Tax Type
Retail Sales and Use Tax
Description
Publishing and broadcasting; Equipment used to disseminate television signals
Topic
Taxability of Persons and Transactions
Date Issued
12-15-1993
December 15, 1993
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear*************
This will reply to your letter of January 25, 1993 in which you seek correction of a use tax assessment for ********** (the "Taxpayer") for the period April 1989 through February 1992.
FACTS
The Taxpayer is a corporation under the regulation and supervision of the Federal Communications Commission and is engaged in the transmission and reception of voice, data and video signals by satellite. The video signals may be intercepted by persons with dish antennae.
In P.D. 88-331 (12/16/88), the department ruled that the Taxpayer qualifies for the exemption provided in Va. Code §58.1-609.6(2) (formerly Va. Code §58.1-608(A)(6)(b)) for broadcasting equipment, parts, and accessories used to disseminate television signals directly to the public. It was noted in the ruling that the exemption does not apply to the extent that the equipment, parts, etc., are used to disseminate television signals that are not available to or intended for reception by the general public.
In accordance with the ruling, the Taxpayer is required to prorate the tax on any purchases of equipment based on the percentage of taxable use to overall use. At issue in this case is the methodology used by the Taxpayer to prorate the tax. The proration method used by the Taxpayer is revenue based, dividing nonbroadcasting (taxable activity) revenue for three fiscal years (1989-1991) to overall revenue for the same period. According to the Taxpayer, the resulting percentage should be deemed the percentage of taxable use for the equipment. That percentage is then multiplied by the cost price of the equipment, and the product is multiplied by the 4.5% tax rate to determine the use tax due on the equipment.
DETERMINATION
Based on the information provided and the ruling previously received by the Taxpayer, I find that the proration method used by the Taxpayer for the audit period at issue is reasonable, with one exception. In determining the percentage of nonbroadcasting use of the nondedicated equipment (equipment used for various customers), the formula subtracts from total nonbroadcasting revenue and from total overall revenue for the three year period the revenue received from dedicated equipment (equipment used exclusively by a particular customer). I find that in order to get a true picture of total nonbroadcasting use of the equipment, the revenue from dedicated equipment should not be subtracted.
Consequently, I find that the taxable use for the period at issue is 14.2943% (based on total nonbroadcasting revenue divided by total overall revenue before the subtraction for dedicated equipment revenue), rather than 10.8%, as computed by the Taxpayer.
For purposes of computing the percentage of taxable (nonbroadcasting) use of nondedicated broadcasting equipment purchased in the future, the Taxpayer may continue to divide total nonbroadcasting revenue for the three taxable years that end in the three calendar years immediately preceding the calendar year of purchase by total overall revenue for the same period. For example, for purchases during the 1994 calendar year, the percentage will be computed based on the revenues for the Taxpayer's taxable years ending August 31, 1991, 1992, and 1993. Nonbroadcasting revenue and overall revenue from dedicated equipment should not be subtracted from these totals. The use tax due on dedicated equipment should continue to be computed based on actual nonbroadcasting use.
Accordingly, the audit will be revised to reflect the proration method outlined in this letter. You will shortly receive an updated bill with interest accrued to date. The bill should be paid within 30 days to avoid the accrual of additional interest.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6697F
Rulings of the Tax Commissioner