Did a pay-television provider lease its home terminal units when subscribers used them only to unscramble the provider's programming?

Plain-English summary

Based on absent prior letters, telephone call and staff conferences, pay-TV company contracted with retail customers for periodic programming. Each separately subscribed to unrelated CATV antenna company, which also carried unrelated programming and permitted provider transmission. Contracts/permission absent.

Provider attached home terminal to customer television. Its only possible function was unscramble provider-generated studio signal sent over CATV; without unit normal TV did not display provider programming. Customer only turned unit on/off; provider replaced malfunctioning unit. Programming then consisted of motion-picture films televised in own studios.

At agreement start company charged refundable deposit and nonrefundable installation charge; then single uniform periodic programming charge. Letter does not decide initial charges' tax or provider acquisition tax.

Under section 6006(g), company did not rent/lease unit; it used unit to provide programming service. Live 330.2577 adds parenthetical that programming charge included home terminal unit, wording not in PDF, and omits unresolved charges/evidence.

Common questions

Did physical attachment to customer television make terminal a lease?

No. Limited on/off control and service-only function led letter to reject lease treatment.

Could terminal receive unrelated programming?

No. Its only described function was unscrambling the pay-TV company's signal.

Was there separate periodic equipment charge?

No. The source describes one uniform periodic charge for programming, plus an initial refundable deposit and nonrefundable installation charge.

What control did subscriber have?

Only described manipulation was turning unit on/off; provider replaced malfunctioning units.

Were refundable deposit/nonrefundable installation charge taxability decided?

No. They are described, but conclusion addresses only whether terminal unit was leased.

Did letter decide provider's tax on acquiring units?

No. It decided only that the customer arrangement was not a lease under section 6006(g).

What did live annotation add?

It says single periodic programming charge included terminal unit; PDF calls it programming charge without that parenthetical.

May another subscription provider rely on result?

No. It is historical advice based on unproduced agreements and narrow device facts; modern services/equipment tax law must be checked.

Citations and references

• Section 6006(g) — terminal rental/lease treatment rejected
• Letters/call/conferences and all contracts/terminal/charge/acquisition records — absent
• November 18 Dougherty letter — service-use conclusion only
• Official Annotation 330.2577 — adds included-terminal parenthetical

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.2577
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/330-2577.pdf

Original ruling text

330.2577

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-2705

November 18, 1975

Mr. P--- R. K--Office of the General Counsel
O--- S--- C--XXX --- Blvd., Suite XXX
---, CA XXXXX

SR -- XX-XXXXXX

Dear Mr. K---:
From the information supplied in your letters, our telephone conversation, and my conferences with other staff members, the situation appears to be as follows: O--- S--- C--- (OSC) is presently engaged in the pay television business. In return for periodic payments, it contracts with individual retail customers to provide them with television programming. In order to receive OSC’s programming, each customer must be a subscriber to a CATV antenna system. OSC does not have any CATV antenna systems so the customer must separately contract with a company unrelated to OSC. The CATV service also transmits programming unrelated to OSC programming. When a customer contracts to receive OSC’s programming and is connected to a CATV antenna, OSC attaches its “home terminal unit” to the customer’s television receiver. The home terminal unit unscrambles a signal which OSC transmits over the CATV lines and with the CATV company’s permission. Without the home terminal unit provided by OSC, the normal television receiver will not display the OSC programming. The customer’s only manipulation of the home terminal unit is to turn it on and off. If the home terminal unit malfunctions, OSC replaces it with a new unit. The only possible function of the unit is to unscramble the signals which OSC generates in its television studios, scrambles, and transmits over the CATV antenna system which connect its studios with the customers’ television receivers. OSC programming presently consists of motion picture films televised in its own studios for transmission over CATV antenna systems.

O--- S--- C--SR -- XX XXXXXX

-2-

November 18, 1975
330.2577

OSC charges a refundable deposit and a nonrefundable installation charge when the agreement is initially made with the customer. In addition, uniform periodic charges are made to the customer. The single periodic charge is for the programming provided by OSC during that period. It appears to us that OSC is not renting or leasing the home terminal units to the customers within the meaning of Revenue and Taxation Code Section 6006(g), but is using the home terminal units to provide the customer programming services for the purposes of the Sales and Use Tax Law. Very truly yours,

Philip R. Dougherty
Tax Counsel

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