Were cellular providers taxed on communications services used in their network facilities and in support locations such as call centers, stores, offices, and warehouses?

Plain-English summary

Florida excluded both network communications bought for resale and support-location communications used in connection with the providers' cellular business.

Services at cell sites, microcells, mobile telephone switching offices, and the switch transmitted, relayed, or routed customers' calls. They were integrated into the cellular service sold to customers, so registered dealers could buy them without tax by extending the required resale certificate.

Support locations also qualified

Communications used at call centers, kiosks, administrative offices, retail locations, service centers, and warehouses were not resold. Florida nevertheless excluded them from the taxable sales price because customer service, sales, administration, repair, and equipment-support activities were connected with providing cellular communications services.

The conclusion depended on the taxpayers having no business other than cellular service. The ruling did not address communications shared with another line of business or the records needed to document internal use.

What this means for you

Communications dealers should separate services integrated into what customers buy from services consumed internally, document the function of each location, and satisfy the resale-certificate rules where resale treatment applies. Mixed-business use was left unresolved.

Common questions

Q: Why were services at cell sites and switching facilities not taxed?
A: They were integrated into communications services resold to customers.

Q: Why were office and customer-support services excluded?
A: Those activities were connected with the taxpayers' cellular communications business and fell within the dealer-internal-use provision.

Q: Did the ruling cover a dealer with another business?
A: No. It expressly made no representation about services used in both a communications business and another business.

Q: Did it specify required internal-use records?
A: No. Documentation and recordkeeping procedures were outside the advisement.

Citations and references

• Fla. Stat. § 202.11 — retail sale, sales price, and dealer-internal-use provisions
• Fla. Stat. § 202.12 — state communications services tax
• Fla. Stat. § 202.16 — registration and resale certificates
• Fla. Stat. § 202.19 — local communications services tax
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 03A19-001

Original ruling text

SUMMARY

QUESTION: The taxpayer is solely in the business of
providing cellular communications services. In carrying
out its administrative, operational, and sales functions,
taxpayer purchases local and long distance telephone
services from other providers and uses these services in
its business of providing cellular communications services.
Taxpayer uses these services at its retail stores, kiosks,
service centers, administrative offices, call centers,
warehouses, switching locations, and cell sites. Is
taxpayer's internal use of communications services used in
connection with its business of providing communications
services subject to communications services tax?

PURCHASE OF COMMUNICATIONS SERVICES FOR RESALE:
Communications services purchased by taxpayer that are used
for the transmission, relay, and routing of calls made by
its customers are not taxable because those services are
integrated into the communications services sold by
taxpayer. These services are purchased for resale.
Therefore, the taxability of these services does not depend
on whether they are used "in connection with" taxpayer's
business of providing communications services.
Communications services purchased for use at cell sites and
switching locations are not taxable for this reason.

DEALER'S INTERNAL USE OF COMMUNICATIONS SERVICES:
Communications services used by taxpayer in its business of
providing communications services are not subject to tax
because those services were used in activities associated
with or related to the provision of cellular services.
Taxpayer's use of communications services at its retail
stores, kiosks, service centers, administrative offices,
call centers, and warehouses are not subject to
communications services tax because the activities at these
locations are carried on "in connection with" the provision
of cellular communications services.

SPECIAL NOTE: This advisement does not address a situation

where a single taxpayer carries on a communications
services business and some other business and purchases
communications services that are used in connection with
both of those business activities.

Sep 05, 2003

Re: Technical Assistance Advisement 03A19-001
Communications Services Tax
Dealer's Internal Use of Communications Services
Sections: 202.11(3), (4), (12), (14)(b)6., 202.12,
202.16(2), and 202.19, F.S.
Section: 203.012(3) and (5), F.S. (1997)
Sections: 212.03(1) and 212.031(1)(a)9., F.S.

Dear :

This is a response to your two letters dated July 29, 2002, and
November 22, 2002. You have requested a Technical Assistance
Advisement for several clients regarding the exclusion from
communication services tax of a dealer's purchase of
communications services that it uses in its business of
providing communications services. The specific statutory
reference is section 202.11(14)(b)6., F.S. Your letters have
been carefully examined, and the Department finds them to be in
compliance with the requisite criteria set forth in Rule Chapter
12-11, F.A.C. This response to your request constitutes a TAA
and is issued to you under the authority of s. 213.22, F.S.

Your clients (hereinafter jointly referred to as "Taxpayers")
are:

XXX

Stated Facts

Your letters dated July 29, 2002, and November 22, 2002, and our
conferences held on November 13, 2002, and September 4, 2003,

disclose the following facts. Taxpayers are engaged in the
business of providing retail cellular communications services to
customers located in Florida and other states. These services
are subject to the communications services tax.

Taxpayers are registered as dealers for communications services
tax purposes, and they collect and remit the state and local
communications services tax on the cellular services sold to
their customers. In carrying out their administrative,
operational and sales functions, Taxpayers purchase local and
long distance communications services from other providers. The
services are purchased and used for various administrative
functions at retail stores, service centers, call centers,
warehouses, switching locations and cell sites. A brief
explanation of each facility at which Taxpayers use purchased
communications services is as follows:

Call Center (XXX Locations):

Taxpayers operate call centers that are functionally
identical to call centers operated by many other types of
businesses. A call center is a place where calls are
answered and originate between Taxpayers and their
customers. Call centers assist customers with requests for
new service activation and help with product features and
services. Call centers usually have many stations for call
center agents that communicate with customers. Call
centers use telephone systems that usually include
automatic call distribution (ACD) systems and computer
telephone integration (CTI) systems. ACD systems route the
incoming calls to a customer service representative (CSR).
CTI systems link the telephone calls to the accounting
databases to allow the CSR to see the account history.
Call centers purchase interstate and intrastate
telecommunication services to support customer service,
sales, and other inquiries from customers.

Cell Site (XXX Locations):

Cell sites provide the link between the wireless system and
the wireless unit. The area served by a cell site is

called a "cell." The cell site consists of an antenna
tower, transmission radios, and radio controllers.
Interstate and intrastate telecommunication services are
purchased to transmit cellular calls from the cell site to
switching stations or mobile telephone switching offices.

Mobile Telephone Switching Office (XXX Locations):

A mobile telephone switching office (MTSO) houses field
monitoring and relay stations for switching calls between
the cellular and the wire-based central office. Newton's
Telecom Dictionary, 19th Edition, describes an MTSO as a
"sophisticated computer that monitors all cellular calls,
keeps track of the location of the cellular equipped
vehicles traveling in the system, arranges handoffs, keeps
track of billing information, etc."

Kiosk (XXX Locations):

Taxpayers operate Kiosks that are functionally identical to
Kiosks operated by many other types of businesses. Kiosks
offer products and services in high traffic areas, such as
airports, supermarkets, and shopping malls. Taxpayers
purchase local and interstate telecommunication services
for Kiosk cash register and credit card approval
authorizations.

Microcell (XXX Locations):

A microcell is a mini cell site with radio coverage area
that has a radius of between 200 feet and 1,000 feet.
Interstate and intrastate telecommunication services are
purchased to transmit cellular calls to switching
stations/MTSOs.

Office (XXX Locations):

Interstate and intrastate telecommunication services are
purchased for administrative offices that provide sales and
marketing, finance, engineering, information technology,
network operations, and other support services.

Retail Locations (XXX Locations):

Taxpayers operate retail locations that are functionally
identical to retail locations operated by many other types
of businesses. Interstate and intrastate telecommunication
services are purchased for retail locations that sell
products and services and provide customer support.

Service Center (XXX Locations):

Service Centers repair cellular telephones. Interstate and
intrastate telecommunication services are purchased for
administrative and customer service usage.

SWITCH (XXX Location):

This location controls the call routing of a cellular
system. Computers monitor all cellular calls, track the
location of cellular-equipped vehicles, arrange handoffs,
and track billing information. Interstate and intrastate
telecommunication services are purchased to receive and
transmit cellular call activity.

Warehouse (XXX Locations):

Taxpayers operate warehouses that are functionally
identical to warehouses operated by many other types of
businesses. Interstate and intrastate telecommunication
services are purchased for warehouse locations that store
and furnish equipment to network facilities.

Taxpayer's Position

It is your position that Taxpayers' purchases of communications
services for internal use are not subject to communications
services tax pursuant to the provision in subparagraph
202.11(14)(b)6., F.S., which provides that the sales price of
communications services does not include charges for a dealer's
"internal use of communications services in connection with its
business of providing communications services."

You note that the term "sales price" refers to the price charged
by dealers making sales of communications services. Therefore,
the exclusions from the tax base, referenced in paragraph
202.11(14)(b), F.S., refer to exclusions for certain charges
made by dealers. In the case of subparagraph 202.11(14)(b)6.,
the exclusion is for a dealer's "internal use of communications
services in connection with its business of providing
communications services." You assert that this language is
intended to create an exclusion from communications services tax
of a dealer's charges to another dealer for communications
services that will be used internally by the purchasing dealer.

You note that another possible interpretation of s.
202.11(14)(b)6., F.S., would be that the sales price does not
include a selling dealer's separately stated charges for its own
costs for internally used communications services. You also
point out, however, that s. 202.11(14), F.S., provides that
"(t)he sales price of communications services shall not be
reduced by any separately identified components of the charge
that constitute expenses of the dealer,...." You assert that
this provision states that separately itemized expenses of a
selling dealer are not excluded from the tax base, which makes
the alternative interpretation of the "internal use" exclusion
untenable. In addition, you question how a selling dealer would
calculate and itemize, on a customer's bill or invoice, its
costs for internally used communications services. You suggest
that, given the complexity of the issue and the number of
different alternatives for allocating the expense, the
Legislature would have made some reference to the language if it
truly intended the exclusion to have this meaning.

In conclusion, you note that the only business conducted by
Taxpayers in Florida is that of providing retail cellular
telecommunications services, which includes the sale of cellular
telephones. As a result, all Taxpayers' activities in Florida
are part of their business of providing communications services
and, therefore, all communications services purchased for use at
their facilities qualify for exclusion from communications
services tax pursuant to s. 202.11(14)(b)6., F.S.

Applicable Authority and Discussion

Imposition of Communications Services Taxes

Section 202.12, F.S., imposes state communications services tax
on retail sales of communications services that originate and
terminate in Florida or that either originate or terminate in
Florida and are charged to a service address in Florida. That
section also provides that gross receipts taxes on
communications services will be administered under Chapter 202,
F.S. The applicable tax rates are applied to "the sales price
of the communications service...." Section 202.19, F.S.,
contains similar provisions imposing local communications
services taxes on the sales price of retail sales of
communications services in Florida. These provisions involve two
concepts that are relevant to the communications services
purchased by Taxpayers. The first is the limitation of tax to
retail sales, and the second is the establishment of "sales
price" as the tax base.

Purchases for Resale

Although your request does not address the issue, some of the
communications services purchased by Taxpayers are not taxable
regardless of whether they would be within the scope of the
internal use provision of the definition of "sales price."
Communications services taxes are imposed only on retail sales.
Section 202.11(12), F.S., defines that term to include a sale of
communications services for "any purpose other than for resale
or for use as a component part of or for integration into
communications services to be resold in the ordinary course of
business." Any sale for resale must comply with s. 202.16(2),
F.S., and the rules adopted thereunder, which require
registration as a dealer and the issuance of a Communications
Services Tax Annual Resale Certificate (form DR-700015) in lieu
of paying communications services tax to the dealer's providers.
Taxpayers are registered dealers of communications services and
may present a copy of their Communications Services Tax Annual
Resale Certificate to providers in lieu of paying tax on bills
for communications services purchased exclusively for resale.

Those communications services purchased by Taxpayers that are
used for the transmission, relay, and routing of the calls made
by their customers are not taxable because those services are
purchased for resale. They are integrated into the
communications services sold by Taxpayers. The services
purchased for use at cell sites, MTSOs, microcells, and the
SWITCH are not taxable to Taxpayers for this reason. Their
taxability does not depend on whether they are "used in
connection with" Taxpayers' communications services business for
purposes of s. 202.11(14)(b)6., F.S., because the purchase of
those services by Taxpayers are not taxable retail sales on
which tax is imposed by ss. 202.12 and 202.19, F.S.

Dealer's Internal Use of Communications Services:

In regard to communications services purchased for use at the
other facilities described above, those services are not
"integrated into" the cellular services sold by Taxpayers.
Those purchased services are taxable unless they fit into the
internal use provision of s. 202.11(14), F.S. That provision
provides that taxable "sales price" for purposes of the
communications services tax does not include a "dealer's
internal use of communications services in connection with its
business of providing communications services." In applying
this provision to Taxpayers' purchases, it is necessary to
address two interpretation issues. The first is whether the term
"dealer" refers to the selling dealers from whom Taxpayers are
making purchases or to Taxpayers as purchasing dealers. The
second is the scope of the concept "in connection with its
business of providing communications services."

If the reference to a dealer's internal use in s.
202.11(14)(b)6., F.S., is interpreted to mean charges for
internal use of communications services by the selling dealer,
the result would be that when a selling dealer separately
itemized a charge for internal use of communications services,
it would not be included in the taxable sales price. This
result would be inconsistent with the provision in the
introductory paragraph of s. 202.11(14), F.S., which provides,
"The sales price of communications services shall not be reduced
by any separately identified components of the charge that

constitute expenses of the dealer...." Statutes should be
construed so as not to conflict with each other. See, e.g.,
Forsythe v. Long Boat Key Beach Erosion Control District, 604
So.2d 452, 455 (Fla. 1992). Courts have held that it would be
inappropriate to interpret one statute without consideration of
a related statute, because statutes must be construed in
conjunction with others related to the same subject matter.
Ferguson v. State, 377 So.2d 709 (Fla. 1979); Smith v. Crawford,
645 So.2d 513 (Fla. 1st DCA 1994). Furthermore, when
considering two statutes governing the same general field, they
must, if possible, be construed harmoniously. State v. E.D.P.,
23 Fla. L. Weekly S524 (Fla. 1998); Woodgate Development
Corporation v. Hamilton Investment Trust, 351 So.2d 14 (Fla.
1977). Interpreting the reference to "dealer" in s.
202.11(14)(b)6., F.S., to refer to a purchasing dealer does not
create any conflict with the introductory paragraph of the
subsection. This interpretation, therefore, must be viewed as
the correct one. As a result, the proper inquiry is whether
communications services purchased by Taxpayers are used in
connection with Taxpayers' business of providing communications
services.

The second interpretation issue is the meaning of the phrase "in
connection with," which is not defined by the statute. Section
202.11(14), F.S., is a definitional statute that sets forth a
statement of what is and is not included in the taxable "sales
price." As such, it must be construed against the state and in
favor of the taxpayer. See, e.g., State ex. rel. Drum Service
Company of Florida v. Kirk, 234 So.2d 358 (Fla. 1970); Maas
Bros. v. Dickinson, 195 So.2d 193 (Fla. 1967); Florida Hi-Lift
v. Department of Revenue, 571 So.2d 1364 (Fla. 1st DCA 1990).
This is to be contrasted with statutes that grant exemptions
from tax and which are strictly construed against the taxpayer
and in favor of taxability. See Department of Revenue v.
Anderson, 403 So.2d 397 (Fla. 1981); Housing by Vogue v.
Department of Revenue, 403 So.2d 478 (Fla. 1 DCA 1981); State ex
rel. Szabo Food Services, Inc. v. Dickinson, 286 So.2d 529 (Fla.
1973).

An attempt to obtain guidance regarding the phrase "in
connection with" by reference to its interpretation in other

Florida taxing statutes was not successful. For example, the
Fourth District Court of Appeal had a chance to address the
phrase, "in connection with," in the case Traci Communications,
Inc. v. Florida Department of Revenue, 737, So.2d 1255 (Fla. 4th
DCA 1999). Traci was a Florida corporation in the business of
providing telephone answering services to its customers. The
court held that those answering services were subject to sales
tax and gross receipts tax under a statute that defined "local
telephone service" as including any service provided "in
connection with" access to a local telephone system and the
privilege of telephone communications with the other subscribers
to that system. The case is not helpful in determining whether
the communications services used by Taxpayers at the facilities
under consideration are "in connection with" the providing of
cellular telephone service.

An initial determination that assists in interpretation of the
term is that "in connection with" means something different from
"integrated into." Services that are integrated into the
communications services provided by Taxpayers are purchased for
resale and are not subject to communications services tax so
long as the registration and certification procedures are met.
It must be assumed that if the intent in the definition of
"sales price" in s. 202.11(14), F.S., was simply to refer to the
same services included in the definition of "retail sale" in s.
202.11(12), F.S., the same terminology would have been used in
both definitions. Since the term "integrated into" requires that
purchased communications services actually be resold by becoming
part of the communication services provided to customers, the
term "in connection with" must be viewed as involving something
less than that.

When a statute does not define a term, courts look to its
ordinary meaning. See, e.g., Pederson v. Green, 105 So. 2d 1, 4
(Fla. 1958); Dept. of Revenue v. John's Island Club, 680 So.2d
475, 477 (Fla. 1st DCA 1996). Webster's New Universal
Unabridged Dictionary, 1996, defines "connection" as
"association, relationship." In order for charges to Taxpayers
for purchased communications services to be used "in connection
with" Taxpayers' business of providing cellular telephone
services, the activities in which those services are used must

be associated with or related to the provision of cellular
services.

All of the activities described in the discussion of the facts
of this case that are not purchased for resale are connected
with or related to Taxpayers' provision of cellular
communications services.

Call Center (XXX Locations): Call centers purchase local
and long distance telephone service to provide customer
service support functions. Customer service support
functions are connected with or related to the business of
providing cellular communications services. Therefore,
communications services consumed at call center locations
are excluded from tax.

Kiosk (XXX Locations): Kiosks are small retail locations
that sell Taxpayers products and services. Taxpayers
purchase communications services for cash register and
credit card approval functions. Cash register and credit
card approval functions are support functions that are
connected with or related to the business of providing
cellular communications services. Therefore,
communications services consumed at Kiosks are excluded
from tax.

Office (XXX Locations): Offices provide various
administrative, accounting, and support functions that are
connected with or related to the business of providing
cellular communications services. Therefore,
communications services consumed at office locations are
excluded from tax.

Retail Locations (XXX Locations): Taxpayers purchase
communications services for retail locations to sell
products and services and to provide customer service. The
sale of products and services and customer service support
functions are connected with or related to the business of
providing cellular communications services. Therefore,
communications services consumed at retail locations are
excluded from tax.

Service Center (XXX Locations): Taxpayers purchase
communications services for service center locations for
administrative and customer service functions.
Administrative and customer support functions are connected
with or related to the business of providing cellular
communications services. Therefore, communications services
consumed at service center locations are excluded from tax.

Warehouse (XXX Locations): Taxpayers purchase
communications services for warehouse locations that store
equipment and furnish it to network facilities. Warehouse
locations serve a support function that is connected with
or related to the business of providing cellular
communications services. Therefore, communications services
consumed at warehouse locations are excluded from tax.

Advisement

Based on the foregoing discussion and analysis, Taxpayers'
purchases of communications services at cell sites, microcells,
MTSOs, and the SWITCH are not taxable to Taxpayers at the time
of purchase because those services are integrated into the
cellular communications services Taxpayers sell to their
customers. Taxpayers may purchase such services without paying
tax by extending their resale certificates. Charges to
Taxpayers for purchases of communications services used at
Taxpayers' call centers, kiosks, offices, retail locations,
service centers, and warehouses are not taxable because the
activities at those locations are carried on "in connection
with" the provision of cellular communications services and fall
within the scope of the internal use provision.

It is important to note that Taxpayers have no business other
than the provision of cellular services. This advisement does
not address and makes no representation as to a situation where
a single taxpayer carries on a communications services business
and some other business and purchases communications services
that are used in connection with both of those business
activities. This advisement also does not address procedural
questions such as how to document that a purchase is for

internal use or what records must be maintained by taxpayers to
account for internal use of communications services.

Closing Statement

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the Department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
predicated on those facts and the specific situation summarized
above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response, your request and
related backup documents are public records under Chapter 119,
F.S., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department
within 15 days of the date of this letter.

If you have any further questions with regard to this matter and
wish to discuss them, you may contact me directly at (850)9224729.

Sincerely,

Gary L. Gray
Tax Law Specialist
Technical Assistance & Dispute Resolution

GLG\
Control No: 51201