Tax Type
Retail Sales and Use Tax
Description
Construction; Installations
Topic
Taxability of Persons and Transactions
Date Issued
05-08-1995
May 8, 1995
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear**************
This is in response to your letter of December 1, 1994 in which you seek correction of a sales and use tax assessment issued to****************(the Taxpayer). I understand that subsequent to your letter, you have corresponded with a member of my Tax Policy staff.
FACTS
The Taxpayer operates as a multiplex radio transmitter of background music (Muzak) to subscribers. In addition, the Taxpayer sells and installs intercoms, public address and telephone systems and also contracts to run computer cabling and telephone wiring. An audit for the period August 1991 through June 1994 resulted in an assessment for various untaxed sales and purchases associated with these activities.
The Taxpayer protests the assessment on purchases made in connection with its transmitting operation and maintains that such purchases are used in an exempt broadcasting activity. The Taxpayer also questions the auditor's instructions regarding the application of the tax to materials used in its installation activities.
DETERMINATION
Broadcasting. As authorized by Code of Virginia §58.1-609.6(2), the tax does not apply to:
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- Broadcasting equipment and parts and accessories thereto and towers used or to be used by commercial radio and television companies, cable television systems, or concerns which are under the regulation and supervision of the Federal Communications Commission and amplification, transmission and distribution equipment used or to be used by cable television systems. (The references to cable television systems were added, effective July 1980.)
The transmissions such as the Taxpayer provides are not deemed to be "broadcasting" as envisioned in the exemption. This policy was upheld by the Virginia Supreme Court in Winchester Cable TV Company v. State Tax Commissioner, 216 Va. 286, 217 S.E. 2nd 885 (1975). In that case the Court held that "broadcasting" consists of the wide distribution of a transmission "for an unlimited number of receivers." As such, the Court specifically found that the dissemination of a program to subscribers was not "broadcasting" under the statute.
Accordingly, the application of the tax to businesses transmitting music to subscribers, including FM multiplex radio transmissions of background music, is set out in Virginia Regulation (VR) 630-10-72.1. As indicated, persons providing such transmissions "must pay the tax on the purchase of all tangible personal property which they use, including the antennas, transmitters, receivers, and music tapes." Also, see the enclosed Public Document 83-100 (5119183).
Nor is this determination made invalid by the agreement between the Taxpayer and********FM radio station. In that agreement, the station, for a consideration, makes available to the Taxpayer a subchannel for the transmission of Muzak to the Taxpayer's subscribers and customers. Nevertheless, the Taxpayer's signal is made available only to a limited audience of subscribers. This transmission, as determined in Winchester, is not an exempt broadcasting activity.
Based on the above, the tax was correctly assessed on purchases made by the Taxpayer in connection with its transmitting activities.
Installation Activities: The application of the tax to the sale and installation of intercom, public address and telephone systems is governed by VR 630-10-102.2. Based on the regulation, the tax applies to equipment and supplies purchased by the Taxpayer for use in installing such systems.
Furthermore, when the Taxpayer contracts to run computer or telephone cable, and the cable is installed in such a manner as to become part of realty, the Taxpayer operates as a real property contractor as set forth in VR 630-10-27(A). As such, the Taxpayer is required to pay the tax on the purchase of cable and other installation supplies. The tax paid on such purchases then becomes a cost which the Taxpayer incorporates into its bid.
Furthermore, contractors who perform real property work for the government operate in this same manner as indicated in VR 630-10-27(J). Again, purchases of tangible personal property which become realty upon installation are for the Taxpayer's own use and consumption, and the Taxpayer must pay the tax on those purchases. There is no provision which allows the Taxpayer to take a certificate of exemption from the government since it is the Taxpayer, and not the government, which is purchasing and then using and consuming the property. For more information on this issue, l have enclosed Public Documents 93-88 (3129193) and 91-118 (7/17/91).
As I understand it, during the audit period the Taxpayer was not paying tax on its purchase of cable and other installation materials, but was either collecting the tax on charges to the customer or taking a certificate of exemption. I further understand that the Taxpayer was audited as it had been operating, but was advised of the proper application of the tax pursuant to VR 630-10-102.2 and 630-10-27. Based on the evidence before me, the auditor's instructions are correct.
Finally, you indicated that the Taxpayer is concerned that all similar Virginia businesses operate in accordance with these instructions. To this end the department will send a copy of this determination to those other businesses which the Taxpayer can identify.
Accordingly, and based on the information before me, the assessment is correct. However, due to the extended interval between the Taxpayer's first audit and the current audit, I will waive the assessed penalty charges. A revised assessment reflecting this change, but with interest accrued to date, will be issued shortly.
If you have any questions regarding this letter, please contact*************in my Office of Tax Policy at**********Also, a list of other businesses which you feel should receive this letter may be sent to********at Office of Tax Policy; P.O. Box 1880; Richmond, VA 23282-1880.
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- Sincerely,
Danny M. Payne
Tax Commissioner
- Sincerely,
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OTP/8846I
Rulings of the Tax Commissioner