Tax Type
Retail Sales and Use Tax
Description
Radio common carrier
Topic
Taxability of Persons and Transactions
Date Issued
05-12-1986
May 12, 1986
Re: Request for Ruling/ Sales and Use Tax
Dear *****************
This will reply to your letter of January 31, 1986, in which you wish to determine the applicability of the sales and use tax and other taxes to radio common carriers.
First, I will address the application of the sales and use tax to the various services provided by radio common carriers:
Mobile telephone service
Radio common carriers provide mobile telephone service by interconnecting telephone company lines with its customers through the use of radio transmitters. Radio common carriers charge their customers a monthly fee for airtime service, which includes charges for system access and minimum usage. Customers have the option of leasing or purchasing mobile telephone equipment from a radio common carrier.
A radio common carrier is deemed to provide a nontaxable service when it provides mobile telephone service to customers. Leases of equipment to customers are deemed to constitute a part of the overall service provided and are also not subject to the sales tax; however, sales of equipment are not part of the overall service and are subject to the tax.
As radio common carriers provide a nontaxable service, charges made to customers in addition to the standard monthly fee will generally not be subject to the tax. Such charges include charges for additional usage, monthly equipment maintenance fees on leased equipment, charges for usage on systems other than that of the radio common carrier, monthly fees for waiver of liability on lost or damaged leased equipment, charges for lost or damaged leased equipment, equipment repair and labor charges on leased equipment, connect fees, long distance call charges, returned check fees, finance charges on leased equipment, and security deposits on leased equipment. However, charges that do not relate to the provision of service are taxable. Specifically, monthly equipment maintenance fees that entitle the customer to receive parts or other tangible personal property and charges for equipment repairs and parts made in connection with the maintenance and repair of customer owned equipment are taxable. Installation and repair labor charges that are separately stated on customers' invoices are not taxable, however.
Pager Services
As stated in Section 630-10-102.2 of the Virginia Retail Sales and Usage Tax Regulations, "[c]harges for providing paging services are deemed to be charges for a service and are not subject to the tax." The lease of paging equipment to customers is considered to be a part of the service rendered; however, the regulation notes that "[i]f any person engages in the sale of paging devices, he will be deemed to be a retailer with respect to such sales and will be liable for the collection and payment of the tax on the charge for such devices." I have enclosed a copy of the sales and use tax regulations for your use.
Based on the foregoing, the monthly fee charged for pager service by a radio common carrier is nontaxable as well as other charges in connection with the provision of the service. Only those charges that are not part of the provision of the service will be taxable. Such taxable charges include monthly equipment maintenance fees and equipment repair and parts fees on customer owned equipment. As with sales of mobile telephone equipment, charges for installation and repair labor are nontaxable when separately stated on a customer's sale invoice. It should also be noted that sales of batteries and accessories are subject to the sales tax.
Air-to-ground and ship-to-shore service
This service is essentially the same as the mobile telephone service provided above, except that charges to customers are based on usage only and that customers are required to furnish their own equipment. As with the mobile telephone service, radio common carriers in this case are deemed to provide a nontaxable service; however, sales of equipment to customers are subject to the sales tax.
Telephone Answering Service
Under this service, a radio common carrier may answer telephone calls for customers through the use of switchboards for a monthly charge. In addition, equipment is either leased or sold to customers that allows them to notify the radio common carrier to notify the customers when message have been left by callers.
When furnishing telephone answering service, a radio common carries is deemed to provide a nontaxable service. Equipment leased to customers for use in the service is not subject to the sales tax, but collection of the tax will be required when equipment is sold.
Collection of the Tax
As to the actual administration of the sales tax on equipment sales or other taxable transactions, any radio common carrier that has an office, warehouse, or place of business in Virginia (including a location operated by a subsidiary or agent) or solicits business in Virginia through employees, independent contractors, agents, or other representatives will be required to register for the collection of the sales tax. In addition, registration would be required when a radio common carrier advertises in Virginia newspapers or other periodicals, on billboards located in Virginia, or through materials distributes in Virginia by means other than the U. S. Mail or if the carrier makes deliveries of tangible personal property into Virginia more than twelve times per tear by means other than common carrier. These requirements for the collection of tax set forth in Section 58.1-612 of the sales and use tax regulations. Therefore, the maintenance of a radio common carrier office or a sales office in Virginia or the solicitation of business by means of salesmen in Virginia would require a radio common carrier to register and collect the sales tax on taxable transactions.
The state sales tax is imposed at a rate of three percent and is collected and remitted to the department concurrently with the local sales and use tax of one percent. When the taxable sale of equipment or other taxable property is made by a Virginia office, the sales tax will be credited to the locality in which the sale was made, rather than in the provisions of Virginia Code Section 58.1-605. When the sale is made by an out-of-state office, Virginia Code Section 58.1-606E provides that the local tax shall be credited to the locality of destination when possible. However, if the dealer is unable to ascertain what locality tax should be attributed to, the statute permits the dealer to remit the amount to the state without attempting to assign the tax to a particular locality.
Purchases of Tangible Personal Property
Under Virginia Code Section 58.1-608.10 and Section 630-10-87 of the sales and use tax regulations, only those public service corporations that are subject to a state franchise or license tax based on discussion with the State Corporation Commission, that under an exemption contained in Virginia Code Section 58.1-2625 radio common carriers are not subject to franchise or license taxes imposed upon certain public service corporations by that agency.
Therefore, based on the foregoing, radio common carrier do not enjoy an exemption from the sales and use tax for tangible personal property used in providing their service to customers, including base equipment, and furnishings, towers, telephone answering service equipment and computer hardware and software. With respect to computer software, however, it should be noted that custom computer software and labor or service charges in connection with the modification of prewritten software will be exempted from the tax effective July 1, 1986. In addition, radio common carrier may purchase equipment or other tangible personal property that will actually be sold to customers under resale certificates of exemption.
The application of the tax to warranty plans is set forth in Section 630-10*-62.1 of the sales and use tax regulations. As noted therein, the tax is deemed to apply to any plan under which replacement parts or other tangible personal property are furnished. As to your remaining questions on purchases by radio common carriers, the leasing of telephone numbers from telephone companies is not subject to the tax; however, the lease of telephone switchboards from telephone companies may be taxable. The lease of a switchboard would be exempt if made in connection with the provision of telephone service; however, it would be taxable if made by a telephone company other than that providing service to the radio common carrier.
Property Taxes
The real estate and tangible personal property of radio common carriers are subject to local property taxation. Personal property owned by a radio common carrier, including property leased to customers, should be reported to the locality in which it is located using Form 762 or an equivalent form prescribed by the locality.
Other Taxes
As noted above, radio common carrier are not subject to gross receipts taxes by virtue of Virginia Code Section 58.1-2655; however, they are subject to the state corporation income tax.
I trust that this will answer your questions relative to the taxation of radio common carriers in Virginia; however, please feel free to contact the department if further information is needed.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner