Were monthly and pay-per-view charges for direct-to-home satellite television signal transmission subject to California sales or use tax?

Plain-English summary

Two companies planned direct-to-home satellite services offering subscription channels and pay-per-view movies, concerts, and sports. Consumers received the programming through dishes, decoder units, remote controls, and encoded access cards obtained separately from retailers or an unrelated party.

The request asked only about charges for transmitting the signals. California concluded that those transmissions did not sell or purchase tangible personal property, so neither sales nor use tax applied to the programming charges.

The physical equipment remained taxable. The opinion assumed the parties understood that California sales or use tax applied to the sale or use of the satellite dish, decoder, remote control, and access card.

Counsel also explained that identifying the clients only in a second request delayed section 6596 treatment. The new letter was not retroactive; any protection applied only from November 15, 1994 and only to the disclosed facts.

What this means for you

Satellite television providers

The 1994 signal-transmission charge was treated separately from the customer's physical receiving equipment.

Equipment retailers and consumers

Nontaxable programming did not exempt dishes, decoders, remotes, or access cards from sales or use tax.

Accountants and tax professionals

Separate service charges from equipment and identify the taxpayer and complete facts in the first written-advice request.

Common questions

Q: Were subscription and pay-per-view signal charges taxable?

A: No. The transmissions were not sales of tangible personal property.

Q: Were the dish and decoder taxable?

A: Yes. The opinion assumed sales or use tax applied to the physical receiving equipment.

Q: Was the access card treated as taxable equipment?

A: Yes. The source included the access card among the items whose sale or use was taxable.

Q: Did the earlier anonymous advice protect the identified clients retroactively?

A: No. Counsel said only the November 15 letter came within section 6596, effective from that date and limited to disclosed facts.

Citations and references

• California Revenue and Taxation Code § 6596

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 515.1303
• Original supporting opinion: 515.1303 PDF

Original ruling text

515.1303

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District

LEGAL DIVISION (MIC:82)
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-5550
FAX (916) 323-3387

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles
GRAY DAVIS
Controller, Sacramento

November 15, 1994

────────
BURTON W. OLIVER
Executive Director

Mr. J. W. N----- & --- L.L.P.
XXX South --- Avenue
--- ---, CA XXXXX-XXXX
Dear Mr. N---:
This is in response to your letter dated August 22, 1994 regarding the application of tax to satellite television services. You explain: "Overview "Both D--- and U--- are planning to offer direct to home (DTH) satellite television services to end-users (consumers), some of which may be located in your state. DTH services will provide the end-user with up to 150 channels of programming. The services will include basic network channels, premium channels, pay per view movies, concerts, sporting events as well as other commercial supported programming. "Operational Aspects "The operational aspects of D---'s and U---'s DTH service are as follows: "Satellites, located above the continental United States will receive signals and then broadcast the signals to the end-users throughout the continental United States. The transmissions to the satellites will originate from earth stations located in jurisdictions other than your state. In some instances, such as live sporting events or concerts, our client or a third party may initiate programming from a location within or outside your state, transmit it to a primary earth station, format it and transmit to the satellites for broadcast to the customers.

Mr. J. W. N---

-2-

November 15, 1994
515.1303

"The consumer will receive the DTH service through a receiver/decoder system. This system consists of a satellite dish antenna, a set top receiver/decoder unit and a remote control which are purchased from retailers. Included with the set top receiver/decoder is a removable "access card" encoded with the information necessary to descramble the programming which the consumer purchases or subscribes. Neither D--- nor will U--- own or lease the satellite dish antenna, set top receiver/decoder unit or the 'access card'. The equipment will be the property of the consumer. The access card will remain the property of an unrelated third party. "Independent parties have been given a license to manufacture the satellite receiver/decoder system and it will bear the manufacturer's name. The manufacturer and our clients will jointly market the service. D--- and U--- will have independent representatives marketing and soliciting on their behalf. Also, they may from time to time have employees marketing in your state. "Programming "As discussed earlier, the programming will consist of basic and premium network channels, pay per view, etc, and in some locations network programming. The consumer may elect to purchase pay per view programs (movies, sports, concerts, etc), a package of scheduled programming (i.e. basic and premium network channels) or a combination thereof. "The consumer may order pay per view programming utilizing a remote control, or contact D--- or U---. "Billing "The consumer will be billed on a monthly basis. The access card, on an embedded chip, will contain consumer information and may include certain services purchased during the billing cycle. The receiver/decoder will in most cases be connected to a telephone line. In those cases, at a prescribed time and date the access card will call the information center at the expense of our client. The information concerning the services purchased during the billing cycle will then be extracted from the access card. An unrelated third party has been engaged to generate and send the invoices to all subscribers." You have asked only about the charges made by D--- and U--- for transmission of signals. I assume that you understand that the sale or use in California of the satellite dish, decoder, remote control, and access card will be subject to sales or use tax. Based on the specific facts stated herein, we conclude that the transmission of signals by D--- and U--- to their

Mr. J. W. N---

-3-

November 15, 1994
515.1303

customers does not result in the sale or purchase of tangible personal property for purposes of the California Sales and Use Tax Law. Thus, we conclude that neither sales nor use tax applies to the charges for those transmissions. I also would like to make an additional point so that you can assist us in serving you and other taxpayers and representatives in the most efficient manner. You initially wrote a letter dated May 17, 1994, and Senior Staff Counsel Ronald L. Dick responded in a letter dated July 7, 1994. You did not identify your client in your first letter. After receiving our response, you wrote a second letter which neither included new facts nor asked for clarification. Rather, the sole purpose of your second letter was to identify your client for purposes of coming within section 6596. One result of this approach is our additional workload of answering two letters when one response would have been sufficient, and this of course affects our efficiency. Even more important to you and your client is the time it took to receive a response coming within section 6596. If you had identified your client in your first letter, you would have received a letter coming within section 6596 over four months ago. I note, in this regard, that this letter is not "retroactive" to the date of Mr. Dick's letter. Rather, only this letter comes within the provisions of section 6596 (to the extent of the facts you have disclosed) and is effective only as of the date set forth above. If you have further questions, feel free to write again. Sincerely,

David H. Levine
Supervising Staff Counsel

DHL:cl
cc:

Hollywood District Administrator