NY TSB-A-16(32)S Sales Tax 2016-12-02

Is a cable companys charge to extend its broadband network to a rural property a taxable capital improvement?

Short answer: No, and not for the reason asked. The customer paid a $15,000 contribution in aid of construction so the cable company would build 6/10 mile of coaxial cable (owned by the cable company) to bring broadband to the customers rural property. That charge is not for a service to real property and so is not a taxable capital improvement charge. But it also is not separately taxable: it is simply an up-front part of the cable companys receipts for providing broadband Internet access service, and Internet access receipts (including start-up charges) are exempt from sales tax under Tax Law section 1115(v). So the charge is not subject to sales tax.

Disclaimer: This is an official New York State Department of Taxation and Finance Advisory Opinion (TSB-A), issued by the Office of Counsel at a taxpayer's request. It is limited to the facts set forth in it and binds the Department only with respect to the petitioner to whom it was issued, and only if that petitioner fully and accurately described all relevant facts; another taxpayer cannot rely on it. It reflects the law, regulations, and Department policy in effect when issued and may since have changed. Taxpayer-identifying details are redacted. New York State and local sales taxes are administered centrally by the Department. This summary is informational only and is not legal or tax advice. Consult a licensed New York tax professional about your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked at the bottom of this page, or PDF in the sidebar) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

A business in a rural area wanted broadband but its property wasnt yet served. The cable company agreed to extend its network — building 6/10 mile of coaxial cable (which the cable company owns) — and charged the customer a $15,000 contribution in aid of construction (the franchise lets it charge this where it extends service outside its primary area to low-density areas). The customer can be partly reimbursed if neighbors connect within five years. The customer asked whether this was a taxable capital improvement charge.

The Office of Counsel concluded the charge is not taxable:

It is not a service to real property, so it is not a charge for a capital improvement to real property.
Instead, the contribution is an up-front part of the cable companys receipts for providing broadband Internet access service (20 NYCRR 526.5(e)) — the contract was for broadband service only, and the extension just lets the company deliver that service.
Internet access service receipts, including start-up charges, are exempt from sales tax (Tax Law section 1115(v)). So the charge is not subject to sales tax.

What this means for you

Customers paying to get connected

A line-extension or hookup fee that is really part of getting your Internet access turned on is not taxable — Internet access (including start-up charges) is exempt. Dont let a charge labeled construction make you assume it is a taxable capital improvement.

Cable / broadband providers

Charges that are part of providing Internet access ride on the Internet-access exemption, even when framed as a contribution in aid of construction for network the provider keeps owning. The label matters less than the substance — here, the contract was for broadband service only.

Common questions

Q: I paid for cable to be physically built — isnt that a capital improvement to my property?
A: No. The cable company owns the line, and the charge is not a service to your real property; it is part of providing you Internet access.

Q: Why isnt the construction charge taxable on its own?
A: Because it is part of the receipts for Internet access service, and Internet access (including start-up charges) is exempt under Tax Law section 1115(v).

Q: Can I rely on this opinion?
A: It binds the Department only as to the petitioner. Use it as guidance and confirm your own facts.

Citations and references

Tax Law section 1105(c)(5) (tax on maintaining/servicing/repairing real property)
Tax Law section 1115(v) (exemption for Internet access service, including start-up charges)
Tax Law section 1101(b)(5) (definition of sale)
20 NYCRR 526.5(e) (expenses of providing a service are part of receipts)

Source

Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2016.htm
Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a16_32s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-16(32)S
Sales Tax
December 2, 2016

Office of Counsel

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S160104A

The Department of Taxation and Finance received a Petition for an Advisory Opinion from
REDACTED REDACTED REDACTED REDACTED REDACTED REDACTED (“Petitioner”).
Petitioner asks whether a charge by a cable company for the cabling needed to extend broadband service to
property located outside of the cable company’s “primary service area,” constitutes a charge for a capital
improvement to real property. We conclude that such charge is not a charge for a service to real property
and, thus, not a charge for a capital improvement of such. However, we also find that this charge is part of
the cable company’s receipts for the provision of broadband access service and, as such, conclude that it is
not subject to New York State and local sales tax.
Facts
Petitioner operates a business in a relatively rural area of the State. In December 2015, Petitioner
sought to obtain broadband service for use by this business. However, the property that Petitioner’s
business is located on (Petitioner’s property) was not serviced by the local cable company at the time.
Petitioner therefore entered into a “Contract for Service” with the cable company for the provision of
broadband service, whereby the cable company agreed to extend its network to Petitioner’s property.
According to this contract, which is for broadband service only, this extension (which is owned by the
cable company) involved “the construction of 6/10 mile of coaxial cable plant,” and it required Petitioner
to pay a “contribution in aid of construction” of $15,000.00 plus sales tax ($16,200.00 total) for it. The
cable company is authorized to charge this “contribution in aid of construction” by its franchise agreement
with the town where Petitioner’s property is located, which allows such a charge when service is extended
to properties, like Petitioner’s, that are located both outside the cable company’s primary service area and
in an area where there is a population density of fewer than 20 homes per mile. However, to the extent
that others in the area connect to the extension in the five years following the completion of work, the
contract entitles Petitioner to a reimbursement of this cost in an amount calculated pursuant to a pre-set
formula.
Analysis
Sales tax applies to the receipts from every retail sale of tangible personal property (TPP), unless a
specific exemption applies, and the receipts from every sale, except sales for resale, of certain enumerated
services, including the maintenance, servicing or repair of real property. See Tax Law §§ 1105(a),(c)(5).
Sales tax also applies to the receipts from every sale, other than sales for resale, of certain utilities. See

TSB-A-16(32)S
Sales Tax
December 2, 2016

-2-

Tax Law §§ 1105(b). “Sale” is defined, in pertinent part, as “[a]ny transfer of title or possession or both,
exchange or barter, rental, lease or license to use or consume . . . for a consideration, or any agreement
therefor.” Tax Law § 1101(b)(5). Receipts from the sale of Internet access service, however, including
start-up charges and charges for the use of such service, are exempt from sales and use tax. See Tax Law §
1115(v); TSB-A-09(60)S.
In this case, Petitioner was charged a “contribution in aid of construction” for the extension of a
cable system that will be owned by the cable company and used by it to provide broadband service to
Petitioner’s property. In addition, while this charge is something that must be paid upfront by Petitioner,
it is a charge that may be reimbursed “should others wish to connect service to [the] extension” in the
future (i.e., within a five-year period).
Under these circumstances, this “contribution in aid of
construction” appears to be an up-front charge for an expense that the company will incur to provide
broadband service to Petitioner’s property. As such, and because Petitioner’s contract with the cable
company is for the provision of broadband service only, this charge is not for the purchase of TPP, a
taxable service (including a service to real property), or for a capital improvement to real property. Rather,
it is part of the cable company’s receipts for the provision of internet access service (see 20 NYCRR §
526.5[e]). Accordingly, we find that the charge paid by Petitioner for the extension of the cable
company’s network to his property for the purpose of providing broadband service is not subject to sales
tax.

DATED: December 2, 2016

/S/
DEBORAH R. LIEBMAN
Deputy Counsel

NOTE:

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. The
information provided in this document does not cover every situation and is not intended to
replace the law or change its meaning.