Who owed Virginia communications tax when a provider billed lodging facilities in January 2007 for December 2006 services?

Plain-English summary

Virginia upheld the communications sales and use tax because the provider issued the bills in January 2007. The charges covered movies, games, music, cable programming, and Internet services provided to lodging facilities in December 2006.

Virginia's transition guidance said bills issued before January 1, 2007 used the former tax structure, while bills issued on or after that date used the new communications taxes even when the services were provided earlier. The January bills therefore fell under the new 5% tax.

The provider argued that hotel guests were the end users. Virginia disagreed. The provider supplied the communications services, and the lodging facilities contracted and paid for them. The facilities were the customers or end users even though they offered the services to guests. The assessment was upheld.

What this means for you

• For this 2007 transition, the bill date controlled rather than the service month.
• A hotel can be the taxable customer even when guests actually watch or use the service.
• The hotel's separate charges to transients did not relieve its obligation on purchases from the provider.

Common questions

Q: Were December 2006 services outside the new tax?
A: No. The provider billed them after January 1, 2007, so the transition rule applied the new tax.

Q: Were hotel guests treated as the provider's customers?
A: No. Virginia treated the lodging facilities as the customers or end users.

Citations and references

• Va. Code §§ 58.1-647, 58.1-648(A), and 58.1-649.
• Virginia Public Documents 06-138 (November 1, 2006) and 07-34 (July 9, 2007).

Subject

Service provider and the lodging facilities are end users of the services

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 11-205

Original ruling text

December 20, 2011

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *:

This is in response to your letter submitted on behalf of * (the "Taxpayer"), in which you seek correction of the communications sales and use tax assessment issued for the period January 2007 through February 2009.

FACTS

The Taxpayer provides communications services (movies, games, music, basic cable programming and Internet services) to various lodging facilities in the Commonwealth. These services are in turn offered to guests of the lodging facilities. The Taxpayer was assessed the communications sales tax on charges made to the lodging facilities for transactions that occurred in December 2006. Relying on Va. Code § 58.1-648, the Taxpayer contends that the decision to measure and impose the communications sales tax retroactively on business activity that took place before December 31, 2006 is not fair and inconsistent with the plain meaning of the law that became effective January 1, 2007. The Taxpayer further maintains that the guests of the lodging facilities are the end-users of the communications services at issue.

DETERMINATION

Virginia Code § 58.1-648 A states, "Beginning January 1, 2007, there is levied and imposed, in addition to all other taxes and fees of every kind imposed by law, a sales or use tax on the customers of communications services in the amount of 5% of the sales price of each communications service that is sourced to the Commonwealth in accordance with § 58.1-649."

Virginia Code § 58.1-647 defines "customer" as:

The person who contracts with the seller of communications services. If the person who utilizes the communications services is not the contracting party, the person who utilizes the services on his own behalf or on behalf of an entity is the customer of such service. Customer does not include a reseller of communications services or the mobile communications services of a serving carrier under an agreement to serve the customer outside the communications service provider's licensed service area.

Virginia Code § 58.1-647 defines "communications service provider" as "every person who provides services to customers in the Commonwealth and is or should be registered with the Department as a provider."

Public Document (P.D.) 06-138 (11/1/06) provides guidance to taxpayers and local governments regarding the application of the communications sales and use tax. P.D. 06-138 states:

For purposes of the transition to the new communications tax structure, bills issued by providers prior to January 1, 2007 must reflect the taxes and fees in effect on December 31, 2006, even if the bills include charges for communications services to be provided after December 31, 2006. Bills issued by providers on and after January 1, 2007 must reflect the new communications taxes, even if the communications services were provided prior to January 1, 2007. [Emphasis added.]

P.D. 06-138 further provides that the communications sales and use tax does not apply to:

Communications services purchased by and billed to transients by any hotel, motel, inn, tourist camp, tourist cabin, camping grounds, club, or any other place in which rooms, lodging, space, or accommodations are regularly furnished to transients for a consideration. This does not relieve the obligation of the facility to pay communications sales tax to its provider (or to remit communications use tax if services are purchased from a provider who lacks nexus and is not registered for the collection of the tax) on its purchases of communications services. [Emphasis added.]

P.D. 07-34 (7/9/07) addresses the communications sales and use tax in regard to hotels and their guests. In the document, the taxpayer requested a ruling regarding the application of the communications sales and use tax to the communications services provided by the taxpayer to hotels and their guests. The taxpayer provided satellite television programming services that were free to hotel guests. The taxpayer also provided Internet connectivity and pay-per view movies, music and video games to the hotel guests. The hotel paid a fee to the taxpayer for the provision of these communications services. In accordance with the Communications Sales and Use Tax Act, the taxpayer was deemed to be the communications service provider and the hotel was deemed to be the customer.

In this instance, the charges at issue are for communications services that were provided by the Taxpayer in December 2006 and were billed to the lodging facilities by the Taxpayer in January 2007. In P.D. 06-138, the Department provides guidance regarding the Virginia Communications Sales and Use Tax. The guidelines provide specific instructions to taxpayers during the transition from the former communications tax structure to the new communications tax structure regarding how taxpayers are to treat charges for communications services that were provided before the law change and billed to the customers after the law change.

In accordance with P.D. 06-138, the tax assessed in the audit is correct. Additionally, pursuant to P.D. 07-34, the Taxpayer in this instance is deemed the communications service provider and the lodging facilities are deemed the customers or end users of the services. Accordingly, the assessment is upheld as issued.

A revised bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No further interest will accrue provided the outstanding assessment is paid within 30 days from the receipt of the bill. Please remit your payment to: Virginia Department of Taxation, 600 E. Main Street, 23 rd Floor, Richmond, Virginia 23219, Attn: *. If you have any questions concerning payment of the assessment, you may contact at **.

The Code of Virginia sections and public documents cited 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 about this response, you may contact * in the Department's

Office of Tax Policy, Appeals and Rulings, at *.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4685077153.P