Were separate monthly charges for a DSL package that consumers could use only for Internet access subject to Louisiana sales and use tax?

Plain-English summary

The company's consumer DSL Internet-access charges were not subject to Louisiana sales and use tax.

The package used DSL technology for the physical high-speed connection and also supplied Internet access, email, personal web space, newsgroups, and related tools. Customers could use the high-speed channel only to access the Internet and bought voice service separately.

The Department therefore treated the transaction's essence as an Internet access service protected from state sales and use taxation by the federal Internet Tax Freedom Act.

Scope limitation

The ruling covered DSL sold to consumer end users solely for accessing the Internet. It expressly warned that other applications of DSL service could require a different analysis and conclusion.

Common questions

Q: Did use of telephone lines make the package taxable telecommunications service?

A: No. On these facts, the customer received only Internet access through the DSL channel.

Q: Did the company also sell voice service in the same charge?

A: No. Voice communications remained separate.

Q: Did combining the connection and Internet features change the result?

A: No. The ruling treated the combined transaction's essence as Internet access.

Q: Did the ruling cover DSL transport sold to third-party providers?

A: No. It addressed only the consumer Internet-access offering.

Citations and references

• Internet Tax Freedom Act, Pub. L. No. 105-277
• Internet Tax Freedom Act § 1101(e)(3)(D) — Internet access definition
• Internet Tax Nondiscrimination Act, H.R. 1552, 107th Cong. (2001) — extension described in the ruling
• LAC 61:III.101 — Private Letter Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA PLR 03-004

Original ruling text

Private Letter Ruling No. 03-004
Redacted Version
Taxability of DSL Services
April 4, 2003
This private letter ruling involves a determination whether charges for DSL Services, which
provide a high-speed connection to the Internet, are subject to the Louisiana sales and use tax.
The facts of the case are presented below.
Facts
Company offers its customers a DSL-based high-speed Internet access service. Customers who
subscribe to this service pay a monthly fee and in return, receive unlimited Internet access,
personal web page space, e-mail accounts, a customizable start page, access to newsgroups and
Internet tools. While Company sells DSL transport service to third-party Internet service providers
and other customers, this ruling request only addresses Company’s use of DSL technology to
provide high speed Internet access to end users.
The DSL technology allows telephone signals, which are traditionally used for voice and data
transmission, and high-speed signals (used for Internet access and other high speed applications)
to be transmitted over existing copper-wire telephone lines. The same lines transmit normal and
high-speed signals by transmitting the normal signals at a lower frequency and the high-speed
signals at a higher frequency. Thus, through the frequency differential, the high-speed channel is
separated from the low-speed channel. This high-speed DSL channel is capable of several uses,
but customers purchasing Company’s DSL Internet access are only able to utilize this channel
for Internet access. Customers purchasing DSL Internet access are only purchasing Internet
access and are not purchasing voice communication services. Charges for DSL Internet access
are separate from those for voice communication services.
In order for customers to utilize the DSL technology, the signal from the customer’s home must
be converted to a higher frequency by a DSL modem located at the customer’s premises. Highspeed signals originating in the customer’s home are transmitted to the appropriate Company
central office where a piece of equipment called a “splitter” separates the normal and high-speed
signals traveling over the line from the customer’s premises. The low frequency signals are
directed to the public switched telephone network while the high frequency signals are directed
to the packet switch and then to Company’s Internet routers.
This method of accessing the DSL Internet service varies from “dial-up” or narrowband Internet
access. In narrowband Internet access, the digital data signals from the customer’s computer are
converted to analog signals through a conventional modem. The converted analog signals travel
over the public switched network to another modem at the ISP’s point of presence. This is the
same manner that a conventional telephone call using the normal lower frequency channels
functions. Thus, in this “dial-up” or narrowband Internet access, the customer’s modem
establishes a connection with the ISP’s modem by “dialing” its telephone number. The ISP’s

Private Letter Ruling No. 03-004
Page 2 of 3

modem then converts the analog signals back into digital signals, which are then directed to the
Internet.
Issue
Are Company’s charges for DSL Internet access service subject to the Louisiana sales and use
tax?
Ruling
Digital Subscriber Line “DSL” is a broadband service that uses existing phone lines to send
high-speed signals. Company utilizes this DSL technology to provide consumer end users access
to the Internet at speeds that are much faster than the traditional “dial-in” or analog connection.
Customers subscribing to this service retain their traditional local telephone service for voice
communications and pay an additional charge, which is separate from their home telephone bill,
to utilize DSL’s high-speed signals to reach the Internet through Company’s server or router.
Prior to the development and widespread marketing of broadband technologies, such as DSL,
telephone lines and computer-telephone modems were the traditional mediums through which a
connection to the Internet was accomplished. In that scenario, two separate events were
necessary in order for a consumer to access the Internet. First, a subscription had to be paid to an
Internet service provider for Internet access services, which, beginning October 1, 1998, became
exempt from state taxation under the provisions of the Internet Tax Freedom Act. Second, the
consumer had to obtain a telephone connection to enable the Internet connection. This local
telephone service was subject to taxation in Louisiana as a sale of a telecommunication service.
In the case of this DSL Internet service, Company has combined the physical connection to the
Internet with its own Internet access service into one transaction. This results in an appealing
product that allows customers high-speed access to the Internet. A customer subscribing to this
service only receives Internet access. Thus, the essence of this transaction is an “Internet access
service,” a transaction protected from state sales and use taxation by the Internet Tax Freedom
Act (“ITFA”), Pub. L. No. 105-277.1
Section 1101(e)(3)(D) of ITFA defines “Internet access service” as, “…a service that enables
users to access content, information, electronic mail, or other services offered over the Internet
and may also include access to proprietary content, information, and other services as part of a
package of services offered to consumers…” Because Company’s DSL Internet access is a
service that only allows customers the ability to be routed to the Internet through Company’s
server or router, these charges are properly included in the category of “Internet access services,”
the sales taxation of which is prohibited by ITFA.

1

In November 2001, Congress enacted the Internet Tax Nondiscrimination Act, H.R. 1552, 107th Cong., 1st Sess. (2001), which retroactively
extended ITFA from October 1, 1998, to November 1, 2003.

Private Letter Ruling No. 03-004
Page 3 of 3

As noted above, this ruling only addresses those instances where DSL technology is offered to
consumer end users for accessing the Internet. Other applications of digital subscriber line
service may result in a different analysis and conclusion.
Summary
Company’s DSL Internet access charges are not subject to the Louisiana sales and use tax. These
access charges are for “Internet access service” as that term has been defined in ITFA. Because
Company’s DSL Internet access service falls within the ITFA definition of “Internet access,” the
State of Louisiana cannot impose its sales and use tax on this service.
If you have any questions or need additional information, please contact the Policy Services
Division at (225) 219-2780.
Cynthia Bridges
Secretary
By:

Christina Fletcher
Attorney
Policy Services Division

This correspondence constitutes a private letter ruling (PLR) by the Louisiana Department of Revenue, as provided for by section
61:III.101 of the Louisiana Administrative Code. A PLR provides guidance to a specific taxpayer at the taxpayer's request. It is a
written statement that applies principles of law to a specific set of facts or a particular tax situation. A PLR does not have the force
and effect of law, and is not binding on the person who requested it or on any other taxpayer. This PLR is binding on the department
only as to the taxpayer to whom it is addressed, and only if the facts presented were truthful and complete and the transaction was
carried out as proposed. It continues as authority for the department’s position unless a subsequent declaratory ruling, rule, court
case, or statute supersedes it.