Are direct-to-home (DTH) satellite television subscription services subject to Utah sales tax as a taxable 'telephone service'?

Plain-English summary

A law firm representing two planned direct-to-home (DTH) satellite television providers described a detailed operational setup: satellites broadcasting up to 150 channels (basic network, pay-per-view, premium) to consumers nationwide, with signals originating from earth stations mostly outside Utah; consumers buying their own dish/receiver/decoder equipment from independent retailers (the providers own none of it); and monthly billing generated by an unrelated third party based on data pulled from a subscriber's access card. The firm asked whether these DTH sales would be subject to Utah sales/use tax, and whether any other Utah taxes might apply.

The Commission's analysis:

• Utah taxes intrastate telephone service under § 59-12-103(1)(b)(ii). "Telephone service" is defined by Rule R865-19S-103 to include transmission "by wire, radio, light waves, or other electromagnetic means" -- language that, read literally, is broad enough to arguably capture satellite broadcasts.
• The Commission stated it interprets that rule NARROWLY, limiting it to actual telephone service and excluding television service -- meaning DTH satellite transmissions fall outside the taxable definition as a matter of the Commission's consistent interpretation, not because the statutory text unambiguously excludes them.
• The taxpayer's own submitted analysis (which the Commission's response effectively endorsed) added two further reasons DTH doesn't fit: it isn't a two-way communication conduit (unlike telephone service), and it isn't purely intrastate, since most of the programming and signal transmission originates outside Utah.
• Conclusion: DTH satellite services are not subject to Utah sales and use tax.
• The Commission flagged that the state legislature had commissioned a study on telecommunications tax issues broadly, which could result in legislative changes affecting this conclusion -- but likely more than a year out from this 1995 ruling.

What this means for you

Satellite television and similar broadcast service providers

Don't assume broad "transmission by wire/radio/electromagnetic means" language in a telephone-service tax definition automatically sweeps in your broadcast service -- this ruling shows Utah's own tax authority narrowing that language in application to exclude television-type services, even though the literal text could be read more broadly.

Accountants advising telecommunications and media clients

This ruling is useful evidence of Utah's administrative interpretation (not just the statutory text) of "telephone service" -- but flag for clients that it's nearly 30 years old and the Commission itself anticipated legislative changes from a telecommunications tax study. Check current Utah law before relying on the 1995 framework, since terminology and taxable-service definitions in this area have evolved significantly since satellite TV was a novel product.

Businesses combining voice, TV, and data services

If your service mixes different transmission types (e.g., bundled telephone/internet/TV), this ruling underscores that Utah's historical approach draws a real distinction between taxable telephone-type services and nontaxable television-type services, even under one broadly worded rule -- worth separately analyzing each component.

Common questions

Q: Is satellite TV taxed the same as telephone service in Utah under this ruling?
A: No -- even though the rule's text broadly covers transmission by wire/radio/electromagnetic means, the Commission stated it interprets the rule narrowly to include only telephone service, not television.

Q: Does it matter that DTH service isn't two-way communication?
A: Yes, per the analysis in this ruling -- it's cited as one reason DTH doesn't fit the telephone-service concept.

Q: Does it matter that most of the DTH signal originates outside Utah?
A: Yes, per this ruling -- Utah only taxes INTRASTATE telephone service, and DTH's largely out-of-state origination further supports non-taxability.

Q: Could this change in the future?
A: Yes -- the Commission explicitly noted a pending state legislative study on telecommunications taxation that could lead to changes, though possibly more than a year out from this 1995 ruling. Current law should be checked.

Q: Can another satellite or broadcast service provider rely on this ruling directly?
A: Not automatically -- it binds the Commission only for the taxpayer and the specific DTH operational facts described, and is old enough that intervening legislative or rule changes should be verified.

Citations and references

Statutes:

• Utah Code Ann. § 59-12-103(1)(b)(ii) (imposes sales tax on intrastate telephone service)

Rules:

• Utah Admin. Rule R865-19S-103 (defines "telephone service" by transmission method; interpreted narrowly by the Commission to exclude television service)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/95-049.pdf

Original ruling text

95-049

August
29, 1995

Request

XXXXX

Utah
State Tax Commission

160
East 3rd Street - South

Salt
Lake City, UT 84134-3330

Dear
XXXXX:

We
are seeking a letter ruling as to your state�s sales and use tax treatment on
the sales of direct to home (DTH) satellite services by our clients, XXXXX
(XXXXX) and the XXXXX (XXXXX). Fore
reference purposes, we are enclosing a copy of your department�s response to
our request for a nonbinding letter ruling.

The
relevant facts of our client�s operations, as previously submitted on a no name
basis, are discussed below:

STATEMENT
OF FACTS

Overview

Both
XXXXX and XXXXX are planning to offer direct to home (DTH) satellite television
services to end-users (consumers), some of which may be located in your
state. DTH services will provide the
end-user with up to 150 channels of programing. The services will include basic network channels, pay per view
movies, concerts, sporting events as well as other commercial supported
programming.

Operational
Aspects

The
operational aspects of XXXXX�s and XXXXX�s DTH services are as follows:

Satellites,
located above the continental United States will receive signals and then
broadcast the signals to the end-users throughout the continental United
States. The transmissions to the
satellites will originate from earth stations located in jurisdictions other
than your state. In some instances,
such as live sporting events or concerts, our client or a third party may
initiate programming from a location within or outside your state, transmit it
to a primary earth station, format it and transmit to the satellites for
broadcast to the customers.

The
customer will receive the DTH service through a receiver/decoder system. This system consists of a satellite dish
antenna, a set top receiver/decoder unit and a remote control which are
purchased from retailers. Included with
the set top receiver/decoder is a removable �access card� encoded with the
information necessary to descramble the programing which the consumer purchases
or subscribes. Neither XXXXX nor XXXXX
will own or lease the satellite dish antenna, set top receiver/decoder unit or
the �access card.� The equipment will
be the property of the consumer. The
access card will remain the property of an unrelated third party.

Independent
parties have been given a licence to manufacture the satellite receiver/decoder
system and it will bear the manufacturer�s name. The manufacturer and XXXXX or XXXXX will jointly market the
service. XXXXX and XXXXX will have
independent representatives marketing and soliciting on their behalf. Also, they may from time to time have
employees marketing in your state.

Programming

As
discussed earlier, the programming will consist of basic and premium network
channels, pay per view, etc., and in some locations network programming. The consumer may elect to purchase pay per
view programs (movies, sports, concerts, etc.), a package of scheduled
programming (i.e., basic and premium network channels), or a combination
thereof.

The
consumer may order pay per view programming utilizing a remote control, or
contact XXXXX or XXXXX for each program purchased.

Billing

The
consumer will be billed on a monthly basis.
The access card, on an embedded chip, will contain consumer information
and may include certain services purchased during the billing cycle. The receiver/decoder will in most cases be
connected to a telephone line. In those
cases, at a prescribed time and date the access card will call the information
center at the expense of our client.
The information concerning the services purchased during the billing
cycle will then be extracted from the access card. An unrelated third party has been engaged to generate and send
the invoices to all subscribers.

ANALYSIS

Utah
imposes sales and use tax on sales of tangible personal property and specified
services, which include intrastate telephone and telegraph services [Utah Code
Annotated S9-12- 103(4)(b)].

A
�telephone service� is defined as the transmission for hire of signs, signals,
writing, images, sounds, messages, data or other information of any nature by wire,
radio, light waves, or other electromagnetic means [Utah Code Annotated
R865-19-90S].

While
the Utah Code Annotated does impose tax on telephone services, there are no
provisions addressing DTH services or cable television services. DTH services do not meet the definition of a
telephone service. Under the Utah Code
Annotated, only specifically enumerated services are subject to sales and use
tax.

Conclusion

The
sales of DTH services are not specifically enumerated in the Utah Sales and Use
Tax Code. Additionally, DTH services do
not meet the definition of taxable telephone and telegraph services, because
they are not a telephone service, nor are they considered a conduit of two-way
communication. Finally, DTH services
are not intrastate, since a majority of the services originate outside the
State of Utah. Based upon the above
analysis, XXXXX�s and XXXXX�s DTH services are not subject to sales and use tax
within the State of Utah.

ISSUES

1. What is the state�s sales and use tax treatment
   of XXXXX�s and XXXXX�s sales of direct to home programming to customers located
   in your state as described in the statement of facts as presented?

2. Are there any other state taxes which may be
   applicable to our clients?

Due
to the fact that our clients are expected to begin business in the near future,
we respectfully request a response to this inquiry as soon as possible. Should you have any questions nor desire
further clarification as to the activities of our clients, please contact XXXXX
at XXXXX or XXXXX at XXXXX.

Very
Truly Yours,

XXXXX

by
XXXXX

XXXXX

RE:
Advisory Opinion - Application of sales tax to direct home satellite services.

We
have received your request for an advisory opinion regarding the application of
sales tax to the satellite services sold in Utah by your client, XXXXX. The state legislature has commissioned a
study to address tax issues arising around all telecommunication services. We expect that the study will result in
legislative changes that will impact your client�s operations, but those
changes may be more than a year in the future.
In the meantime, we offer you the following guidance based on our
interpretation of current sales tax laws.

Section
59-12-103 (1)(b)(ii) imposes sales tax on intrastate telephone service. Telephone service is defined to include
various types of transmissions by wire, light waves or electromagnetic means. Utah Administrative Rule R865-19S-103. Although the language of the rule seems to
encompass satellite transmissions, we have interpreted the rule narrowly to
include only telephone, not television, service. On that basis, we have advised satellite transmissions to their
companies that direct satellite transmissions to their customers are not
taxable transactions.

Please
let us know if we can be of any other service.

For
the Commission,

Alice
Shearer

Commissioner