Are a transmission company's microwave/satellite signal-delivery services, sold to cable TV operators and public TV stations, excluded from the section 186-e telecommunications excise tax as 'cable television service' or as a 'sale for resale'?

Plain-English summary

EMI Communication Corp. is a transmission company that sells voice, data and video transmission over its own microwave facilities plus leased capacity (including satellite). Among its services is the satellite/microwave distribution of distant TV signals to cable television operators and the transmission of programming to public television stations for broadcast. The question: are these services excluded from the section 186-e telecommunications excise tax, either as "cable television service" or as a "sale for resale"?

No. Delivering signals by microwave, satellite and similar media is a "telecommunication service" (section 186-e.1(g)) and makes EMI a "provider of telecommunication services" (186-e.1(e)). Neither exclusion applies:

• Cable television service exclusion (186-e.2(b)(2)) -- This covers transmitting programs to subscribers; relying on NY State Cable Television Assn and Capitol Cablevision, cable TV is an entertainment service, and EMI's customers (not EMI) provide that service. EMI does not transmit programs to subscribers or provide TV entertainment, so it is not providing cable television service.
• Sale-for-resale exclusion (186-e.2(b)(1)) -- This requires the buyer to resell telecommunication services. EMI's customers provide cable television service, not telecommunication service, so they are not reselling telecommunication services.

What this means for you

Signal delivery by microwave/satellite is a taxable telecommunication service

Transmitting voice, image, data or video through wire, cable, fiber, microwave, satellite or similar media is squarely within the section 186-e definition, regardless of who the customer is.

Selling to a cable operator is not automatically exempt

The cable television exclusion belongs to the company that transmits programs to subscribers as entertainment. A vendor that merely carries the signal to that company is taxable.

"Resale" means resale of the same kind of service

Because the cable operator's output (cable television service) is a different, excluded service, the upstream signal delivery is not a tax-free sale for resale.

Common questions

Q: Is delivering TV signals to a cable company taxable under section 186-e?
A: Yes. It is a telecommunication service, and neither the cable-service nor the resale exclusion applies.

Q: Why isn't this 'cable television service'?
A: That exclusion is for transmitting programs to subscribers as entertainment -- what the cable operator does, not what its signal supplier does.

Q: Why isn't it a sale for resale?
A: The customer resells cable television service, which is itself excluded from the tax -- so it is not reselling a telecommunication service.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 186-e.2(a) (excise tax on the sale of telecommunication services by a provider)
- Tax Law section 186-e.1(e) (provider of telecommunication services)
- Tax Law section 186-e.1(g) (telecommunication services -- transmission of voice, image, data via wire, cable, fiber, microwave, satellite, etc.)
- Tax Law section 186-e.2(b)(1) (sale-for-resale exclusion -- requires resale as telecommunication services)
- Tax Law section 186-e.2(b)(2) (cable television service exclusion -- transmitting programs to subscribers)
- New York State Cable Television Assn v State Tax Comm, 59 AD2d 81 (cable TV is entertainment, not telephony/telegraphy); Capitol Cablevision Systems, TSB-D-88(3)C

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a96_6c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (6) C
Corporation Tax
February 28, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C950913A

On September 13, 1995, a Petition for Advisory Opinion was received from EMI
Communication Corp., 5015 Campuswood Drive, E. Syracuse, New York 13057.
The issue raised by Petitioner, EMI Communication Corp., is whether Petitioner's services
which are sold to cable television operators and public television stations are excluded from the
excise tax imposed under section 186-e of the Tax Law.
Petitioner is a transmission company that sells voice, data and video transmission services
to customers in both the public and private sectors. Petitioner owns and operates microwave
facilities to perform these services and supplements this with the use of networks and other leased
capacity (e.g. satellite capacity).
Among the services sold by Petitioner is the satellite distribution of distant television signals
to cable television operators in the northeastern United States and Canada, including cable television
operators in New York. The cable television operators, in turn, transmit the television signals to
their customers. The cable television operators pay monthly fees to Petitioner for this service based
on the number of their customers.
Petitioner also provided, in the past, services to the New York statewide public television
network, and may provide similar services again in the future. These services have included the
transmission of regularly scheduled public television programs on a daily basis to New York public
television stations so the programming could be broadcast publicly. This service by the Petitioner
for the public television stations was done primarily by microwave transmission. The public
television stations paid fixed monthly fees for this service.
Section 186-e.2(a) of the Tax Law imposes an excise tax "on the sale of telecommunication
services by any person which is a provider of telecommunication services .... "
Section 186-e.l(e) of the Tax Law defines "provider of telecommunication services" as "any
person who furnishes or sells telecommunications services regardless of whether such activities are
the main business of such person or are only incidental thereto."
Section 186-e.l(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 .... "

-2­
TSB-A-96 (6) C
Corporation Tax
February 28, 1996

Section 186-e.2(b)(1) and (2) of the Tax Law provides an exemption from the tax imposed
under section 186-e of the Tax Law for "sale for resale" and "cable television service" as follows:
(1) Sale for resale exclusion. There shall be excluded from the tax imposed
by this section the sale of telecommunication services to a provider of
telecommunication services which is an interexchange carrier or a local carrier where
such services are purchased by such provider for resale as telecommunication
services to its purchasers. For any other sale of telecommunication services resold
as such, the credit allowed in [section 186-e.4(a)(1)] shall be allowed.
(2) Cable television service exclusion. The sale of cable television service
shall in no event constitute a telecommunications service, and the receipts from the
sale of such service are without the scope of the tax imposed by this section. The
provision of such service shall mean the transmitting to subscribers of programs
broadcast by one or more television or radio stations or any other programs originated
by any person by means of wire, cable, microwave or any other means.
The exclusion for cable television service was created to reinforce the New York case and
administrative law classification of cable television as a service not included within the classification
of telephony or telegraphy. Letter of Commissioner of Taxation and Finance, June 7, 1995,
Governor's Bill Jacket, L 1995, ch 2. In New York State Cable Television Association v State Tax
Comm (59 AD2d 81, affg 88 Misc 2d 601), the Court analyzed the cable television business for sales
tax purposes. The Court concluded that the nature of cable television service was entertainment, not
telephony or telegraphy which was characterized as an incidental aspect of the service provided.
Cable television was described as:
a system of transmitting the television broadcast signal. The classic cable television
system consists of a tall master antenna, trunk lines, feeder lines and drop lines. The
antenna receives various broadcast signals which are then processed and prepared for
transmission by processing equipment located in a control station at the foot of the
tower. At the control station, headend, the signal is brought up to maximum strength
and clarity. The processed signal is then transmitted through large coaxial cables
(trunk lines) connected to the headend. Branching off the trunk lines are smaller
cables known as feeder lines and even smaller cables called drop lines. The
processed signal is transmitted through the trunk, feeder and drop lines to the
individual subscriber's television set. Subscribers pay an installation charge to have
their set hooked to the system, and thereafter pay a monthly service charge. In
addition to receiving and transmitting the broadcast signal of another, some cable
television companies are originating television programs on their own.

-3­
TSB-A-96 (6) C
Corporation Tax
February 28, 1996

In the Matter of Capitol Cablevision Systems. Inc., Dec Tax App Trib, June 9, 1988, TSB-D­
88(3)C, the Tribunal, relying on the cable television classification analysis contained in New York
State Cable Television, supra, concluded that Capital Cablevision's business "is selling television
entertainment to its subscribers by packaging television signals which in its judgment represent the
best blend of channels and subject matter to achieve its goal of attracting and keeping subscribers.
[Capitol Cablevision] originates programming towards this same goal. Transmission is merely the
means by which [Capitol Cablevision] conveys its product to its customers, it is not the [capitol
Cablevision's] business."
Petitioner is a transmission company that is selling voice, data and video transmission
services to its customers which are cable television operators and public television stations.
Petitioner owns and operates microwave facilities to perform these services and supplements this
with the use of networks and other leased capacity (e.g. satellite capacity.) Accordingly, the services
provided by Petitioner constitute telecommunication services as described in section 186-e.l(g) of
the Tax Law and Petitioner is a provider of telecommunication services as described in section 186­
e.l(e) of the Tax Law.
Based on the analysis in New York State Cable Television, supra, and Capitol Cablevision,
supra, Petitioner's activities do not constitute the transmitting of programs to subscribers and
Petitioner is not providing television entertainment to its customers. Therefore, Petitioner is not
providing cable television service as contemplated in section 186-e.2(b)(2) of the Tax Law.
Accordingly, Petitioner's sale of telecommunication services to cable television operators and public
television stations is not exempt, as "cable television service" from the excise tax imposed under
section 186-e of the Tax Law.
Further, Petitioner's sale of telecommunication services to cable television operators and
public television stations is not exempt as a "sale for resale" as contemplated in section 186-e.2(b)(1)
of the Tax Law because Petitioner's customers are providing cable television service, not
telecommunication services, and, as such, Petitioner's customers are not reselling telecommunication
services as required by section 186-e.2(b) (1) of the Tax Law.

DATED: February 28, 1996

NOTE:

s/DORIS S. BAUMAN
Director
Technical Services Bureau

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