Tax Type
Communications Sales and Use Tax
Description
Taxable communications services
Topic
Communications Sales and Use Tax
Date Issued
09-17-2012
September 17, 2012
Re: § 58.1-1821 Application: Communications Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** (the "Taxpayer") in which you seek a refund of communications sales and use tax remitted for the period January 2007 through August 2010. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer provides wireless and cellular services to its customers. In November 2010, the Taxpayer filed a refund request with the Department for communications sales tax that the Taxpayer contends it charged its customers in error on data-only plans and usage. The refund review was completed by the Department's Compliance Unit, and the findings were issued to the Taxpayer in October 2011. The Taxpayer contests the denial of its refund request with respect to three areas in which it contends it erroneously charged the communications sales and use tax to its customers. Each area will be addressed separately.
DETERMINATION
DCBUN and CDCBUN Charges
The Taxpayer states that the Department erroneously classified these charges as being related to connection, reconnection and restoration services. The Taxpayer maintains that there was a misunderstanding between it and the Department regarding the definition of these terms during the refund review. The Taxpayer asserts that these charges are not related to data connection. Rather, the Taxpayer states that these codes represent "laptop connect" or "data connect" Internet access charges for Internet cards (USB type devices) that are plugged into a laptop that allow the Taxpayer's customers access to the Internet. The Taxpayer maintains that these devices are represented by these codes, and the charges related to these codes are for the customers' monthly charges for Internet access. The Taxpayer states that these customers do not have a data plan associated with their phones. The Taxpayer requests that a refund be issued for communications sales tax charged to its customers in this instance.
Virginia Code § 58.1-647 defines Internet access service as:
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- A service that enables users to access content, information, electronic mail, or other services offered over the Internet, and may also include access to proprietary content, information, and other services as part of a package of services offered to users. Internet access service does not include telecommunications services, except to the extent telecommunications services are purchased, used, or sold by a provider of Internet access to provide Internet access.
Virginia Code § 58.1-648 C vii states, in pertinent part, that "Communications services on which the tax is hereby levied shall not include Internet access service, electronic mail service, electronic bulletin board service, or similar services that are incidental to Internet access, such as voice-capable e-mail or instant messaging ...."
Based upon the description of the products provided by the Taxpayer, it is unclear whether these are connection charges or charges for Internet access. The Taxpayer is given 30 days from the date of this letter to provide documentation clarifying this issue. If sufficient documentation is provided, a refund will be issued with respect to these charges.
Regulatory Cost Recovery Fee
The Taxpayer maintains that the regulatory cost recovery fee (the "fee") is not subject to the communications sales and use tax. Relying on the Va. Code § 58.1-647 definition of sales price, the Taxpayer contends that the fee should not be subject to the tax in instances where the communications service (Internet access) is not subject to the communications sales and use tax as provided by statute.
Virginia Code § 58.1-647 defines sales price as:
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- The total amount charged in money or other consideration by a communications services provider for the sale of the right or privilege of using communications services in the Commonwealth, including any property or other services that are part of the sale. The sales price of communications services shall not be reduced by any separately identified components of the charge that constitute expenses of the communications services provider, including but not limited to, sales taxes on goods or services purchased by the communications services provider, property taxes, taxes measured by net income, and universal-service fund fees.
Pursuant to the Guidelines and Rules for the Virginia Communications Taxes, Public Document (P.D.) 06-138 (11/1/06), "taxable communications services also include, but are not limited to charges for regulatory, administrative and other cost recovery charges."
The charges at issue are deemed cost recovery charges as considered in P.D. 06-138. The application of the tax to these charges is separate and independent from the application of the tax on other communications services that were provided within the same transactions at issue. Accordingly, these charges are subject to the communications sales and use tax and the Taxpayer's request for a refund is denied.
Reactivation and Activation Fees
The Taxpayer maintains that these fees are directly associated with the data services that provide Internet access to the Taxpayer's customers. The Taxpayer maintains that the application of tax on the activation and termination fees should follow the application of the tax on the underlying service. The Taxpayer contends that if the underlying service is a data service that provides Internet access, which is not subject to the communications sales and use tax, the activation and termination fees similarly should not be subject to the tax.
Virginia Code § 58.1-647 defines communications services as:
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- The electronic transmission, conveyance, or routing of voice, data, audio, video, or any other information or signals, including cable services, to a point or between or among points, by or through any electronic, radio, satellite, cable, optical, microwave, or other medium or method now in existence or hereafter devised, regardless of the protocol used for the transmission or conveyance. The term includes, but is not limited to, (i) the connection, movement, change, or termination of communications services; (ii) detailed billing of communications services; (iii) sale of directory listings in connection with a communications service; (iv) central office and custom calling features; (v) voice mail and other messaging services; and (vi) directory assistance. [Emphasis added.]
Pursuant to P.D. 06-138, "Taxable communications services also include, but are not limited to charges for connection, reconnection, termination, movement, or change of communications services, including Internet services." [Emphasis added.]
The activation and reactivation fees are for connection and reconnection services as considered in Va. Code § 58.1-647 and P.D. 06-138. The Guidelines and Rules for the Virginia Communications Taxes very clearly state that fees for connection and reconnection are taxable fees, even those that are related to connection and reconnection of Internet services. Accordingly, the fees at issue are subject to the communications sales and use tax and the Taxpayer's request for refund is denied.
The Code of Virginia sections and public document cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this determination, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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- Craig M. Burns
Tax Commissioner
- Craig M. Burns
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AR/1-4962316462.P
Rulings of the Tax Commissioner