Is a telecom company's 'backhauling' service -- transporting foreign-originated internet and voice/data traffic from a U.S. cable landing station or satellite earth station to a U.S. destination -- taxable New York telephony, or exempt international telephony?

Plain-English summary

Sprint Communications offers two "backhauling" services that move internet and data traffic that originates outside the United States. USBH+IP lets foreign telephone companies and internet service providers connect to Sprint's own internet network: the customer's IP traffic enters the U.S. at a cable landing station or satellite earth station, and Sprint then transports ("backhauls") it over its own facilities to an IP port at one of Sprint's internet nodes, from which it goes out onto the public internet. ICBH is similar but lets foreign customers send any kind of traffic (voice, video, or data) to any U.S. destination the customer chooses, not just Sprint's own network -- functioning much like a private line from the U.S. entry point to wherever the customer wants it delivered. In both services, the entry point and the U.S. destination point can each independently be located in or out of New York, in any combination.

New York taxes ordinary intrastate telephone and telegraph service, but specifically excludes interstate and international telephony and telegraphy from that tax. Sprint argued its backhauling services are really international telephony, since the traffic being carried always originates in a foreign country, even though the physical "backhaul" leg happens entirely on U.S. soil (and sometimes entirely within New York). The Department agreed, relying on its own long-standing rule (from the Tax Appeals Tribunal's Southern Pacific Communications decision, building on an earlier Western Union ruling) that when a communication is genuinely interstate or international in character, the state can't carve out just the intrastate-looking piece of the route and tax that portion in isolation -- doing so would be an impermissible attempt to isolate a purely intrastate component of an otherwise international service. Because the underlying communication in both USBH+IP and ICBH originates abroad, the entire domestic backhaul leg -- regardless of where the entry point or U.S. destination happens to sit -- counts as international telephony and stays untaxed, the same conclusion the Department reached decades earlier for a Canada-U.S. telephone switching service routed through Buffalo.

What this means for you

Telecommunications and internet backbone providers

If your service physically transports data or voice traffic entirely within the United States, but the underlying communication originates in a foreign country, don't assume the domestic leg is taxable intrastate telephony just because both physical endpoints are in New York. The Department looks at where the communication itself begins and ends, not just where your equipment happens to sit.

Foreign carriers, ISPs, and multinational data-network operators

International connectivity services routed through U.S. gateway infrastructure (cable landing stations, satellite earth stations) can qualify for New York's international-telephony exclusion even when every physical link in the domestic chain is located in-state.

Accountants and tax professionals

The controlling doctrine traces back through Southern Pacific Communications (1991) to Western Union (1983): you can't isolate the "intrastate" segment of a genuinely interstate/international communication and tax it separately. Also worth noting: because the services here were found entirely exempt, the Department didn't need to reach Sprint's alternative resale-exclusion argument -- a good reminder that advisory opinions often leave secondary issues unresolved once the primary issue disposes of the whole question.

Common questions

Q: If a domestic telecom company physically routes foreign traffic entirely within New York, is that routing taxable as intrastate telephony?
A: No, according to this ruling -- what matters is where the underlying communication originates, not where the physical transport equipment is located. Traffic that originates outside the U.S. keeps its international character through the domestic backhaul leg.

Q: Does it matter whether the traffic is internet data or traditional voice/data?
A: No. Both of Sprint's services -- one carrying only internet protocol traffic, the other carrying any type of information -- received the same international-telephony treatment, since the analysis turns on the traffic's origin, not its content type.

Q: Why didn't the Department address Sprint's resale-exclusion argument?
A: Because the services were found entirely exempt as international telephony, the Department didn't need to reach the separate question of whether Sprint's sales of the service to its customers would also qualify for the resale exclusion.

Q: Can another telecom or internet provider rely on this exact ruling?
A: No. This advisory opinion binds the Department only for the petitioner on the facts described, though it applies a well-established legal rule (can't isolate the intrastate piece of an international communication) that would likely extend to similar backhaul arrangements.

Citations and references

Statutes and regulations:

• Tax Law § 1105(b)(1) (tax on telephony/telegraph service; international exclusion)
• 20 NYCRR § 527.2 (telephony and telegraph service tax mechanics)

Prior rulings/cases referenced:

• Matter of Southern Pacific Communications Company, Dec Tax App Trib, May 14, 1991, TSB-D-91(41)S
• Western Union Telegraph Company, Dec St Tx Comm, Feb. 4, 1983, TSB-H-83(57)S
• Network Consultants, Inc., Adv Op St Tx Comm, Aug. 13, 1982, TSB-A-82(31)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2000.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a00_29s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-00(29)S
Sales Tax
July 24, 2000

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S000323A

On March 23, 2000, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Sprint Communications Company, L.P., 6500 Sprint Parkway # HL-5A622,
Overland Park, Kansas, 66251.
The issues raised by Petitioner, Sprint Communications Company, L.P., are:
1) Whether the backhauling services provided by Petitioner as described herein are subject
to sales and compensating use tax.
2) If the services are subject to sales and compensating use tax, whether Petitioner sells such
backhauling services to its customers for resale.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner provides two types of backhauling services to its customers: 1) United States
Backhaul Plus Internet Protocol Port (USBH+IP) and 2) International Carrier Backhaul (ICBH).
USBH+IP allows customers, including foreign telephone companies and Internet service
providers, to connect with Petitioner’s Internet network. This connectivity provides access to United
States-based Internet content for Internet users in foreign countries. Only Internet protocol (IP)
traffic is transported through this product, not traditional voice telephone calls.
Customers are responsible for sending their IP traffic to a cable landing station or satellite
earth station. The cable landing station or satellite earth station is the point at which the traffic enters
the United States. From that point, Petitioner backhauls (or transports) the traffic via its facilities
to an IP port located at Petitioner’s Internet node. An IP port is a physical “plug” or “jack” to which
the circuit connects. Via the IP port, the customer’s Internet traffic is sent out on the Internet over
Petitioner’s Internet network. USBH+IP traffic can go in both directions; any return traffic takes the
exact reverse path as incoming traffic.
Contracts for USBH+IP are in yearly increments with a minimum period of one year. There
are separate cost components for the backhaul service and the IP port. Backhaul is priced based on
mileage (between the cable landing station or satellite earth station and Petitioner’s Internet node),
the bandwidth required, and the contract term. The IP port is priced based on bandwidth (or
capacity) required and term of the contract. Installation and other charges may apply or may be

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waived, and quantity discounts may be available for multiple circuit orders. Any property installed
is and remains the property of Petitioner.
Specifically, in providing the USBH+IP to its customers, the IP traffic will 1) enter the
United States via a cable landing station or satellite earth station located in New York State and
backhauled to Petitioner’s IP port located either in or out of New York State or 2) enter the United
States via a cable landing station or satellite earth station located outside of New York State and
backhauled to Petitioner’s IP port located in New York State.
ICBH allows foreign customers to connect to points in the United States. Customers can
send any type of information on these circuits that they wish - voice, video, data, or a combination.
ICBH circuits can terminate at any point in the United States other than Petitioner’s IP node. For
example, traffic can be backhauled to a customer’s United States business location or to an IP node
owned by any company other than Petitioner. Customers are responsible for sending their traffic
to a cable landing station or satellite earth station. The cable landing station or satellite earth station
is the point at which the traffic enters the United States. From that point, Petitioner backhauls the
traffic via Petitioner’s facilities to the termination point designated by the customer. ICBH functions
much like a “private line” from the cable landing station or satellite earth station to its termination
point. The customer can choose virtually any termination point, but the termination point for a
particular circuit is always the same. ICBH traffic can go in both directions; any return traffic takes
the exact reverse path as incoming traffic.
Contracts for ICBH are in yearly increments with a minimum of one year. Backhaul is priced
based on mileage (between the cable landing station or satellite earth station and the customer­
designated termination point), the bandwidth required, and the contract term. Installation and other
charges may apply or may be waived, and quantity discounts may be available for multiple circuit
orders. Any property installed is and remains the property of Petitioner.
Specifically, in providing ICBH to its customers, the IP traffic will 1) enter the United States
via a cable landing station or satellite earth station located in New York State and Petitioner will
backhaul such traffic to a customer-designated termination point located either inside or outside of
New York State or 2) enter the United States via a cable landing station or satellite earth station
located outside of New York State and Petitioner will backhaul such traffic to a customer-designated
termination point located in New York State.
Applicable Law and Regulations
Section 1105(b)(1) of the Tax Law imposes sales tax, in part, upon:
The receipts from every sale, other than sales for resale, of the following ...(B)
telephony and telegraphy and telephone and telegraph service of whatever nature

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except interstate and international telephony and telegraphy and telephone and
telegraph service ... .
Section 527.2 of the Sales and Use Tax Regulations provides, in part:
(a) Imposition. (1) Section 1105(b) of the Tax Law imposes a tax on the
receipts from every sale, except a sale for resale or a sale specifically exempt under
section 1115(b)(i) and (ii), (c) or (e) of the Tax Law, of
*

*

*

(ii) telephony and telegraphy and telephone and telegraph service of whatever
nature, except interstate and international telephony and telegraphy and telephone and
telegraph service.
(2) Although this tax is generally known as the “consumer’s utility tax,” the
intention of the statute is to tax the enumerated sales and services whether or not
rendered by a company subject to regulation as a utility company. The words “of
whatever nature” indicate that a broad construction is to be given the terms
describing the items taxed. The inclusion of the word “service” indicates an intent
to tax, under this provision, items that are furnished as a continuous supply while the
vendor-vendee relationship exists.
*

*

*

(d) Telephony and telegraphy; telephone and telegraph service. (1) The
provisions of section 1105(b) of the Tax Law with respect to telephony and
telegraphy and telephone and telegraph service impose a tax on receipts from
intrastate communication by means of devices employing the principles of telephony
and telegraphy.
(2) The term telephony and telegraphy includes use or operation of any
apparatus for transmission of sound, sound reproduction or coded or other signals.
*

*

*

(4) A service is not considered telegraphy or telephony if either of these
services is merely an incidental element of a different or other service purchased by
the customer.

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Opinion
Petitioner provides the USBH+IP service to customers who include foreign telephone
companies and foreign Internet service providers. The foreign based customers who purchase this
service are provided connectivity with Petitioner’s Internet network which makes possible access
to United States-based Internet content for Internet users in foreign countries who purchase services
from Petitioner’s customers. In order for Petitioner to provide this service, the foreign based
customers must send its IP traffic to a cable landing station or satellite earth station. The USBH+IP
service results when Petitioner transports the customer’s IP traffic over Petitioner’s facilities to an
IP port located at Petitioner’s Internet node.
The provision of ICBH service by Petitioner allows foreign customers to send information
by voice, video, data, or a combination thereof from an origination point in a foreign country to a
termination point in the United States. In executing this service Petitioner’s foreign customers send
their traffic to a cable landing station or satellite earth station and from that point Petitioner
transports such traffic to the United States-based termination point designated by the customer.
In providing the USBH+IP and ICBH services described above, Petitioner transports
customers’ IP traffic from a cable landing station or satellite earth station to Petitioner’s IP port or
some other termination point in the United States. Petitioner asserts that its USBH+IP and ICBH
services constitute international telephony or telegraphy which is not subject to sales tax under
section 1105(b). Petitioner has requested that the taxability of its backhauling services be addressed
in varying situations in which the locations of the cable landing station or satellite earth station and
the IP port in the case of the USBH+IP, or designated termination point in the case of the ICBH, may
be in or out of New York.
In Matter of Southern Pacific Communications Company, Dec Tax App Trib, May 14, 1991,
TSB-D-91(41)S, the Tribunal affirmed the determination of the Administrative Law Judge that
where a telephone service is interstate in nature, any attempt to isolate the purely intrastate
components of the service as a taxable service is impermissible. The Tribunal relied in part on
Western Union Telegraph Company, Dec St Tx Comm, February 4, 1983, TSB-H-83(57)S, which
determined that a telegraph service where the messages originated and terminated in New York was
taxable intrastate telegraphy regardless of the fact that the messages were routed through computers
located in New Jersey.
In Network Consultants, Inc., Adv Op St Tx Comm, August 13, 1982, TSB-A-82(31)S, a
company was providing a switching service for telephone calls between Canada and the United
States. The switching equipment was located in Buffalo. The opinion focused on the fact that the
telephone communication was between points in Canada and the United States in determining that
the company was providing nontaxable international telephony.

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July 24, 2000

In both the USBH+IP and ICBH services, the data or information being transported by
Petitioner originates outside of the United States. Therefore, in accordance with Matter of Southern
Pacific Communications Company, supra, the USBH+IP and ICBH services constitute the provision
of international telephony or telegraphy and are not subject to the sales tax imposed under Section
1105(b) of the Tax Law, regardless of the location of the cable landing station or satellite earth
station and IP port or designated termination point.
In view of the conclusion that the USBH+IP and ICBH services constitute nontaxable
international telephony or telegraphy, it is not necessary to address Issue 2 related to the resale
exclusion with respect to such services.

DATED: July 24, 2000

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.