96-086
Response
May 21, 1996
Request
State
Tax Commission
XXXXX
210
North 1950 West
Salt
Lake City, Utah 84134
Upon
calling for information, I was informed that I should contact you in writing
regarding taxing information on Internet Services. Our company is an Internet
provider. We have a server and provide monthly service onto the Internet. I was
informed that there is no taxes attached to that service.
XXXXX
also installs and maintains DS1's, and DS3's. This is equipment that enables
companies and/or businesses a connection for digital transmission of signals.
XXXXX charges the customer/end user for this service. XXXXX needs to know if
this service is taxable.
XXXXX
also provides Access Transport Lines for Interstate Traffic (going outside of
Utah). This enables the customer to connect to their long distance carrier. Is
this service taxable?
XXXXX
understands that Internet service is a new business and there has not been a
lot of rulings made on the taxation of these services. We would appreciate any
information that you can provide us. Please forward your findings to the above
address to my attention, XXXXX, Sales & Service Support Specialist l.
Thank
you,
XXXXX
XXXXX
Re:
Sales Tax on Internet Access and Related Services
Dear
XXXXX
We have received your request for
information pertaining to the application of sales tax on your company’s transactions. We begin by alerting you that the state
legislature has commissioned a study of the taxation of all telecommunications services. The study is scheduled for completion later
this year, and the legislature will act on it some time in the future. The opinion that we give you here entails
our current application of sales tax law to internet services. However, future legislative actions may
impact your services in the future. In
the meantime we find as follows:
XXXXX presents a different case than
we have previously considered in that XXXXX not only offers access to its
Internet server, it also acts like a telephone company by installing telephone
lines and equipment for its customers’ use.
Under section 59-12-103 of the Utah Code, certain telephone services
provided by a telephone company are taxable.
Taxable telephone charges include basic access charges which allow a
customer to use the telephone company’s lines and equipment and charges for
intrastate calls. Charges for providing
Access Transport Lines or other telephone lines to your customers are
considered taxable as access services.
Charges for intrastate calls placed via the Access Transport Lines are
also taxable. Charges for interstate
long distance calls are not subject to sales tax.
Although we do not have a clear
understanding of DS1's, and DS3's, we
assume for purposes of this response that your are referring to equipment
installed on your customer’s premise.
We also assume that the equipment remains tangible personal property and
that it is not converted to real property upon installation. Charges for the sale, lease or use of
tangible personal items are taxable.
Therefore, XXXXX’s charges for DS1's and DS3's are subject to sales tax.
Charges for access to the internet
are not subject to tax. To illustrate,
assume that your customer accesses your internet server via his home telephone
line which is provided by XXXXX.
Charges for use of XXXXX’s line will appear on the customer’s XXXXX
phone bill each month as part of XXXXX’s basic access service. That charge is taxable. If your customer makes an long distance call
to your server, the customer’s long distance carrier will bill the customer for
the long distance call. The long
distance charge is assessed in addition to XXXXX’s basic access charge. If the long distance call is an intrastate
call, the charge is taxable. (An
intrastate call is one that originates and terminates in Utah.) If it is an
interstate call, it is not taxable. In
each of these cases, XXXXX will also bill the customer for access to its
internet server. Under our current
interpretation, XXXXX’s charge for internet access is not taxable.
Please let us know if you have other
questions.
For the Commission,
Alice Shearer,
Commissioner