December 8, 2015
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 correction of the communications sales and use tax assessment issued for the period September 2010 through November 2013. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer provides local telephone service and high speed Internet access to its customers located in Virginia. Relying on Public Document 14-64 (05/14/14), the Taxpayer contests the assessment of the communications sales tax on the broadband recovery fee, the service activation fee, and the early termination fee (the "Fees") charged to its customers. The Taxpayer states that the Fees are imposed only in conjunction with the purchase of Internet access services by its customers. The Taxpayer was assessed tax in the audit on the Fees because the Fees were determined to be communications services that are subject to the tax in accordance with the Virginia Communications Sales and Use Tax Act.
DETERMINATION
Virginia Communications Sales and Use Tax
Virginia Code § 58.1-647 defines Internet access service as:
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 § 58.1-647 broadly defines communications services as:
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.]
Public Document (P.D.) 06-138 (11/1/06) sets forth the Guidelines and Rules for the Virginia communications taxes and states, in pertinent part, that "Taxable communications services also include connection, reconnection, termination, movement, or change of communications services, including Internet services and regulatory, administrative and other cost recovery charges...."
The Department has previously addressed the application of the tax on charges similar to the Fees at issue in P.D. 12-148 (9/17/12) and P.D. 14-131 (8/7/14). In those public documents, the taxpayers were held liable for the tax assessed on such charges made in conjunction with the sale of Internet access service. The charges were determined to be taxable communications services. In this instance, even though the Fees at issue are related to the provision of Internet services, the Fees are deemed to be for taxable communications services as considered in Va. Code § 58.1-647. The Guidelines and Rules very clearly state that charges of this nature are subject to the Virginia communications sales tax. In accordance with the aforementioned authorities, the assessment is correct as issued.
The determination in P.D. 14-64 does not apply in this instance. In that public document, the activation fees contested by the taxpayer were not for the activation of communications services as considered in Va. Code § 58.1-647. As such, the fees were not for communications services and were not subject to the communications sales tax. As previously stated, the Fees at issue in the Taxpayer's appeal are for communications services and are thus subject to the communications sales tax.
Internet Tax Freedom Act (the "Act")
The Taxpayer maintains that the assessment is barred by the Act, in that the Fees are imposed solely for the subscribers' ability to access the World Wide Web or public Internet.
The Act is the federal law that bars federal, state and local governments from taxing Internet access. The Act defines Internet access as "A service that enables users to connect to the Internet to access content, information, and other services offered over the Internet.[1]
The Act further provides that:
Except as provided in this section, nothing in this title shall be construed to modify, impair, or supersede, or authorize the modification, impairment, or superseding of, any State or local law pertaining to taxation that is otherwise permissible by or under the Constitution of the United States or other Federal law and in effect on the date of the enactment of this Act [Oct. 21, 1998.][2]
While the Act bars the application of state tax to Internet access service, the Act does not prohibit the Commonwealth from deeming the connectivity charges subject to the communications sales tax. In accordance with § 1101(b) of the Act, the Commonwealth is authorized to apply the communications sales tax to communications services, as long as such application does not violate the provisions of the Act. As such, the Commonwealth operated well within the confines of the Act by enacting law that applies the communications sales tax to the sale of communications services related to the provision of Internet access services, as well as other communications services.
Based upon this determination, the assessment is correct as issued. A revised bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No further interest will accrue provided the outstanding assessment is paid within 30 days from the date of the bill. Please remit your payment to: Virginia Department of Taxation, 600 E.Main Street, 23rd Floor, Richmond, Virginia 23219, Attn: *****. If you have any questions concerning payment of the assessment, you may contact ***** at *****.
The Code of Virginia sections and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's website. If you have any questions about this response, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-5699245180.P