Did cable converters and separately charged remote controls receive the same sales-tax treatment when supplied to television subscribers?

Plain-English summary

Two cable-television petitioners supplied converters and remote-control units to subscribers. They argued that if the converters were treated as property the companies consumed in providing service, the remote controls should be treated the same way.

The Board distinguished the devices. It found that the converters were incidental to the television-programming service and that the cable companies consumed them in providing that service.

The remote controls were different. Their charges were separately stated in the written service agreement, appeared to reflect actual rental value, and the units were physically unconnected to the cable system. The Board therefore found that the remote controls were leased.

The Board ordered the tax and penalty redetermined without adjustment.

What this means for you

Cable and subscription-service providers

Equipment essential and incidental to a service can be treated differently from optional or separately charged equipment supplied as a rental.

Accountants and tax professionals

Review separate charges, stated rental value, physical integration, subscriber choice, contract wording, and whether each device is consumed by the provider or leased to the customer.

Common questions

Q: How did the Board treat the converters?

A: As property the cable companies consumed incidentally in providing programming service.

Q: How did it treat the remote controls?

A: As leased units.

Q: Did the Board reduce the tax or penalty?

A: No. It ordered redetermination without adjustment.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 515.0066
• Original supporting opinion: 515.0066 PDF

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Petitions (CWP)

From:

Tax Counsel (WWM)

Subject:

V--- C--- T.V., Inc.
SR -- XX XXXXXX-010

515.0066
June 5, 1987

V--- C--- T.V., Ltd. Partnership
SR -- XX XXXXXX
Petitioners waived appearance at the Board hearing. Petitioner furnished a memorandum, dated March 18, 1987, to the Board in support of its position. In the memorandum, it was urged that if petitioners were determined to be consumers of the converters pursuant to the staff recommendation, they should also be determined to be consumers of the remote control units. No new evidence or arguments were presented in the memorandum. With respect to both petitions, the Board ordered that the tax and penalty be redetermined without adjustment. The following statement of Board action, with respect to both petitions, is suggested: Statement of Board Action The Board found, based upon the evidence, that petitioners were essentially providing a television programming service consuming the converters, with any transfer of the converters merely being incidental to the rendition of the overall service. The Board also found, based upon the evidence, that unlike the converters, the remote control units were leased. The charges for the latter units were separately stated in the written service agreement, appeared to reflect true rental value, and those units were unconnected physically with the cable system. The Board ordered that the tax and penalty be redetermined without adjustment. WWM:ba