon as possible. Should you have any questions nor desire
further clarification as to the activities of our clients, please contact XXXXX
at XXXXX or XXXXX at XXXXX.
Very
Truly Yours,
XXXXX
by
XXXXX
XXXXX
RE:
Advisory Opinion - Application of sales tax to direct home satellite services.
We
have received your request for an advisory opinion regarding the application of
sales tax to the satellite services sold in Utah by your client, XXXXX. The state legislature has commissioned a
study to address tax issues arising around all telecommunication services. We expect that the study will result in
legislative changes that will impact your client’s operations, but those
changes may be more than a year in the future.
In the meantime, we offer you the following guidance based on our
interpretation of current sales tax laws.
Section
59-12-103 (1)(b)(ii) imposes sales tax on intrastate telephone service. Telephone service is defined to include
various types of transmissions by wire, light waves or electromagnetic means. Utah Administrative Rule R865-19S-103. Although the language of the rule seems to
encompass satellite transmissions, we have interpreted the rule narrowly to
include only telephone, not television, service. On that basis, we have advised satellite transmissions to their
companies that direct satellite transmissions to their customers are not
taxable transactions.
Please
let us know if we can be of any other service.
For
the Commission,
Alice
Shearer
Commissioner