Rulings of the Tax Commissioner

April 26, 2017

Re:     Request for Ruling: Communications Sales and Use Tax

Dear *****:

On April 7, 2016, the Tax Commissioner issued a response to the ruling request filed on behalf of ***** (the “local government entity”).  Based upon additional information regarding the fees at issue, the following ruling is provided.

FACTS

The local government entity disputed the assessment of a franchise tax by the communications company from which it receives services.  In response to a complaint filed by the local government entity with the State Corporation Commission, in which clarification regarding the franchise tax was sought, the communications company provided that the franchise tax that appears on the invoice is not a tax, but a surcharge issued to all customers that purchase certain products.  The communications company further responded that the franchise fee is used to offset the fees incurred by the communications company from governmental entities for the use of the public-rights-of-­way to provide services to its customers.

The communications company at issue provides telephone and Internet services to its business customers. The communications company does not provide cable television services to its customers. In this instance, the communications company provides Internet services to the local government entity. The local government entity maintains that it is exempt from the rights-of-way fees because it is a political subdivision of the Commonwealth.

RULING

In the prior ruling, it was determined that the local government entity was exempt from the fees charged by the communications service provider, pursuant to Va. Code § 58.1-648. Based upon a review of additional documentation and information regarding the nature of the communications company's business activities and services provided, I have determined that the law was misapplied in the prior ruling.  The rights-­of-way fees administered by the Department and governed by the Communications Sales and Use Tax Act are those associated with cable television programming.  According to its website, the communications company does not provide cable television services.  As such, the communications company is not subject to the communications sales and use tax, and the fees addressed in the prior ruling are not fees that are administered by the Department.

The Virginia Department of Transportation (VDOT) administers the rights-of-way fees charged by telephone companies, in accordance with Title 56, Chapter 15, Article 1 of the Virginia Code.  If the fees at issue are rights-of-way fees as considered in Title 56, the proper application of the fees would be an issue for VDOT to address.  If the fees are some type of cost recovery fees, the proper application of the fees would need to be addressed by the State Corporation Commission.  Accordingly, the fees at issue are not administered by the Department and I do not have the authority to issue a ruling regarding whether the fees were properly charged to the local government entity.  This ruling serves to rescind the prior ruling[1] issued to the local government entity.  Based upon the foregoing, the local government entity is not due a refund from the Department for the fees at issue.  I apologize for any inconvenience this may have caused.

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/1098.P