New York Advisory Opinion TSB-A-95(41)S: Is the monthly fee a video-playback facility charges a new cable channel for accepting, playing back, and feeding its programming to a satellite uplink -- to distribute the channel nationwide -- subject to New York sales and use tax?

Plain-English summary

MRG Production Associates, Inc. is exploring an agreement to provide videotape playback facilities and staff supporting a new cable television channel's ("Corporation A") 24-hour on-air operational needs, for which Petitioner would receive a monthly fee. Petitioner's Technical Operations Center ("TOC") -- the playback facility -- would accept pre-recorded videotaped materials delivered for later broadcast, as well as accept programs sent as electronic signals from a satellite, and play back both the pre-recorded and satellite-received programs. Petitioner would also be responsible for feeding these signals via fiber-optic circuits -- leased from NYNEX but paid for directly by Corporation A -- to a satellite uplink facility, leased from Home Box Office and also paid for directly by Corporation A, which distributes Corporation A's programming to cable system operators across the country carrying the channel.

The Department ruled the monthly fee is not subject to sales and use tax, applying its own earlier Showtime Entertainment opinion involving a comparable playback-and-uplink operation. That precedent established that electronic signals transmitted through such facilities are not "tangible personal property," so their transmission isn't a taxable sale under Tax Law § 1105(a); the operator also isn't providing a telegraph service or an information service within the meaning of the Tax Law by transmitting them. Applying the same reasoning to MRG's proposed arrangement: accepting pre-recorded tapes and satellite-fed programs for playback, and feeding the resulting signals into fiber-optic circuits and a satellite uplink facility that Corporation A itself leases and pays for directly, doesn't constitute the sale of tangible personal property. Nor does it amount to a telephone/telegraph service taxable under § 1105(b) -- Petitioner is "merely" feeding signals into transmission facilities leased by its own customer, not independently providing a common-carrier-type telecommunications service. And it doesn't fall within any of the enumerated services taxable under § 1105(c) either. So the entire monthly fee for the videotape playback facility and support staff falls outside New York State and local sales and use tax.

What this means for you

Video playback, transmission, and broadcast support facilities

If your service consists of accepting and playing back program content and feeding the resulting signals into transmission infrastructure that your CUSTOMER independently leases and pays for, that arrangement generally falls outside New York's tangible-property, telephone/telegraph, and enumerated-services sales taxes -- following the same reasoning New York applied to Showtime Entertainment's similar facility.

New cable channels and programmers structuring launch operations

Structuring your uplink and transmission-circuit leases directly in your own name (rather than having your playback vendor lease and re-bill them) may support the position that your vendor is "merely feeding signals" rather than independently providing a taxable telecommunications service -- a fact the Department specifically noted in this ruling.

Common questions

Q: Would the outcome change if MRG itself leased the fiber-optic circuits and uplink facility and billed Corporation A for that cost?
A: The ruling's reasoning emphasizes that Corporation A directly leases and pays for the fiber-optic circuits and satellite uplink facility, with Petitioner "merely" feeding signals into infrastructure it doesn't own or control -- a different structure where the playback vendor itself leases and controls the transmission path could potentially invite a different analysis, though this opinion doesn't address that scenario.

Q: Does creating or editing some of the program content (rather than just playing it back) change the tax treatment?
A: The Showtime Entertainment precedent this ruling relies on involved programs "partially or totally created by" the facility operator and still found no tax applied -- so program creation alone doesn't appear to change the analysis, based on the precedent cited.

Q: Why isn't this treated as a taxable information or telecommunications service?
A: Because transmitting electronic signals through a playback-and-uplink facility doesn't involve collecting, compiling, or analyzing information (the hallmark of a taxable information service) or providing telephone/telegraph transmission as a service in itself -- it's characterized as merely relaying content into transmission infrastructure the customer already controls.

Citations and references

Statutes and regulations:

• Tax Law § 1105(a) (retail sale of tangible personal property tax)
• Tax Law § 1105(b) (telephony/telegraph service tax)
• Tax Law § 1105(c) (enumerated services tax)

Prior rulings and cases referenced:

• Showtime Entertainment, Advisory Opinion, State Tax Commission, December 18, 1981, TSB-A-81(70)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1995.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a95_41s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-95 (41)S
Sales Tax
October 30, 1995

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S941205A

On December 5, 1994, a Petition for Advisory Opinion was received from MRG Production
Associates, Inc., 2 Floyd Lane, Massapequa, New York 11762.
The issue raised by Petitioner, MRG Production Associates, is whether the monthly fee
received by Petitioner for providing videotape playback facilities and support staff for a new cable
television channel's (hereinafter "Corporation A") 24 hour on-air operational needs is subject to sales
and use taxes.
Petitioner is exploring the possibility of entering into an agreement with Corporation A.
Petitioner will provide videotape playback facilities and staff to support Corporation A's 24 hour on­
air operational needs for which Petitioner will receive a monthly fee.
The role of Petitioner's Technical Operation's Center (the "playback facility", hereinafter
referred to as the "TOC") will be to accept videotaped pre-recorded materials delivered to its portals,
for later broadcast, as well as to accept programs in the form of electronic signals fed to Petitioner's
TOC from a satellite and thereafter performing the function of playing back these pre-recorded and
satellite received programs. In addition, Petitioner's responsibility will be to feed these signals via
fiber-optic circuits (leased from NYNEX and paid for directly by Corporation A) to a satellite uplink
facility (leased from Home Box Office and paid for directly by Corporation A) for the purpose of
distributing Corporation A's programming to the numerous cable television system operators
throughout the country who wish to carry the channel.
Section 1105(a) of the Tax Law imposes a sales tax on "[t]he receipts from every retail sale
of tangible personal property, except as otherwise provided."
Section 1105(b) of the Tax Law imposes a sales tax on "[t]he receipts from every sale, other
than sales for resale,...of telephony and telegraph and telephone and telegraph services..."
Section 1105(c) of the Tax Law imposes tax upon the receipts from every sale, except for
resale, of certain enumerated services.
In Showtime Entertainment, Adv Op St Tx Comm, December 18, 1981, TSB-A-81(70)S the
Tax Commission advised that electronic signals transmitted by the petitioner's playback and uplink
facilities were not tangible personal property, and, therefore, transmission of such signals by the
petitioner to a satellite for broadcast purposes was not a taxable sale of tangible personal property
under Section 1105(a) of the Tax Law. Further, the Tax Commission advised that in transmitting
such signals, the petitioner was neither providing a telegraph service nor an information service
within the meaning of the Tax Law. Accordingly, the Showtime's transmission of programs,

-2­
TSB-A-95 (41)S
Sales Tax
October 30, 1995
partially or totally created by it, over its own playback and uplink facilities were, therefore, not
subject to State and local sales and use taxes.
In the instant case, Petitioner will accept videotaped pre-recorded materials for later
broadcast, as well as accept programs in the form of electronic signals fed to Petitioner's TOC from
a satellite and play back these pre-recorded and satellite received programs. In addition, Petitioner's
responsibility will be to feed these signals via fiber-optic circuits to a satellite uplink facility (leased
from Home Box Office and paid for directly by Corporation A) for the purpose of distributing
Corporation A's programming to cable television system operators throughout the country who will
carry the channel.
Accordingly, pursuant to Showtime Entertainment, supra, the accepting by Petitioner of
videotaped pre-recorded materials for later broadcast, accepting of programs in the form of electronic
signals fed to Petitioner's TOC from a satellite for playback, as well as, Petitioner's responsibility to
feed these signals via fiber-optic circuits (leased from NYNEX and paid for directly by Corporation
A) to a satellite uplink facility (leased from Home Box Office and paid for directly by Corporation
A) for the purpose of distributing Corporation A's programming to cable television system operators
throughout the country who will carry the channel will not constitute the sale of tangible personal
property. Further, in transmitting such signals, Petitioner will not be providing a telephone and
telegraph service within the meaning of Section 1105(b) of the Tax Law or an information service
within the meaning of Section 1105(c) the Tax Law. Petitioner will merely feed signals to the
transmission facilities leased by its customers. Therefore, the providing by Petitioner of a videotape
playback facility and support staff for Corporation A to meet its 24 hour on-air operational needs as
set forth above will not constitute the sale of tangible personal property, subject to State and local
sales and use taxes under Section 1105(a) of the Tax Law, a telephone and telegraph service subject
to sales tax under Section 1105(b) of the Tax Law, or one of the enumerated services subject to sales
and use taxes under Section 1105(c) of the Tax Law.

DATED: October 30, 1995

/s/
Doris S. Bauman
Director
Technical Services Bureau

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