Were retail satellite-programming subscriptions taxable telecommunications in Tennessee, and did a direct-to-home satellite provider have to collect local sales tax?

Plain-English summary

Retail satellite-programming subscriptions were subject to Tennessee state sales tax as telecommunications services. A direct-to-home satellite provider, however, could not be required to collect or remit Tennessee local sales tax because of the federal law cited in the ruling.

The programming was transmitted by microwave signals and therefore fit the ruling's telecommunications definition. It was not exempt as broadcasting "over the airways for public consumption" because only paying customers with the necessary decoder or equipment could understand and receive it.

The Department used scrambled transmission and the subscriber's contractual relationship as evidence that the intended recipients were specific customers rather than the public at large.

What this means for you

Satellite and subscription-media providers

Paid, access-controlled programming can be treated differently from freely available public broadcasting. Scrambling, decoders, and subscriber contracts all supported taxation here.

Tennessee retailers and billing teams

The ruling separated the state sales-tax obligation from local collection. The direct-to-home federal protection addressed local tax collection, not the Tennessee state tax.

Accountants and tax professionals

This is a 1997 ruling applying then-current telecommunications provisions and federal satellite law. Confirm current statutes before using its classification or collection framework.

Common questions

Q: Was satellite programming subject to Tennessee state sales tax? A: Yes. The ruling classified it as taxable telecommunications.

Q: Why was it not exempt public broadcasting?
A: Scrambling and special decoder access showed that the service was intended for paying subscribers, not the public generally.

Q: Did local sales tax apply?
A: The ruling said federal law prevented Tennessee from requiring a direct-to-home satellite provider to collect or remit local sales tax.

Q: Did buying the programming from an out-of-state wholesaler change the result? A: No different treatment was stated; the retail service sold to Tennessee customers was taxable at the state level.

Q: Can another provider rely on this result?
A: No. This letter ruling binds the Department only for the addressed taxpayer and facts.

Citations and references

• Tenn. Code Ann. § 67-6-102(29)(A), (B), and (D), and §§ 67-6-201, 67-6-205, and 67-6-221 — telecommunications classification and sales tax, as cited in the ruling.
• 47 U.S.C. § 153(o) — broadcasting definition, as cited in the ruling.
• National Ass'n for Better Broadcasting v. Federal Communications Commission, 849 F.2d 665 (D.C. Cir. 1988).
• Pub. L. 104-104, title VI, § 602, 110 Stat. 144 — direct-to-home satellite local-tax collection restriction, as cited in the ruling.

Source

• Landing page: https://www.tn.gov/revenue/tax-resources/legal-resources/tax-rulings.html
• Original PDF: https://www.tn.gov/content/dam/tn/revenue/documents/rulings/sales/97-36.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING #97-36
WARNING

Letter rulings are binding on the Department only with respect to the individual taxpayer being addressed in the ruling. This presentation of the ruling in a redacted form is informational only. Rulings are made in response to particular facts presented and are not intended necessarily as statements of Department policy. SUBJECT Application of sales tax to the retail sale of satellite programming services in Tennessee.

SCOPE
This letter ruling is an interpretation and application of the tax law as it relates to a specific set of existing facts furnished to the Department by the taxpayer. The rulings herein are binding upon the Department and are applicable only to the individual taxpayer being addressed. This letter ruling may be revoked or modified by the Commissioner at any time. Such revocation or modification shall be effective retroactively unless the following conditions are met, in which case the revocation shall be prospective only: (A) The taxpayer must not have misstated or omitted material facts involved in the transaction; (B) Facts that develop later must not be materially different from the facts upon which the ruling was based; (C) The applicable law must not have been changed or amended; (D) The ruling must have been issued originally with respect to a prospective or proposed transaction; and

(E) The taxpayer directly involved must have acted in good faith in relying upon the ruling and a retroactive revocation of the ruling must inure to his detriment.

FACTS
The only facts provided by the dealer is that it retails satellite programming services to customers in [AREA] Tennessee. These satellite broadcasts are purchased by the dealer from a wholesaler in [STATE A - NOT TENNESSEE].

ISSUE
Whether the retail sale of satellite programming services is subject to sales tax?

RULING
Satellite programming services are subject to the state sales tax, but a provider of directto-home satellite service is exempt from the requirement to collect or remit the local sales tax.

ANALYSIS
Satellite programming fits within the definition of telecommunications in the statute because the programming is transmitted through microwave signals. See T.C.A. § 67-6102(29)(B). The sale of such services is not exempt as being the sale of telecommunications which are “broadcast over the airways for public consumption,” pursuant to T.C.A. § 67-6-102(29)(D), since only specific persons paying for the services and not the public at large may receive the broadcast. It is helpful, although not necessarily dispositive, to look at the definition of broadcasting contained in the Federal Communications Act of 1934 (47 U.S.C. § 153(o)) and the FCC policies adopted pursuant to that act. Under the act, the term “broadcasting” is essentially defined by making inquiry as to what is intended to be received by specific recipients. In making this distinction, the most recent FCC policy has been to measure the intent of the purveyor by looking at the methods used to supply the communications. The Commission has determined that the fact that communications are scrambled so that they cannot be understood without a decoder is evidence to conclude that the intended recipient of the communication is not the indeterminate public. Also, a private contractual relationship which is enforced by the need for special equipment or decoders is further evidence that the communication is not intended to be received by the public.

See National Ass’n. for Better Broadcasting v. Federal Communication Commission, 849 F.2d 665 (D.C. Cir. 1988). It is apparent that the retail sale of satellite programming services is subject to sales tax in this state as a telecommunications service pursuant to T.C.A. § § 67-6-102(29)(A) & (B), 67-6-201, 67-6-205 and 67-6-221. It is also clear that the sale of such services are not exempt from tax pursuant to T.C.A. § 67-6-102(29)(D) or any other provision of state law. However, federal law prevents the state from requiring a direct-to-home satellite service provider to collect or remit the local sales tax. See Pub. L. 104-104, Title VI, § 602, Feb. 8, 1996, 110 Stat. 144.

______
Charles T. Moore,
Director of Legal Services

APPROVED: ______
Ruth E. Johnson

DATE: 8-13-97