Is a fiber optic network company's monthly charge to lease dark (unlit) fiber optic cable subject to New York sales tax as a telephone service, and what about its lit fiber/WDM/Metro Ethernet services?

Plain-English summary

A fiber-optic network company leases its cable to commercial customers like banks and telecom carriers, in two forms: "dark" fiber (physical cable only, with no equipment to activate or "light" it for transmitting signals) and "lit" services (Wavelength Division Multiplexing, Metro Ethernet, and similar offerings, where the company's own equipment activates the cable strand). It asked whether its monthly charges for each are subject to New York sales tax.

New York taxes intrastate "telephony and telegraph service of whatever nature" broadly, but the Department drew a sharp line based on a decades-old precedent about leased telephone wires: when a provider leases bare cable without also providing active transmission service over it, the arrangement is treated like a lease of real property rather than a telephone service -- and leases of realty aren't subject to sales tax at all. Since this company's dark-fiber customers get only inert cable (secured, unidentifiable among other bundled strands, with no company-provided equipment to activate it), the dark-fiber charges escape sales tax entirely. But "lit" services are different: because the company's own equipment actively transmits communications over the cable, those charges are taxable intrastate telephone/telegraph service -- and taxable at the full charge, including any equipment or energy costs bundled into "lit" pricing, as long as the connection both originates and terminates within New York (regardless of routing through another state or the customer's billing address). If the company doesn't separate its intrastate charges from interstate/international ones, the entire charge becomes taxable by default. A telecom carrier that resells the lit service as part of its own network can buy it exempt for resale with a Resale Certificate.

What this means for you

Fiber-optic network operators and telecom infrastructure companies

The equipment-activation line is decisive: leasing bare, unpowered cable is treated like a real-property lease (nontaxable), while providing the equipment that actually lights the cable for transmission converts the same monthly charge into taxable telephone service. Bill dark and lit services as clearly separate line items, and separately state intrastate from interstate/international connections -- failing to do either can pull an otherwise-exempt charge into the taxable bucket.

Banks, carriers, and other commercial fiber lessees

If you're leasing dark fiber with no activation equipment from the provider, expect no New York sales tax on that charge; if you're buying a lit service (WDM, Metro Ethernet, etc.) connecting New York points, expect sales tax on the full charge.

Accountants and tax professionals

This ruling leans on the "leased telephone wire = real property lease" line of cases (Central Office Alarm) rather than the general telephony statute's broad "of whatever nature" language -- worth flagging that the real-property characterization is specific to bare, unactivated cable, and evaporates the moment the provider supplies activation equipment. Also note the ruling expressly declines to disturb a separate franchise-tax holding (Metromedia Fiber Network) that treated dark fiber as tangible personal property for a different purpose (the business allocation percentage) -- the two characterizations aren't in conflict because they answer different legal questions.

Common questions

Q: Is leasing dark (unlit) fiber optic cable taxable in New York?
A: No, when the provider furnishes only the physical cable with no activation equipment -- it's treated like a nontaxable real-property lease.

Q: Is a "lit" fiber, Wavelength Division Multiplexing, or Metro Ethernet service taxable?
A: Yes, as intrastate telephone/telegraph service, when the connection both originates and terminates in New York.

Q: What if a company doesn't separate its dark-fiber and lit-service charges on invoices?
A: The distinction still matters for how each is taxed, but failing to separate intrastate from interstate/international charges within the lit services causes the entire charge to become taxable.

Q: Can a telecom carrier buy lit fiber service tax-free to resell as part of its own network?
A: Yes, with a properly completed Resale Certificate (Form ST-120), if the service is truly for resale rather than the carrier's own end use.

Citations and references

Statutes, regulations, and guidance:

• Tax Law § 1101(b)(4)(i), (5) (retail sale; sale/selling/purchase)
• Tax Law § 1105(a), (b)(1) (retail sales; telephony and telegraph service tax)
• Tax Law § 1132(c)(1) (presumption of taxability)
• 20 NYCRR 526.8 (tangible personal property; excludes real property)
• 20 NYCRR 527.2(a), (d), (e) (utility service tax; telephony/telegraphy; sales for resale)
• TSB-A-99(32)S (Sales Tax Solutions, June 24, 1999)
• TSB-A-98(12)S (Deloitte & Touche LLP, Feb. 27, 1998)
• TSB-A-94(33)S (Commonwealth Long Distance, Inc., July 29, 1994)
• TSB-H-83(57)S (Western Union Telegraph Company, Feb. 4, 1983)
• TSB-A-00(10)C (Metromedia Fiber Network, Inc., Apr. 21, 2000)
• Matter of Central Office Alarm Co., Inc., Dec St Tx Comm, Aug. 12, 1976, STH 76-25, aff'd 58 AD2d 162 (3d Dept 1977)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2005.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a05_32s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-05(32)S
Sales Tax
August 18, 2005

Office of Tax Policy Analysis
Technical Services Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S040609A

On June 9, 2004, the Department of Taxation and Finance received a Petition for
Advisory Opinion from AboveNet Communications, Inc., 360 Hamilton Avenue, 7th Floor,
White Plains, NY 10601.
The issue raised by Petitioner, Above Net Communications, Inc., is whether its monthly
charges to customers for the use of its fiber optic cable are subject to sales tax.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner, formerly known as Metromedia Fiber Network Services, Inc., is a Delaware
corporation doing business in New York. Its primary activity is leasing its fiber optic network to
commercial customers, such as banks and telecommunication service providers.
Petitioner’s fiber optic cable was installed by third party contractors and remains the
property of Petitioner. Customers have exclusive use rights, but not necessarily indefeasible
rights, and by agreement the customer may not sublease, swap, assign, license, sell or share the
use of Petitioner’s fiber optic cables. In addition, customers may not perform any repairs or
maintenance on the cables without the express written consent of Petitioner. Both a customer’s
origination and termination points may or may not be within New York, and the fiber cables
leased may or may not be within New York.
In the case of “dark” fiber optic cable, Petitioner physically provides cables which
connect to customers’ locations. However, Petitioner does not provide the equipment that is
necessary to “light” or activate the fiber optic cable for the transmission of communications.
Each end of the cable enters or exits the ground directly from or into a limited access, secured
(i.e., locked) box located in a building. Customers interconnect with the cable at those locations.
Customers may not gain access to the cable at any location other than the secured box even
though it might be accessible by Petitioner from a manhole or a handhole. Even if a customer
could gain access to the conduit housing the cable, the customer would be unable to identify its
cable because it would be grouped in with the many other cable strands that are allocated to other
customers. Thus, the fiber optic cable leased to a particular customer is part of a bundle of optic
cables. The cables are contained in conduit that is typically buried anywhere from 3 to 6 feet
underground.
Petitioner also offers Wavelength Division Multiplexing (WDM) services (“Lit
Services”) and Metro Ethernet services. These services provide increased bandwidth capacity
and private optical telecommunications networks to customers. For these services Petitioner
uses its own equipment to “light” the fiber optic cable strand for a customer, so that the cable

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may transmit communications. Petitioner lists this service on monthly invoices as “lit” Fiber,
Wavechannel, WDM Services, and/or Metro Ethernet, separate from its charges for “dark” fiber
sales.
Petitioner’s charges for “lit” and “dark” fiber are billed on a monthly, flat fee basis.
Petitioner does not distinguish in its billing between intrastate or interstate connections.
Applicable law and regulations
Section 1101(b) of the Tax Law provides, in part:
When used in this article for the purposes of the taxes imposed by subdivisions
(a), (b), (c) and (d) of section eleven hundred five and by section eleven hundred ten, the
following terms shall mean:
*

*

*

(4) Retail sale. (i) A sale of tangible personal property to any person for any
purpose, other than (A) for resale as such or as a physical component part of tangible
personal property, or (B) for use by that person in performing the services subject to tax
under paragraphs (1), (2), (3), (5), (7) and (8) of subdivision (c) of section eleven hundred
five where the property so sold becomes a physical component part of the property upon
which the services are performed or where the property so sold is later actually
transferred to the purchaser of the service in conjunction with the performance of the
service subject to tax. Notwithstanding the preceding provisions of this subparagraph, a
sale of any tangible personal property to a contractor, subcontractor or repairman for use
or consumption in erecting structures or buildings, or building on, or otherwise adding to,
altering, improving, maintaining, servicing or repairing real property, property or land, as
the terms real property, property or land are defined in the real property tax law, is
deemed to be a retail sale regardless of whether the tangible personal property is to be
resold as such before it is so used or consumed . . . .
*

*

*

(5) Sale, selling or purchase. Any transfer of title or possession or both, exchange
or barter, rental, lease or license to use or consume (including, with respect to computer
software, merely the right to reproduce), conditional or otherwise, in any manner or by
any means whatsoever for a consideration, or any agreement therefor, including the
rendering of any service, taxable under this article, for a consideration or any agreement
therefor. (Emphasis added)
Section 1105 of the Tax Law provides, in part:

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On and after June first, nineteen hundred seventy-one, there is hereby imposed
and there shall be paid a tax . . . upon:
(a) The receipts from every retail sale of tangible personal property, except as
otherwise provided in this article.
(b) (1) The receipts from every sale, other than sales for resale, of . . . (B)
telephony and telegraphy and telephone and telegraph service of whatever nature except
interstate and international telephony and telegraphy and telephone and telegraph
service. . . . (Emphasis added)
Section 1132(c)(1) of the Tax Law provides, in part:
For the purpose of the proper administration of this article and to prevent evasion
of the tax hereby imposed, it shall be presumed that all receipts for property or services of
any type mentioned in subdivisions (a), (b), (c) and (d) of section eleven hundred five . . .
are subject to tax until the contrary is established, and the burden of proving that any
receipt . . . is not taxable hereunder shall be upon the person required to collect tax or the
customer. . . .
Section 526.8 of the Sales and Use Tax Regulations provides, in part:
(a) Definition. The term tangible personal property means corporeal personal
property of any nature having a material existence and perceptibility to the human senses.
...
*

*

*

(c) Tangible personal property does not include:
(1) real property;
(2) intangible personal property.
Section 527.2 of the Sales and Use Tax Regulations provides, in part:
Sale of utility and similar services.
(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
(i) gas, electricity, refrigeration and steam, and gas, electric, refrigeration
and steam service of whatever nature; and

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(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.
(Emphasis added)
(3) A charge for installing equipment, such as transmission equipment, which a
gas, electric, or telephone or telegraph company makes, according to a tariff, to a real
property developer is deemed to be a charge for gas, electric, telephone or telegraph
service. The charge may be for reimbursement of the company's cost of doing the work
itself, or for the cost the company incurred in having a contractor perform the work.
*

*

*

(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.
*

*

*

Example 3: Message switching services, transmitted to a computer over lines
leased from a communication carrier are telegraph services subject to the tax
imposed under section 1105(b) of the Tax Law.
*

*

*

(5) The tax on utility services applies to every charge for any telephone and
telegraph service. Among these charges are monthly message rate and intrastate toll
charges and charges for special services, such as installation, change of location,
conference connections, tie-lines, WATS lines and the furnishing of equipment.

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Example 7: A telephone company installs station apparatus, owned by it, on the
premises of a customer. The installation is a service taxable under section 1105(b)
of the Tax Law.
*

*

*

(e) Sales for resale. Purchases of utility services by a utility for resale as such may
be made without payment of the sales tax. The purchaser must furnish the supplier of the
utility to be resold with a resale certificate (Form ST-120). When the utility services are
resold by the purchaser he must collect the sales tax on the receipts from his sales as
imposed under section 1105(b) of the Tax Law. A purchase of a utility service which is
not resold is subject to tax as a purchase at retail.
Opinion
Petitioner is a Delaware corporation doing business in New York. Its primary activity is
leasing the use of fiber optic cable to commercial customers such as banks and
telecommunication service providers.
The fiber was installed for Petitioner by third party contractors and remains the property
of Petitioner. Both a customer’s origination and termination points may or may not be within
New York, and the cable, or portions thereof, linking to a customer’s locations may or may not
be within New York. Each end of the cable enters or exits the ground directly from or into a
limited access, secured (i.e., locked) box located in a building. Customers interconnect with the
cable at those locations.
With “dark” fiber, Petitioner merely provides the physical cable used to connect to
customers’ locations. Petitioner does not provide the equipment that is necessary to “light” or
activate the fiber optic cable for the transmission of communications.
Petitioner also offers WDM services (“Lit Services”) and Metro Ethernet services. These
services differ from the provision of “dark” cable in that Petitioner uses its own equipment to
activate the fiber optic cable strand for a customer. Petitioner lists these services on its monthly
invoices as “lit” Fiber, Wavechannel, WDM Services, and/or Metro Ethernet, separate from its
charges for “dark” cable.
The sales tax on telephony and telephone service is imposed upon all telephone service of
whatever nature, except interstate service and sales for resale. The term telephony and
telegraphy encompasses the use or operation of any apparatus for transmission of sound, sound
reproduction or coded or other signals. Section 1105(b)(1) of the Tax Law, and section 527.2(d)
of the Sales and Use Regulations.

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Since Petitioner does not provide the equipment or energy source necessary to light the
fiber optic cable for the transmission of communications when selling the use of its “dark” cable,
Petitioner’s monthly charges to customers for their use of “dark” cable are not receipts from the
sale of telephone or telegraph services. Leases of telephone wires, where the telephone company
did not provide active telephone service over the leased wires, have been determined to be in the
nature of a lease of real property (See Matter of Central Office Alarm Co., Inc., Dec St Tx
Comm, August 12, 1976, STH 76-25, aff’d Central Office Alarm Co., Inc. v STC 58 AD2d 162
[3rd Dept 1977]). The purchase or lease of realty is not subject to the sales tax. (Sales Tax
Solutions, Adv Op Comm T&F, June 24, 1999, TSB-A-99(32)S). Therefore, Petitioner’s
monthly charges to customers for the use of “dark” cable are not charges for the provision of
telephone or telegraph services subject to sales tax imposed pursuant to section 1105(b)(1) of the
Tax Law.
The intention of section 1105(b)(1)(B) of the Tax Law is to tax telephone and telegraph
service of whatever nature, whether or not rendered by a company subject to regulation as a
utility company. See section 527.2(a)(2)of the Sales and Use Tax Regulations. The statutory
words "of whatever nature" indicate that a broad construction is to be given the terms describing
the items taxed. The charge by Petitioner to its customers for telephone and telegraph services
through the use of Petitioner’s “lit” fiber optic network is considered to be the sale of telephone
or telegraph service subject to tax imposed pursuant to section 1105(b)(1)(B). See Deloitte &
Touche LLP, Adv Op Comm T&F, February 27, 1998, TSB-A-98(12)S. The entire charge to the
customer for the use of Petitioner’s fiber optic network, including Petitioner’s expenses in
providing services across the network (i.e., equipment and energy costs necessary to “light” the
cable) is a charge for telephone services subject to sales tax, regardless of whether Petitioner
separately states charges for such components.
A telecommunications service both originating and terminating in New York is
considered to be intrastate telephone and telegraph service subject to the tax imposed under
section 1105(b)(1)(B) of the Tax Law regardless of whether the communications may be routed
through another state. (See Western Union Telegraph Company, Dec St Tx Comm, February 4,
1983, TSB-H-83(57)S.) Thus, charges to Petitioner’s customer for telephone and telegraph
services (Wavechannel, WDM, Metro Ethernet, etc.) connecting points within New York State
are subject to sales tax, regardless of the customer’s billing address. Separate charges for
interstate and international telephone service may be excluded from sales tax. To the extent
Petitioner fails to distinguish between intrastate, interstate and international telephone service,
the entire charge for the telephone service is subject to sales tax.
If Petitioner provides telephone service (i.e., use of its “lit” fiber optic network) to other
telecommunication service providers and Petitioner’s network becomes an integral component of
that provider’s overall telecommunication facilities, the provider’s purchase of such service is
not unlike the purchase of “leased lines” shared among telephone companies.
See
Commonwealth Long Distance, Inc., Adv Op Comm T&F, July 29, 1994, TSB-A-94(33)S;
Deloitte & Touche LLP, supra. Purchases by telecommunication service providers of telephone

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service from Petitioner could be purchases for resale that are not subject to sales tax. Such
purchasers should, as applicable, provide Petitioner with a properly completed Resale
Certificate, Form ST-120. See section 1132(c) of the Tax Law and section 527.2(e) of the Sales
and Use Tax Regulations.
It should be noted that Metromedia Fiber Network, Inc., Adv Op Comm T&F, April 21,
2000, TSB-A-00(10)C, contains language indicating that receipts from the rental of “dark” fiber
optic cable constitute receipts from the rental of tangible personal property for purposes of the
receipts factor of the business allocation percentage under section 210.3(a)(2) of Article 9-A of
the Tax Law. However, for purposes of the issues addressed in Metromedia Fiber Network,
supra, it was immaterial whether the “dark” optic cable was tangible personal property or real
property. The present Opinion has no effect on the legal conclusions reached in Metromedia
Fiber Network.

DATED: August 18, 2005

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

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