New York Advisory Opinion TSB-A-10(10)C: Is a provider of one-way and two-way paging services subject to the section 184 franchise tax on local telephone business?

Plain-English summary

The petitioner provides one-way and two-way paging services. It asked whether it owes the section 184 franchise tax, which applies to a corporation formed for or principally engaged in local telephone business.

The Department said no. A corporation is principally engaged in an activity only if more than 50% of its receipts come from it. 'Local telephone business' means telecommunication services that are either carrier access service or services that originate and terminate within the same LATA. Paging is a telecommunication service (Tax Law § 186-e.1(g)), but it is not carrier access service (it doesn't give other carriers access to a network to complete calls). And the petitioner is not principally engaged in intra-LATA paging: its FCC licenses are largely nationwide/regional, none confined to a single LATA, and less than seven percent of its traffic originates and terminates within New York -- far below the 50% threshold. So it is not principally engaged in local telephone business and is not subject to the § 184 tax.

What this means for you

Wireless, paging, and niche telecom providers

Being a 'telecommunication service' does not by itself trigger the § 184 local-telephone tax. That tax reaches only providers principally (over 50% of receipts) in carrier access or intra-LATA service. Geographically dispersed services -- like wide-area paging -- usually fall outside it.

Accountants and tax professionals

Measure the receipts split: carrier-access plus intra-LATA must exceed 50% to be 'principally engaged.' Document license footprints and traffic origination/termination; here the sub-7% intra-LATA New York traffic was decisive.

Common questions

Q: Is a paging provider subject to the section 184 tax?
A: No, if it isn't principally engaged in local telephone business -- carrier access or intra-LATA service exceeding 50% of receipts.

Q: Isn't paging a telecommunication service?
A: Yes (Tax Law § 186-e.1(g)), but that label alone doesn't make it 'local telephone business' for section 184.

Q: What made the difference here?
A: No carrier access service and less than 50% of receipts (under 7% of traffic) from intra-LATA service within New York.

Citations and references

• Tax Law § 184.1 (franchise tax on corporations formed for or principally engaged in local telephone business)
• Tax Law § 186-e.1(g) (definition of telecommunication services, applied to section 184)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2010.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a10_10c.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-10(10)C
Corporation Tax
August 19, 2010

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C100409B

The petition asks whether Petitioner is subject to corporate franchise taxation imposed by section
184 of the Tax Law. We conclude that it is not.
Facts
Petitioner is a provider of one-way and two-way paging using its nationwide radio networks,
independent from the Public Switched Telephone Network (PSTN). Petitioner’s customers use one-way
numeric display and both one-way and two-way paging devices with text display. Two-way devices feature
full keypads. The services can be used to receive messages and two-way devices are capable of initiating text
messages. The two-way service is often used within organizations (such as medical, business or government
entities), and allows direct, near real-time, two-way text communications among users within that
organization. This aspect of the service is provided entirely over Petitioner's Commercial Mobile Radio
Service (CMRS) network, and does not use the PSTN. The service can also be used to receive inbound
pages from persons outside the organization. The inbound pages are received from users of the internet and
the PSTN at one of Petitioner's paging terminals. All of Petitioner’s PSTN interconnection arrangements
with its paging terminals support inbound call termination only; the paging terminal is incapable of initiating
any outbound calls. Once a message is received by the paging terminal, the PSTN user's call is terminated,
and, a DATA transmission is initiated between the paging terminal and the recipient's paging device over
Petitioner's CMRS network. The paging devices do not allow voice communications and do not allow the
user to call a phone number associated with the PSTN. Petitioner's paging devices are not capable of dialing
a phone number, including 911.
Petitioner’s paging services are licensed and regulated by the Federal Communications Commission
on an almost exclusively interstate basis. The FCC licenses governing these paging services are
predominantly nationwide, regional or for a major economic area. Petitioner describes these “MEAs” as
roughly equivalent in size to a county-wide license. According to Petitioner, none of the FCC service area
channels are confined within any one local access and transport area (“LATA”). Petitioner also submits that
an operational review of average traffic patterns of Petitioner’s customers who have billing addresses in New
York State concludes that less than seven percent of Petitioner’s paging traffic originates and terminates
within New York State.
Analysis
As relevant here, section 184.1 of the Tax Law provides that a corporation is subject to the franchise
tax under Section 184 for the privilege of exercising its corporate franchise, doing business, employing
capital, owning or leasing property in a corporate or organized capacity or maintaining an office, in
New York State, if it is formed for or principally engaged in local telephone business. A corporation is
“principally engaged” in the activity from which more than 50 percent of its receipts are derived. See, e.g.,
Marken Properties, Inc., TSB-A-97(37)S. The term “local telephone business” means the provision or
furnishing of telecommunication services for hire where the service furnished by the provider consists of
carrier access service or the service originates and terminates within the same LATA.

-2-

TSB-A-10(10)C
Corporation Tax
August 19, 2010

The term "telecommunication services" has the same meaning for purposes of section 184 as for
section 186-e of the Tax Law. Section 186-e.1(g) of the Tax Law defines "telecommunication services" as
"telephony or telegraphy, or telephone or telegraph service, including, but not limited to, any transmission of
voice, image, data, information and paging, through the use of wire, cable, fiber-optic, laser, microwave,
radio wave, satellite or similar media or any combination thereof and shall include services that are ancillary
to the provision of telephone service ... and also include any equipment and services provided therewith.”
LATAs are the local geographical areas in the U.S. within which a local telephone company may
offer telecommunications services of local telephone service networks. LATAs were established pursuant to
the Modification of Final Judgment in U.S. v. Western Electric Co. (552 F.Supp. 131 (DDC 1982)) for the
purpose of regulating wire line telecommunications service providers. The LATA boundaries determine
which phone companies can provide local and toll service for each area.
The paging service Petitioner provides is a telecommunication service. However, it is not carrier
access service. Carrier access service generally is service provided to long distance carriers to connect to the
local networks at each end of a long distance transmission to complete a call. Petitioner’s service does not
provide other carriers with access to its network, nor is it used by the other carriers to complete a
transmission to the other carrier’s customers.
The remaining issue here is whether Petitioner is principally engaged in paging services that
originate and terminate within the same LATA. The FCC licenses governing these paging services are
predominantly nationwide, regional or for a major economic area. Petitioner describes these “MEAs” as
roughly equivalent in size to a county-wide license. According to Petitioner, none of the FCC service area
channels are confined within any one LATA. Less than seven percent of Petitioner’s paging traffic
originates and terminates within New York State. Even if a portion of the paging services is intra-LATA,
Petitioner is not “principally engaged” in intra-LATA paging activities because less than 50 percent of its
receipts is derived from these activities.
Petitioner is not principally engaged in local telephone business, because Petitioner is not principally
engaged in carrier access service and/or intra-LATA service. Accordingly, Petitioner is not subject to tax
imposed by Tax Law section 184.

DATED: August 19, 2010

NOTE:

/S/
Jonathan Pessen
Director of Advisory Opinions
Office of Counsel

An Advisory Opinion is issued at the request of a person or entity. It is limited to the
facts set forth therein and is binding on the Department only with respect to the
person or entity to whom it is issued and only if the person or entity fully and
accurately describes all relevant facts. An Advisory Opinion is based on the law,
regulations, and Department policies in effect as of the date the Opinion is issued or
for the specific time period at issue in the Opinion.