Did Virginia's communications-tax internal-use exclusion cover administrative support communications bought by a provider and by a separate affiliate?

Plain-English summary

Virginia allowed the communications-tax internal-use exclusion when a communications services provider bought services for its own support functions, but denied it when a separate support affiliate made the purchase.

The provider's qualifying internal uses included retail stores, engineering offices, switching centers, customer call centers, and corporate support functions. Those services were used in connection with its business of providing communications services.

The separate corporation provided network engineering, customer care, billing, marketing, accounting, and human-resource support to members of a consolidated group. Even though some supported affiliates were communications providers and the costs were allocated among group members, the purchaser itself was not a communications services provider. Its purchases therefore did not qualify for the internal-use exclusion.

What this means for you

• The identity and legal status of the purchaser controlled the internal-use exclusion.
• A provider could qualify for communications used in administrative support of its own communications business.
• A separate shared-services affiliate did not inherit provider status from related group members.
• Intercompany cost allocation did not change which entity purchased the service.

Common questions

Did a provider's administrative communications qualify?

Yes, for the support functions identified in the ruling.

Did the separate support company qualify because it served related providers?

No. It was not itself a communications services provider.

Did buying mainly from an affiliated provider change the result?

No different result was stated; the ruling focused on the purchaser's own provider status.

Citations and references

• Va. Code § 58.1-648(A), (B)(vi), and (B)(viii).
• 2006 Va. Acts ch. 780 (House Bill 568).

Subject

Some items that are and are not included for Communications Sales and Use Tax

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 07-42

Original ruling text

March 26, 2007

Re: Ruling Request: Communications Sales and Use Tax

Dear *:

This is in response to your letter requesting a ruling on the communications sales and use tax.

FACTS

You request a ruling concerning the application of Code of Virginia § 58.1-648 B vi to the purchase of communications services by a communications service provider from an unaffiliated communications service provider. The purchasing provider uses the communications services in the administrative support functions of its business of providing communication services to retail customers. These administrative support functions include, but are not limited to, its retail stores (which sell wireless calling plans and wireless telephones and accessories), engineering offices, switching centers, customer call centers and corporate support functions. You ask whether or not these purchases of communications services are excluded from the communications sales and use tax under Code of Virginia § 58.1-648 B vi.

You also request a ruling concerning the application of Code of Virginia § 58.1648 B vi to the purchase of communications services by a corporation that is not a communications services provider. The purchaser is a member of a consolidated group of corporations that provides a wide range of retail and wholesale services that include sales of communications services and non-communications services. Some of the members of the group are communications services providers and others are not. The parent company of the consolidated group created the purchaser as a separate legal entity to provide administrative support services to the other members of the consolidated group. These administrative support services include seamless network engineering, customer care, revenue billing, marketing, accounting and human resource services. None of the administrative support services are provided to any business outside of the consolidated group. The costs of providing the administrative support services, including purchases of communications services, are allocated through normal intercompany charges to the other members of the consolidated group based on various burden levels. The communications services are predominately purchased from a communications services provider that is under the control of the common parent. You ask whether or not these purchases of communications services are excluded from the communications sales and use tax under Code of Virginia § 58.1-648 B vi.

DETERMINATION

Effective January 1, 2007, 2006 House Bill 568 (Acts of Assembly 2006, Chapter 780) replaces many of the current state and local communications taxes and fees with a centrally administered communications sales and use tax.

Code of Va . § 58.1-648 A imposes "a sales or use tax on the customers of communications services." Code of Va. § 58.1-648 B viii provides that the sales price on which the tax is levied shall not include charges for sales for resale. Code of Va . § 58.1-648 B vi provides that the sales price on which the tax is levied shall also not include charges for a communications services provider's internal use of communications services in connection with its business of providing communications services.

In response to your first question; it is my determination that purchases of communications services by a communications services provider for use in the administrative support functions listed by you would qualify for exclusion from the communications sales and use tax under Code of Virginia § 58.1-648 B vi because the communications services are purchased by a communications services provider for its internal use in connection with its business of providing communications services.

In response to your second question, it is my determination that purchases of communications services by the corporation created to provide administrative support services to related communications services providers would not qualify for exclusion from the communications sales and use tax under Code of Virginia § 58.1-648 B vi because the communications services are not purchased by a communications services provider.

CONCLUSION

The Code of Virginia sections cited, along with other reference documents, are available on-line in the Tax Policy Library section of TAX's web site, located at www.policylibrary.tax.virginia.gov. If you have any questions about this determination, you may contact * in the Office of Policy and Administration, Policy Development, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

PDO/1-1099958413