Tax Type
Retail Sales and Use Tax
Description
Cable television remote converters
Topic
Taxability of Persons and Transactions
Date Issued
09-15-1987
September 15, 1987
Re: §58.1-1821 Application/Sales and Use Tax
Dear **********
This will reply to your letter of January 27, 1987, in which you submit an application for correction of sales and use tax assessments issued to ******** as the result of recent audits.
FACTS
*************** ("Taxpayer") is the operator of several local cable television systems. In connection with its provision of cable television service to subscribers, the taxpayer rents corded or cordless remote converters, which enable subscribers to change cable channels. Income from such rentals was included in the department's audits of the taxpayer as it failed to collect the sales tax from subscribers on such rentals. The taxpayer contests the inclusion of these rentals in the department's audits on the basis that the rentals constitute an inconsequential element of a nontaxable service transaction and are therefore exempt under §58.1-608.2 of the Code of Virginia.
In addition, various purchases of tangible personal property upon which the tax had not been paid were included in the department's audits. Such purchases include tools used in the installation and repair of cable; distribution test equipment used to analyze, adjust, and monitor outgoing cable signals; equipment and accessories used in the taxpayer's studios for the production of commercial advertisements; and advertising insertion equipment. The taxpayer contests the assessment of tax on certain of these purchases, contending that the items in question are exempt broadcasting equipment under §58.1-608.12 of the Code of Virginia.
DETERMINATION
I will separately address below the issues raised by the taxpayer:
Remote cable converters
§58.1-608.2 of the Code of Virginia provides an exemption from the sales and use tax for "[p]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made."
The taxpayer in this case rents corded or cordless remote converters to its subscribers. A separate charge for the rental of these units is not listed on customer billings. Instead, the overall price paid each month for cable service is increased by a set amount for those subscribers who rent remote converters.
I find in this case that the taxpayer's rentals are inconsequential elements of its provision of cable television service to subscribers. The rentals here may be analogized to the rental of telephones and telephone equipment by a telephone utility to customers who receive service from the utility or to the rental of paging equipment by a radio common carrier in connection with the provision of paging services to its customers. In each case, the true object of the customer is to obtain the service provided by the seller, rather than the tangible personal property that accompanies the service.
Based on the foregoing, the sales tax assessed to the taxpayer on its rental of remote converters will be abated. However, as these units are used in the provision of nontaxable cable television service, the taxpayer itself is subject to the sales and use tax as the user or consumer of the units.
Broadcasting Equipment
§58.1-608.12 of the Code of Virginia provides an exemption from the sales and use tax for:
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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 Virginia Supreme Court in Winchester TV Cable v. Commonwealth, 216 Va. 286, 217 S.E.2d 885 (1975), defined the term "broadcasting" as "to make widely known: to disseminate or distribute widely or at random...to send out from a transmitting station (a radio or television program)." In WTAR Radio-TV Corporation v. Commonwealth, 217 Va. 877, 234 S.E.2d 245 (1977), the court specifically rejected the proposition that broadcasting "encompasses all items of personal property that are necessary and essential to put a program on the air." Rather, the court held that:
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- The definitions (of broadcasting) focus on the fact of "dissemination" or "distribution," not on what is being disseminated.
- The definitions (of broadcasting) focus on the fact of "dissemination" or "distribution," not on what is being disseminated.
Based on these principles, the taxpayer has already conceded the taxability of equipment and accessories used in the production of commercial advertisements. Below, I will apply these principles to the remaining items in question:
Cable Tools: The tools in question are merely used in the installation of and repair of cable television service, rather than in the actual dissemination of signals to the public. However, the taxpayer contends that these tools enjoy the exemption because they are accessories to exempt broadcasting equipment. The term "accessory" is defined in Black's Law Dictionary, Fifth Edition, 1979, as:
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- Anything which is joined to another thing as an ornament, or to render it more perfect, or which accompanies it, or is connected as an incident or as subordinate to it, or which belongs to or with it.
- Anything which is joined to another thing as an ornament, or to render it more perfect, or which accompanies it, or is connected as an incident or as subordinate to it, or which belongs to or with it.
Advertising Insertion Equipment: It is my understanding that this equipment does not actually disseminate commercial advertisements, but merely provides a signal to the taxpayer's personnel when an advertisement should be aired. As such, I cannot conclude that the equipment is used directly in the dissemination of signals to the public.
Distribution Test Equipment: This equipment is used in the analysis, adjustment, and monitoring of outgoing cable signals.
As §58.1-608.12 contains a specific exemption for "distribution equipment used or to be used by cable television systems," I find basis for removal of this equipment from the audit.
The department's audit will be revised as soon as practicable to reflect the determinations reached in this letter.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner