Does a cable TV company owe Colorado sales tax on its basic and premium channel packages, sports packages, pay-per-view events, and video-on-demand?

Plain-English summary

A cable television provider asked Colorado whether it had to charge sales tax on the things it sells: basic channel packages, optional premium channels, sports packages, one-time pay-per-view events, and video-on-demand rentals. The Department ruled that none of these are subject to Colorado state or state-administered local sales tax.

Colorado taxes sales of tangible personal property, but only taxes a short, specific list of services. The content a cable company delivers — movies, shows, pay-per-view — is itself tangible personal property, but it is delivered through cable infrastructure that carries a large service component. When a transaction mixes goods and services, Colorado decides which it "really" is using the true-object test. Looking at the whole package, the Department concluded these transactions are more like buying a service than buying a good. Because cable television is not one of the services Colorado has chosen to tax, the sales are excluded.

This is a useful data point for how Colorado treats cable and cable-delivered streaming bundles, but note it predates and doesn't override Colorado's later, broader taxation of stand-alone digital goods (see the cross-reference below).

What this means for you

Cable and pay-TV providers

If you sell channel packages and cable-delivered on-demand content bundled with the cable service, the Department analyzed those as nontaxable services. The key was that the offering is a true mixed transaction dominated by the service of delivering programming, not a straight sale of a movie file. How you bundle and deliver matters: a stand-alone sale of a downloadable, permanently-owned copy of a movie was expressly not ruled on here and is treated differently.

Streaming and digital-content businesses

Don't over-read this. The ruling turns on cable's specific service-heavy delivery and the true-object test. Colorado separately taxes digital goods regardless of delivery method, so a pure streaming or download product is not automatically exempt just because this cable bundle was. The analysis is fact-specific.

Accountants and tax professionals

The decision rests entirely on the true-object test in 1 CCR 201-5, Special Rule 40 and the Colorado case law applying it (Leanin' Tree, Waste Mgmt., A.D. Store), plus the rule that Colorado taxes only enumerated services under § 39-26-104(1). Watch the home-rule-city caveat: self-collected cities may tax cable differently.

Common questions

Q: Is cable TV taxable in Colorado?
A: In this ruling, sales of basic and premium packages, sports packages, pay-per-view, and video-on-demand were not subject to state or state-administered local sales tax, because the bundle is treated as a nontaxable service and cable isn't on Colorado's list of taxed services.

Q: Does this mean streaming services are tax-free in Colorado? A: Not necessarily. This ruling is about a cable provider's service-heavy bundle. Colorado taxes digital goods on their own terms, and a stand-alone streaming or download product can be taxable. Each offering is analyzed on its own facts.

Q: What about buying and permanently downloading a movie from the cable company? A: The Department expressly did not rule on that. The company only sought a ruling on its transient, viewed-and-gone content, so the tax treatment of permanently-owned downloaded copies was left open.

Q: Can my cable business rely on this ruling?
A: No. A private letter ruling binds the Department only for the taxpayer and facts it was issued to, and explicitly cannot be relied on by anyone else. It shows the Department's reasoning, but your facts may differ.

Q: Does this cover city sales tax too?
A: No. The Department administers state and state-administered local sales tax only. Colorado's self-collected home-rule cities set their own rules and may tax cable or streaming even where state tax does not apply. Check with each home-rule city.

Citations and references

Statutes and rules:

• § 39-26-104(1), C.R.S. (imposition of sales tax; only specifically enumerated services are taxed)
• 1 CCR 201-5, Special Rule 40 (true-object test for mixed transactions)

Cases:

• City of Boulder v. Leanin' Tree, Inc., 72 P.3d 361 (Colo. 2003)
• Waste Mgmt. of Colo., Inc. v. City of Commerce City, 250 P.3d 722 (Colo. App. 2010)
• A.D. Store, Inc. v. Dep't of Revenue, 19 P.3d 680 (Colo. 2001)

Subject

Sales Tax on Cable Television

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/PLR-21-001.pdf

Original ruling text

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

PLR 21-001
May 21, 2021
XXXXXXXXXXXXXXXXXXX
Attn: XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXX
Re: Sales Tax on Cable Television
Dear XXXXXXXXXXXX:
You submitted a request for a private letter ruling on behalf of XXXXXXXXXXXXXXXXXXX (“Company”) to the Colorado Department of Revenue (“Department”) pursuant to 1 CCR 201-1, Rule 24-35-103.5. This letter is the Department’s private letter ruling. This ruling is binding on the Department to the extent set forth in 1 CCR 201-1, Rule 24-35-103.5. It cannot be relied upon by any taxpayer other than the taxpayer to whom the ruling is made. Issue Whether state and state-administered local sales taxes apply to Company’s sales of Basic Service Packages, Premium Channels, Sports Packages, Pay-Per-View Events, and Video On Demand content (collectively the “Subject Transactions”), as each is described herein. Conclusion Company’s sales of the Subject Transactions are not subject to state and state-administered local sales tax. Background1 Company provides cable television services,2 along with other services not at issue here, in a number of states, including Colorado. Subscribers first choose one of a number of service packages offered by Company, all of which share similar elements (a “Basic Service Package”) described below. Company charges a single, monthly fee for each Basic Service Package. Subscribers may augment any of the Basic Service Packages by selecting from among

1

This section generally recites the statements of fact set forth in the request as required by paragraph (4)(b)(ii) of 1 CCR 201-1, Rule 24-35-103.5. The recitation of particular facts in this section is not an indication that the Department found such facts relevant to its analysis. Some relevant facts may be redacted as required by section 24-35-103.5(5), C.R.S. 2 The descriptions herein of particular transactions as “services” reflect the Company’s characterization of the transaction, and may not reflect the Department’s reason for concluding they are exempt from or not subject to tax.

PLR 21-001
May 21, 2021
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numerous optional service offerings (“Optional Services”). Company charges a separate fee for each Optional Service. Basic Service Packages Each Basic Service Package includes the right to view a collection, or bundle, of pre-assembled television channels. Basic Service Packages also often include—either for a temporary period or indefinitely—one or more Premium Channels as described below. All channels included in any Basic Service Package display scheduled programming that is determined by the third-party channel operators. Basic Service Packages also allow subscribers access to “on demand” programming—content stored by the Company on remote servers that is available for viewing at a time of the subscriber’s choosing. This “on demand” programming consists of content owned by the channel programmers. Company also includes access to additional “on demand” programming that Company acquires from other third parties. Content owners exclusively determine which content to make available “on demand,” and for what periods of time. Basic Service Packages also include digital video recorder (“DVR”) service, which allows the subscriber to record scheduled programming for later viewing. Recorded programming is saved either in remote (“cloud”) storage devices kept by Company or third parties, or on hardware within the subscriber’s premises. Company limits the amount of programming a subscriber may store at any one time. Optional Services Subscribers may augment any of the Basic Service Packages by selecting from among numerous Optional Services detailed below. Company offers the choice to subscribe to premium movie channels, as well as channels providing a variety of niche programming, such as kid, fitness, and ethnic programming (“Premium Channels”). Most Premium Channels supply both scheduled programming and access to content “on demand.” Except for instances where a premium channel is bundled with a Basic Service Package, Company charges a separate monthly fee for each Premium Channel. Company also offers one channel or a package of channels that allow subscribers to view live sporting events and related content, typically focused on one of the major professional sports leagues (“Sports Packages”). Like the Premium Channels, most Sports Packages include both scheduled and “on demand” programming. Company charges a separate fee for each Sports Package, either on a monthly or per-season basis. Subscribers may purchase the right to view individual events, such as boxing or wrestling matches, for varying one-time charges. (“Pay-Per-View Events”). These Pay-Per-View Events are watched live. However, certain Pay-Per-View Events may remain available for viewing for a period of time after the live broadcast.

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Finally, Company offers additional stored content that may be viewed at a time chosen by the subscriber for a separate fee (“Video On Demand”).3 Typically, the subscriber pays a one-time fee for the right to view the selected content for a specified period (e.g., $4.99 may be charged for the right to view a movie during a 48-hour period). Content owners decide what content to make available within Company’s Video On Demand service and for what periods of time. Viewing Options Subscribers commonly watch the content delivered by Company on television screens, either directly, by using a cable box, or by using an application installed on a streaming box or television set. However, subscribers may access content with other devices as well. Those with smartphones or tablets may download a free software application that enables them to view most of the same content available on their televisions. They may also use a laptop or desktop computer to access content by logging into their accounts through Company’s website. Depending on the hardware used and programming involved, subscribers may enjoy the ability to pause, rewind, and fast forward viewed content. For example, provided the subscriber has the appropriate equipment, scheduled programming watched on a television may be paused for limited periods, and then played back in a delayed fashion or fast-forwarded to return to the scheduled display. Programming saved to a DVR device may also be paused, rewound, or fastforwarded by the subscriber. Content stored on a “cloud” DVR device and select “on demand” programming may be downloaded (“checked out”) for off-line viewing on mobile devices. Company limits the amount of content that may be downloaded at any one time, and downloaded content is automatically deleted from a subscriber’s device after a specified period if not affirmatively “checked in” by the subscriber. Content Delivery and Management Company delivers content to its subscribers’ premises via fiber optic cables (which transmit data through light pulses) and coaxial cables (which transmit data through radio frequency signals). Company’s signals are digital and encrypted. A TV-set-top box (also known as a digital cable box, digital converter box, or digital receiver) will de-encrypt the signal for viewing on digital televisions. When subscribers access content on their mobile devices and computers, the content is generally delivered through a combination of data packets sent across the Internet (again, generally using fiber optic technology) and cellular or WiFi signals (using radio frequencies). The overwhelming majority of content delivered to subscribers is stored, if at all, on servers remote from subscribers, and is delivered to subscribers on a transient basis. That is, once a content signal is received and converted to images for display on a television or other subscriber device, the signal disappears. In particular, most Video On Demand purchases are delivered to subscribers in this manner. The purchaser does not receive a full, finished copy of 3

Company also offers copies of certain content that may be purchased, downloaded, and thereafter owned by the purchaser. Company did not seek a ruling regarding the tax treatment of such sales, and the Department, therefore, makes no ruling on such sales.

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the purchased content. Instead, the content is transmitted piecemeal as it is watched, with each signal conveying a portion of the content and disappearing as soon as it is converted into a viewable image. The only exceptions to this practice—i.e., the only instances in which a subscriber maintains a complete recording of any content—are when a subscriber stores a program on a DVR device or downloads a program to a mobile device, as discussed above. Discussion The Company’s Subject Transactions are not subject to state and state-administered local sales tax. Colorado levies a sales tax on sales of tangible personal property and certain enumerated services.4 The classification of a transaction as a sale of tangible personal property, or a sale of intangible property or a service, is based upon the transaction’s true object.5 The true object test looks to the totality of the circumstances in order to characterize transactions involving the provision of both tangible personal property and intangible property or services.6 Specifically, the test attempts to “identify characteristics of the transaction at issue that make it either more analogous to what is reasonably and commonly understood to be a sale of goods, or more analogous to what is generally understood to be the purchase of a service or intangible right.”7 Applying the true object test to the Subject Transactions, we conclude the Subject Transactions are mixed transactions that are more analogous to a service. The content delivered by Company, including movies, television shows, and pay-per-view content, is tangible personal property. However, provision of these items of tangible personal property to subscribers via fiber optic and coaxial cable also includes a service component. Thus, the sale is a mixed transaction, including both a sale of tangible personal property and the provision of a service. Taken as a whole, the Subject Transactions are more analogous to a service. Colorado does not tax services except for those specifically listed in state statutes.8 The Subject Transactions are not explicitly taxed and are, therefore, excluded. Miscellaneous This ruling is premised on the assumption that Company has completely and accurately disclosed all material facts, and that all representations are true and complete, and Company has otherwise complied with the requirements of section 24-35-103.5, C.R.S., and the rules promulgated pursuant thereto. The Department reserves the right, among others, to independently evaluate Company’s facts, representations, and assumptions. The ruling is null and void if any such fact, representation, or assumption is incorrect and has a material bearing on the conclusions reached in this ruling. This ruling is binding on the Department and is subject to modification or revocation, in accordance with 1 CCR 201-1, Rule 24-35-103.5. The Department administers state and state-administered local sales and use taxes. This letter does not address sales and use taxes administered by self-collected home-rule cities. You may 4

Section 39-26-104(1), C.R.S.
1 CCR 201-5, Special Rule 40.
6
Waste Mgmt. of Colo., Inc. v. City of Commerce City, 250 P.3d 722, 727–28 (Colo. App. 2010). 7 City of Boulder v. Leanin’ Tree, Inc., 72 P.3d 361, 366 (Colo. 2003). 8 A.D. Store, Inc. v. Dep’t of Revenue, 19 P.3d 680, 683 (Colo. 2001). 5

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wish to consult with those local governments that administer their own sales or use taxes about the applicability of those taxes. Visit our website at www.tax.colorado.gov for more information about state and local sales taxes. Thank you for your request. Sincerely,

Office of Tax Policy Analysis
Colorado Department of Revenue
This ruling cannot be relied upon by any other taxpayer other than the taxpayer to whom the ruling is made.