Does Virginia's cable-system equipment exemption cover equipment used to distribute satellite television programming through wiring in apartment properties?

Subject

Satellite-based television equipment was taxable, but service charges were exempt

Plain-English summary

Virginia denied the equipment exemption because the taxpayer's television systems were based on satellite reception. The provider installed equipment and wiring at multiple-dwelling properties to distribute broadband television signals or raw satellite signals to individual apartments.

Virginia's statutory exemption covered specified equipment used by commercial broadcasters and wired or land-based wireless cable television systems. The Department had consistently interpreted that language not to cover satellite-based systems merely because they used a wired network to distribute the signal to customers.

The customer-facing tax result was different. Providing cable television programming was treated as an exempt service, so television-service charges were not subject to sales tax. The provider was instead the user or consumer of the equipment and supplies used to deliver that service and had to pay sales or use tax on those purchases. That treatment also applied to remote controls, set-top boxes, and similar equipment furnished as part of the service.

What this means for you

• A wired distribution network inside a property did not turn a satellite-based service into an exempt land-based cable system.
• Service providers can owe tax on their inputs even when their charges to customers are exempt.
• If a vendor does not collect Virginia sales tax on provider equipment, the provider may need to report consumer use tax.
• Separately selling equipment could raise facts not decided in this ruling; the described equipment was furnished as part of the exempt television service.

Common questions

Were monthly television-service charges taxable?

No. The Department treated the provision of cable television service as an exempt service.

Were the provider's equipment and supply purchases exempt?

No. The satellite basis of the systems kept them outside the exemption for wired or land-based wireless cable systems.

What about set-top boxes and remote controls furnished to customers?

They were treated as part of the exempt service. The customer charge was not taxable, but the provider was the taxable user or consumer of the equipment.

Citations and references

• Va. Code § 58.1-609.6(2).
• 23 VAC 10-210-6030.
• Virginia Public Documents 97-392, 00-23, and 05-70.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 09-155

Original ruling text

October 16, 2009

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This will reply to your request for a ruling on the application of the retail sales and use tax to the business activities of * (the "Taxpayer"). I apologize for the delay in responding to your letter.

FACTS

The Taxpayer provides cable television services to multiple dwelling unit properties. A satellite system is installed by the Taxpayer that includes the related equipment and wiring needed to transmit a broadband television signal over a wired cable television system to the dwelling units. The Taxpayer also installs wired systems that distribute a raw satellite signal to individual apartment dwellings. The residents of each apartment unit can then choose to receive an available programming package. The Taxpayer seeks confirmation that the sales and use tax exemption in Va. Code § 58.1-609.6 2 applies to its sales and purchases of equipment and supplies used to provide television services to customers.

RULING

Virginia Code § 58.1-609.6 2 provides an exemption from the retail sales and use tax for:

Broadcasting equipment and parts and accessories thereto and towers used or to be used by commercial radio and television companies, wired or land based wireless cable television systems, common carriers or video programmers using an open video system or other video platform provided by telephone common carriers, or concerns which are under the regulation and supervision of the Federal Communications Commission and amplification, transmission and distribution equipment used or to be used by wired or land based wireless cable television systems, or open video systems or other video systems provided by telephone common carriers.

The Department has issued several public documents that interpret the cited exemption. In Public Documents (P.D.) 97-392 (9/29/97), 00-23 (3/28/00) and 05-70 (5/6/05), the Department ruled that the exemption is limited to wired or land based wireless cable systems. Despite the fact that the taxpayers in these rulings used a wired cable network to distribute television signals to their customers, the systems were based on satellite reception of the television programming. Thus, the providers of the satellite based television services did not qualify for exemption because the systems were not land based as required by the statutory language of the exemption.

Based on the information provided, the Taxpayer uses satellite based systems to provide cable television services to customers. Therefore, the exemption in Va. Code § 58.1-609.6 2 does not apply to the Taxpayer's purchases of equipment and supplies used to provide cable television services. However, in accordance with the Department's longstanding policy, the provision of cable television services is an exempt service and the charges billed to customers for television services are not subject to the sales and use tax.

As a provider of an exempt service, the Taxpayer should pay sales and use tax on purchases of equipment and supplies used to provide its cable television services to customers. The Taxpayer may also wish to review P.D. 97-392, which discusses the application of the tax to remote controls, set top boxes and similar equipment that is provided to cable television customers. The provision of this equipment is considered part of the exempt television service and any charges billed to customers for the equipment is not subject to sales tax. Rather, the Taxpayer is the user or consumer of the equipment provided to its customers and should pay sales or use tax on the equipment at the time of purchase. If a vendor does not charge sales or use tax, the Taxpayer should remit consumer use tax on the cost price of the equipment directly to the Department using a Consumer's Use Tax Return, Form ST-7. Title 23 of the Virginia Administrative Code 10-210-6030 provides additional information about reporting and paying use tax.

This ruling is based on the facts presented by the Taxpayer as summarized in this letter. Any change in the facts or the introduction of new facts may lead to a different result.

The Code of Virginia section, regulation and public documents cited, along with other reference document, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions regarding this response, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-1703439104.S