CO GIL 09-003 Sales & Use Tax 2009-01-15

Are an FCC-license fee and a 'coordination fee' that a two-way-radio distributor charges its customers subject to Colorado sales or use tax?

Short answer: It depends, and the Department made no binding determination. FCC-license and 'coordination' fees a distributor bills along with two-way radios are TAXABLE if either (1) the radio service qualifies as mobile telecommunications service—then the fees are 'charged for or associated with' that taxable service—or (2) the fees aren't separable from the sale of the radios (separately stating them isn't enough). If the radios are PRIVATE rather than commercial mobile radio service, they likely aren't telecommunications service. The Department couldn't decide which applies without more facts and invited a private letter ruling. (This is a General Information Letter: general guidance only, not binding, and the Department made no specific determination.)

Disclaimer: This is a Colorado Department of Revenue General Information Letter (GIL). A GIL is a general discussion of the tax law that represents the good-faith opinion of Department personnel; it is NOT binding on the Department, makes NO specific determination on the issues raised, and CANNOT be relied upon as a ruling by any taxpayer. It does not address sales or use taxes administered by self-collected home-rule cities and counties. This summary is informational only and is not legal or tax advice. Consult a licensed Colorado tax professional about your situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked at the bottom of this page, or PDF in the sidebar) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

A distributor of two-way radios asked whether Colorado sales or use tax applies to two charges it bills customers along with the radios: a fee for the FCC license every two-way-radio user must obtain (valid ten years) and a "coordination fee." Both appear on the invoice separately from the radio price. The Department wrote a general information letter (the request lacked the detail needed for a binding ruling) and declined to make a specific determination — but laid out two independent ways the fees could be taxable.

Path 1 — telecommunications / mobile telecommunications service. Colorado taxes the sale and lease of tangible personal property and a limited set of services, including telecommunications (§ 39-26-104). Two-way radio service may be telecommunications (§ 39-26-104(1)(c)) and may be mobile telecommunications service — defined by reference to "commercial mobile radio service" under 47 C.F.R. § 20.3 (Reg. (39)26-104.1(c)(I)). If the radios/fees constitute mobile telecommunications service, then the FCC-license and coordination fees are taxable because the law reaches any charge "for, or associated with," the provision of that service. Important limit: private mobile radio service is not commercial mobile telecommunications service — so if the radios are private (not commercial), the Department would likely conclude the service isn't taxable telecommunications service at all.

Path 2 — inseparable from the sale of the radios. Even if the fees aren't telecommunications service, they're taxable if they aren't separable from the (taxable) sale of the radios. Colorado's tax base is the gross value of all materials, labor, and services in the price charged (§ 39-26-102(12)); a non-taxable charge escapes tax only if it's both separately stated and separable (A.D. Stores). Merely stating the fees separately on the invoice is not enough to make them separable. (The Department cited an Illinois GIL reaching the same "taxable if inseparable" conclusion for FCC/coordination fees on two-way radios.)

Why no answer: the Department said it can't decide in a GIL whether the radios are telecommunications/mobile telecommunications service, or whether the fees are separable, and that the request lacked sufficient facts to determine either. It invited a private letter ruling for a binding answer.

What this means for you

Two-way-radio and communications-equipment sellers

Don't assume an FCC-license or coordination fee is automatically tax-free just because you list it separately. It can be taxable two ways: as a charge "associated with" taxable mobile telecommunications service, or as a charge inseparable from the taxable radio sale. Whether your offering is commercial vs. private mobile radio service is the key fork on the telecom question.

Anyone billing ancillary fees with taxable goods

Separate statement alone never settles taxability. The charge must also be separable — the customer needs a realistic way to forgo it or get it elsewhere. If a fee is just a cost component baked into the sale, it's in the tax base.

Accountants and tax professionals

To get certainty here you'll need a PLR with facts on (a) whether the service is commercial mobile radio service under 47 C.F.R. § 20.3, and (b) the separability of the FCC-license and coordination fees from the equipment sale. The GIL is a roadmap, not an answer.

Common questions

Q: Is the FCC-license fee I charge customers taxable in Colorado?
A: Possibly. It's taxable if it's part of taxable mobile telecommunications service, or if it isn't separable from the taxable sale of the radios. The Department didn't decide; it depends on your facts.

Q: We list the coordination fee separately — doesn't that make it tax-free?
A: No. Separately stating a charge isn't enough; it must also be separable from the radio sale. Otherwise it's part of the taxable price.

Q: Does it matter if our radio service is "private"?
A: Yes. Private mobile radio service isn't commercial mobile (telecommunications) service, so it likely wouldn't be taxed as telecommunications — though the separability question would still remain.

Citations and references

Statutes, rules, and authorities:
- § 39-26-104, C.R.S. (sales/use tax; telecommunications among taxable services); § 39-26-104(1)(c), C.R.S. (telecommunications service)
- Reg. (39)26-104.1(c)(I) (mobile telecommunications service; "charges for"); 47 C.F.R. § 20.3 (commercial mobile radio service)
- § 39-26-102(12), C.R.S. (sales price includes connected charges)
- A.D. Stores v. Department of Revenue, 19 P.3d 680 (Colo. 2001) (separability); FYI Sales 80 (two-way paging as telecommunications); Illinois GIL ST 08-0133-GIL (persuasive)

Related rulings

[[gil-09-006-inspection-fee]] — separability of an ancillary fee from a taxable sale
[[plr-10-002-private-letter-ruling]] — separately stated charge excluded only if also separable
[[plr-09-004-private-letter-ruling]] — optional, separable services excluded from a taxable rental's base

Source

Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-09-003.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

GIL-2009-003
January 15, 2009
XXXXXXXXXXXX
XXXXXXXXXXXX
XXXXXXXXXXXX
Re: Taxability of FCC license and coordination fee
Dear XXXXXXX,
This letter is in response to your request for guidance on the taxability of FCC licenses and a
coordination fee charged consumers in connection with the sale of two-way radios. I apologize
for the delay in responding to your request.
The Department issues two types of written guidance: general information letters and private
letter rulings. A general information letter provides a general overview of the applicable tax law
and is not binding on the department. A private letter ruling is a determination of the
applicability of tax to a specific set of circumstances and is binding in the department. A party
requesting a private letter ruling must provide certain information and remit a fee. For more
information about general information letters and private letter rulings, please refer to the
Department’s regulation 24-35-103.5, C.R.S., which is available on our web site at:
www.colorado.gov/revenue/tax.
We will initially treat your request as one for a general information letter. You may resubmit this
request for a private letter ruling.
Issue
Does Colorado sales or use tax apply to the charges for a FCC license and coordination fee
charged to consumers who also purchase two-way radios?
Background
You provide the following information. You are a distributor of two-way radios. All users of twoway radios must obtain a license through the Federal Communications Commission (“FCC”) to
legally operate their radio equipment. Once the license is obtained, it is valid for ten years. You
invoice your customers for the radio equipment which you list separately on the invoice. It is not
clear whether the customer is charged a fee for the FCC license separate and apart from the
coordination fee. In any event, the “coordination fee” is charged on the invoice and separate
from the price of the radios.
Discussion

Colorado imposes sales and use tax on sale and lease of tangible personal property and a
limited number of services, including telecommunications services. See, §39-26-104, C.R.S.
Two-way paging service is telecommunication service. See, Department FYI Sales 80. Twoway radio service may constitute telecommunications. §39-26-104(1)(c), C.R.S. Two-way
radio service may also constitute mobile telecommunications service. See, Department
regulation (39)26-104.1(c)(I)(7) (“The term “mobile telecommunications service” means
commercial mobile radio service, as defined in section 20.3 of title 47 of the Code of Federal
Regulations as in effect on June 1, 1999.”). In turn, 47 CFR 20.3 states that two-way radio
service may constitute commercial mobile telecommunication service.
If the sale of the two-way radios, FCC license, and coordination fee constitute mobile
telecommunications service, then charges for the FCC license and coordination fee are subject
to tax if they are “charged for, or associated with,” the provisioning of mobile telecommunication
service.
Charges for Mobile Telecommunications Services - The term charges for mobile
telecommunications services means any charge for, or associated with, the provision of
commercial mobile radio service, as defined in section 20.3 of title 47 of the Code of Federal
Regulations as in effect on June 1, 1999, or any charge for, or associated with, a service
provided as an adjunct to a commercial mobile radio service, that is billed to the customer by
or for the customer's home service provider regardless of whether individual transmissions
originate or terminate within the licensed service area of the home service provider.
Department Regulation (39)26-104.1(c)(I); see, also, §39-26-102(12) (charges made in
connection with sale of taxable goods are included in the calculation of sales tax).
You should be aware that private mobile radio service does not fall within the definition of
commercial mobile telecommunications service. See, 40 CFR 20.3. If they do not qualify as
mobile telecommunications service, the department would likely conclude that it does not also
qualify as telecommunications service. However, we cannot provide in a general information
letter a specific determination whether the two-way radio, FCC license, and coordination fee
constitute telecommunications service or mobile telecommunications service. Moreover, your
letter does not contain sufficient information to make any such determination.
Finally, these charges are taxable if they are not separable from the sale of the radios even if
these fees were not part of telecommunication or mobile telecommunication services,. In
general, the sales price upon which tax is calculated is the gross value of all materials, labor,
and service, and the profit thereon, included in the price charged to the user or consumer. §3926-102(12), C.R.S. Sales tax does not include charges for non-taxable charges that are both
separately stated on the invoice and that are separable from the sale of the taxable property.
See, AD Stores v Department of Revenue, 19 P3d 680 (Colo. 2001). See, also, Illinois Dept. of
Rev. General Information Letter ST 08-0133-GIL, 09/26/2008 (FCC and coordination fee may
be taxable if inseparable from sale of two-way radios). Again, we cannot provide in a general
information letter a specific determination whether the two-way radio, FCC license, and
coordination fee are separable from the sale of the radios. Moreover, your letter does not
contain sufficient information to make any such determination.
Miscellaneous
Pursuant to state law and department regulation 24-35-103.5, the Department will make public a
redacted version of this letter. Your letter requesting this general information letter is not made
public. I enclose a proposed redacted version of this letter. Please contact me within 60 days

from the date of this letter if you have any questions, comments, or objection concerning the
redacted letter.
We hope this is helpful. As noted earlier, you may request a private letter ruling which will
provide a determination regarding your specific circumstances.

Sincerely,

Office of Tax Policy
Colorado Department of Revenue