96-129

Response September 30, 1996

Request

XXXXX

August 20, 1996

By Facsimile

Utah State Tax Commission

Attn: XXXXX

210 N. 1950 West

Salt Lake City, UT 84134

RE: Tax on Cellular Service

Gentlemen:

As per a conversation with your office, I am requesting that your department formally opine on the taxability of the following cellular and paging services provided by XXXXX, Inc.

Cellular Service

The method of providing cellular service is as follows:

1. A subscriber makes a phone call from his cellular telephone.

2. Through electronic means, one of two facilities-based carriers in your state processes the call.

3. The carrier accumulates all of the calls made during the billing cycle and then forwards the information to the reseller, who, in turn, bills the individual subscriber.

There are three different types of fees and charges associated with cellular service:

(A) Basic Service

1. Access fees - Charges that are billed to a customer one month in advance for the right to use the cellular service.

2. Air time charges - Per minute used fees based on elapsed transmission time.

3. Toll charges - Local or long distance call charge levied by the land line telephone companies for the use of their networks to complete a call to a land line number. There are 4 categories of toll charges as follows. Please identify which toll charges are taxable.

a. Interstate InterLATA (Local Access Transport Area)

A call was placed by a mobile customer from one state to another state and the LATAs are different.

b. Interstate IntraLATA

A call was placed by a mobile customer from one state to another state with the same LATA.

c. Intrastate IntraLATA

A call was placed by a mobile customer in one LATA of a state to another LATA in the same state.

d. Intrastate IntraLATA

A call was placed by a mobile customer on one LATA to the same LATA within the same state.

4. Roamer charges, including Air time, tolls and local taxes - charges for calls made by a cellular telephone user when he is outside the service area of his home carrier. These charges are taxed by local and long distance carriers and we pass on these charges plus local taxes to the end use customers.

5. International toll - long distance call charges levied by the long distance carrier for the use of their networks to complete a call to an international number.

(B) Optional Service

1. Fees for providing a cellular user a detailed list of the phone calls made. (Detailed billing charges)

2. Monthly fees for special features such as call waiting and call forwarding. (Feature charges)

3. Voice Mail Box

1. Lease charges

2. Rental charges

3. Late charges

4. Activation and termination charges

Pager Service: One-way communication service which allows for communication from a mobile or traditional land line telephone to pager equipment. The charges are:

1. Pager access charges - a flat monthly charge which permits the customer access to the carrier's paging system.

2. Pager over-call charges.

3. Pager rental charges.

Please determine if the above fees are taxable. Also, please inform whether we should charge applicable tax on the basis of 1) Service address, 2) Billing Address, 3) Location of exchange of the cellular phone.

Also, please advise whether there are any other taxes such as utilities tax, gross receipt tax, a separate municipal or city tax, 911 surcharge or any other tax on cellular services.

For your information, XXXXX expects to commence doing business on September 1, 1996 and, therefore, we would appreciate your responding as soon as possible.

Thank you in advance for your cooperation.

Very truly yours,

XXXXX

September 30, 1996

XXXXX

Advisory opinion - Application of sales tax to sales of cellular and paging service agreements.

Dear XXXXX

We have received your request for tax guidance on the sale of cellular phone and paging service agreements. We advise as follows:

Charges for telephone service

Intrastate telephone service is subject to sales tax. §59-12-103 (1) Utah Code Ann. “Telephone service” means the transmission for hire of any signal, writing, image, sound messages, data or other information by wire, radio, light waves, or other means, and includes non-recurring services charges (like activations fees) and charges for optional service features (such as call waiting). Utah Admin. R. R865-19S-90. Addressing the list of items included in your letter, the following are subject to sales tax:

1. Cellular or paging access fees or activation/termination charges.

2. Airtime charges.

3. Toll charges for intrastate calls (originating and ending in Utah), regardless of LATA arrangement. Charges for interstate calls are not subject to tax.

4. Charges for features, including:

a. roaming;

b. detailed billing feature; and

c. call waiting, caller ID, and voice mail.

Your letter does not explain what “pager over-call” charges are, but we assume that it is a taxable option or feature like the others listed above.

Charges for late payment and interest accrued are not subject to sales tax if separately stated on the bill or invoice.

Charges for the sale or lease of equipment.

The sale and lease of tangible personal property is also subject to sales tax.

§59-12-103 Utah Code Ann. The sale or lease of phone or pager equipment is taxable as follows:

1. XXXXX must collect and remit sales tax on the sales price of phones, pagers and other equipment sold. Although you do not mention the sale of wiring or other items that are converted to real property owned by the customer, if your company engages in such sales, it is liable for the tax as the final consumer of such items. If you have questions about this, let us know.

2. If XXXXX sells cellular or paging service contracts in conjunction with sales of phone or pager equipment, the entire amount of the sale is subject to tax. For example, if XXXXX sells a service contract with a cell phone telephone for $200, the entire $200 is subject to sales tax regardless of how much of the total sales price is allocated to each taxable item. In this case, XXXXX can purchase the phone equipment tax free for resale because the customer is paying tax on the equipment..

3. If XXXXX sells cellular or paging service contracts, but offers the phone or pager for free, XXXXX is regarded as the final consumer of the equipment and is liable for the tax. If XXXXX puchased this equipment tax free under the resale exemption, it must report and remit the tax on its next sales tax report.

Responses to miscellaneous questions.

1. As to tax situs, we offer the following guidelines. For sales of equipment delivered to or installed in a fixed location in Utah, that location determines the tax situs (local jurisdiction) and tax rate applied to charges for the equipment. For other charges, such as air time charges, the tax situs is the service location. By “service location” we mean the business location from which the cellular user is employed, dispatched or based, or in the case of non-business accounts, the residence address of the user. The billing address may be used if it fairly represents the service location as that is defined here.

2. XXXXX income from Utah sources will be subject to Utah corporate franchise tax. XXXXX’s property located in Utah will be subject to property tax. We are unable to respond to your question about local and municipal franchise fees or special charges required by the Public Service Commission because we do not have jurisdiction over those charges. You may contact the Public Service Commission at (801) 530-6716. The address is 160 East 300 South, Salt Lake City, Utah 84111.

Please let us know if we can be of further assistance.

For the Commission,

Alice Shearer,

Commissioner