Tax Type
Retail Sales and Use Tax
Description
Public service corporations; Rental of paging equipment
Topic
Taxability of Persons and Transactions
Date Issued
12-19-1990
December 19, 1990
Dear ****
This will reply to your letter of November 27, 1990, in which you requested consideration of a sales and use tax legislative change relating to the manner of taxing rentals of telecommunications equipment provided in connection with the rendition of telecommunications services.
Consideration of Sales and Use Tax Exemption Legislation
It appears that you may have misunderstood the provisions of Va. Code. § 30-19.05 relating to the legislative consideration of sales and use tax exemptions. This statute requires the Delegate or Senator introducing an exemption bill to submit information on the bill's impact.
The Department cannot have legislation introduced; therefore, it is first necessary that a member of the General Assembly agree to patron the legislation. Once a member agrees to patron the legislation, an exemption questionnaire (copy enclosed) needs to be completed and submitted to the Division of Legislative Services rather than the Department.
Nonetheless, it appears that corrective legislation would not be appropriate in this case as your goal is to exempt paging equipment purchased by a radio common carrier for rental to its customers as part of the rendition of its telecommunications service. Such equipment is generally exempt from the tax under current law.
Taxation of Paging Equipment
The rental of telecommunications equipment by a telecommunications company in connection with the rendition of its public service is not taxable to the customer as the true object of the transaction is the receipt of telecommunications services rather than the rental of a telephone, pager, etc. However, the outright sale of the equipment or the rental of equipment separate from the provision of telecommunications service to the customer is subject to the sales tax.
In addition, Va. Code § 58.1-608(3)(c) exempts "[t]angible personal property sold or leased to . . . a telecommunications company as defined in § 58.1-400.1 . . . for use or consumption by such . . . company . . . directly in the rendition of its public service." Telephones, pagers, and other telecommunications equipment leased to customers in conjunction with the furnishing of telecommunications services are clearly used directly in the rendition of the company's public service.
Therefore, provided your company meets the statutory definition of a "telecommunications company," its purchases of pagers for leasing to service customers generally will not be taxable. Of course, the outright sale of pagers or their lease absent from the provision of paging services will continue to be taxable to the customer.
The confusion in this case apparently relates to my May 12, 1986 ruling to another company. However, it must be remembered that the ruling predates the 1988 law change that subjected telecommunications companies to the corporation income tax and effectively extended the Va. Code § 58.1-608(3)(c) exemption to radio common carrier and cellular mobile radio communications systems. As such, the provisions of the 1986 ruling that deny the public service exemption to radio common carriers have no bearing on or after January 1, 1989, the effective date of the 1988 law change. Otherwise the 1986 ruling continues to reflect the correct application of the tax to radio common carriers.
If you wish to seek a refund of the tax paid by your company on purchases of pagers on or after January 1, 1989, you should contact the Department's Technical Services Section at P. O. Box 6-L, Richmond, Virginia 23282.
Sincerely
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner