Is a common carrier's satellite up-linking and down-linking of television signals taxable telephony/telegraphy, and is its transmission equipment exempt?

Plain-English summary

Satellite Signals Unlimited, Inc. is a common carrier of television programs and signals. It transmits signals to and receives them from satellites (up-linking and down-linking), and charges the originator or recipient of a signal for that service. It asked about the sales tax status of both the service and the equipment it uses.

The Department held the transmission service is taxable telephony/telegraphy, subject to the usual resale and interstate exceptions, and the transmission equipment is exempt.

• The service is "telephony and telegraphy." Section 1105(b) taxes telephony and telegraphy — the transmission of intelligence to a distant point by means of electricity — where the provider acts as a mere conduit, carrying others' messages (Quotron Systems v. Gallman). It makes no difference whether the sender or receiver buys the service (N.Y. Quotation Co. v. Bragalini). A common carrier of TV signals is doing exactly that, so its service is taxable telephony/telegraphy.
• It is not cable television. Cable TV is not taxed as telephony because, although a signal is transmitted, the essential object is entertainment or enjoyment (Cable TV v. Tax Comm. of N.Y.). A pure signal carrier is different — its object is the transmission itself.
• Resale and interstate/international are excepted. The receipts are taxable except where the service is purchased for resale or is interstate or international. Note: a cable company that buys this intermediary transmission to acquire programming is not buying for resale, because the transmission service itself is not being resold.
• The equipment is exempt. Telephone/telegraph central office equipment and station apparatus used directly and predominantly in receiving at destination, initiating, or switching communication is exempt when purchased or leased by the vendor of the service for sale (§ 1115(a)(12); 20 NYCRR 528.13(f)(1)).

What this means for you

Carrying a signal from point to point is taxable telephony — even if what's carried is a TV program. New York looks at what the service is: a conduit transmitting intelligence is telephony/telegraphy, regardless of the content. The entertainment-based cable-TV exemption doesn't reach a pure signal carrier.

Buying transmission to build your own programming isn't "resale." A downstream provider (like a cable operator) that purchases intermediary transmission is consuming a service, not reselling it — so it can't use a resale certificate for that purchase. Interstate and international transmission, however, is outside the tax.

Transmission-vendor equipment can be bought exempt. Central-office equipment and station apparatus used directly and predominantly in receiving, initiating, or switching the communication is exempt when the service vendor buys or leases it to provide the service.

Common questions

Q: I up-link and down-link TV signals as a carrier. Is my charge taxable?
A: Yes, generally — it's taxable telephony/telegraphy under § 1105(b). It's exempt only when the service is purchased for resale or is interstate/international.

Q: Isn't this like cable TV, which is exempt?
A: No. Cable TV escapes telephony tax because its essential object is entertainment. A signal carrier's object is the transmission itself, so it's taxed as telephony.

Q: If I'm a cable operator buying this transmission, can I claim resale?
A: No. Buying intermediary transmission to acquire programming isn't a purchase for resale — the transmission service isn't being resold.

Citations and references

Statutes:

• Tax Law § 1105(b) — tax on telephony and telegraphy and telephone/telegraph service, except interstate/international
• Tax Law § 1115(a)(12) — exemption for telephone central office equipment/station apparatus used directly and predominantly in transmission

Regulations:

• 20 NYCRR 527.2(d)(2), (d)(3), (d)(4) — definition/scope of telephony and telegraphy; cable-television treatment
• 20 NYCRR 528.13(f)(1) — central-office-equipment exemption for service vendors

Cases and authorities:

• Cable TV v. Tax Commission of N.Y., 88 Misc. 2d 601, aff'd 59 A.D.2d 81
• Quotron Systems v. Gallman, 39 N.Y.2d 428
• N.Y. Quotation Co. v. Bragalini, 7 A.D.2d 586
• 74 Am. Jur. 2d, Telecommunications § 1; TSB-M-80(18)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1984.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a84_26s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-84(26)S
Sales Tax
October 15, 1984

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S820504A

On May 4, 1982 a Petition for Advisory Opinion was received from Satellite Signals
Unlimited, Inc., 2077 Elmwood Avenue, Buffalo, New York 14207.
The issue raised is the sales tax status of the service provided by a common carrier of
television programs and signals, and of the equipment utilized to provide such service.
Petitioner describes its operation as follows: "Satellite Signals is a common carrier of TV
programs and signals. Virtually all of the services performed by Satellite Signals are for delivery
outside of New York State and/or for resale. Signals are transmitted to and received from satellites.
Occasionally, television signals are received on ground lines and up-linked to a satellite. The
originator of a signal or the recipient of a signal pays Satellite Signals a fee for the up-linking or
down-linking services. Assume, for example, that a particular customer wants to receive a particular
signal. Satellite Signals has down-linking equipment which it uses to pick up the signal from the
satellite. Satellite Signals charges its customer a fee for these services."
Section 1105(b) of the Tax Law imposes a sales tax upon: "The receipts from every sale,
other than sales for resale . . . . of telephony and telegraphy and telephone and telegraph service of
whatever nature except interstate and international telephony and telegraphy and telephone and
telegraph service."
Section 1115(a)(12) of the Tax Law provides for an exemption from sales and use taxes with
respect to "telephone central office equipment or station apparatus or comparable telegraph
equipment for use directly and predominantly in received at destination or initiating and switching
telephone or telegraph communication."
The Sales and Use Tax Regulations define the term "telephony and telegraphy" to include
"use or operation of any apparatus for transmission of sound, sound reproduction or coded or other
signals." 20 NYCRR 527.(d)(2). The term does not apply to a service which is essentially something
other than telephony and telegraphy, although telephony and telegraphy may figure as an incidental
element of the service. 20 NYCRR 527.2(d)(4). The tax on the sale of telephony and telegraphy is
thus not applicable to the receipts of cable television companies, because, while as an incident to the
service provided there may be telegraphic or telephonic transmission of a signal, the essential object
of the service is to provide "entertainment or enjoyment." Cable TV v. Tax Comm of N.Y., 88 Misc.
2d 601, aff'd 59 AD 2d 81. (It is to be noted that in the discussion of cable television in 20 NYCRR
527.2(d)(3), the reference to the exempt distribution of cable television programs is a reference to
distribution to the ultimate consumer.)

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-84(26)S
Sales Tax
October 15, 1984

As suggested by the regulation provision cited above, the essence of telephony and telegraphy
is the transmission of "intelligence to a distant point by means of electricity." 74 AM Jur 2d,
Telecommunications §1. Also critical to the concept is the role of the purveyor of telephony and
telegraphy as "a mere conduit, transmitting to third-party recipients messages given it by various
originators." Quotron Systems v. Gallman, 39 N.Y. 2d 428; Technical Services Bureau
Memorandum, TSB-M-80(18)S. Further, it makes no difference to the question whether the sender
or receiver of the transmission purchases the service. Mtr. of N.Y. Quotation Co. v. Bragalini, 7 AD
2d 586.
A common carrier of television signals, such as Petitioner, is engaged in the transmission of
intelligence from one point to another, acting in this role as a mere conduit, and its services therefore
constitute the sale of "telephony or telegraphy" within the meaning of the statute. The receipts from
such service are subject to tax except where the service is purchased for resale or where the service
is performed on an interstate or international basis. It is to be noted that where the service is
purchased, for example, by a cable TV company which thus acquires programming which it delivers
to its customers, such purchase would not be one for resale inasmuch as the service of intermediary
transmission is not being resold.
With respect to Petitioner's equipment purchases, the following applies:
Telephone and telegraph central office equipment and station apparatus, used directly and
predominantly in receiving at destination, initiating or switching telephone and telegraph
communication is exempt, when such equipment and apparatus is purchased or leased by the vendor
of such service for sale. 20 NYCRR 528.13(f)(1)

DATED: April 16, 1984

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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