Sales Tax Articles
Sales Tax State Activity Update - June 2007
Virginia Asks Telecoms - For Whom Does the Provider Provide?
A communications service provider requested a ruling on the application of sales tax to two questions.
The first question involved the company's purchases of communication services from another unaffiliated communications service provider. The company used the communication services in the administrative support function part of its business to offer communication services to retail customers. The administrative support functions included support of their retail stores, engineering offices, switching centers, customer call centers and other corporate support functions.
The company also requested a response to whether purchases of communication services by a non-communication service provider that were used in the company's administrative support functions would be subject to sales tax. This purchaser was a member of a consolidated group of corporations that provided administrative support services to the other companies within the consolidated group. The parent company of the consolidated group created the purchaser as a separate legal entity to provide administrative support services to the other consolidated group members, including network engineering, customer care, revenue billing, marketing, accounting and human resources. The administrative support services were not provided outside of the consolidated group and the costs of providing the administrative support were allocated among the members of the group through normal inter-company billing.
The Department stated that Code of Va. §58.1-648 A imposes a 5% communication sales and use tax on communications services that are sourced to the Commonwealth. However, §58.1-648 B(vi) provides that the sales price of a communications service provider's internal use of communications services used in connection with its business of providing communications services qualifies as an exclusion and is not taxable. The communication services purchased under the first question would qualify for the exclusion from the communications sales and use tax because the communication services were purchased by a communications service provider for its internal use in connection with its business of providing communications services. However, the services purchased under the second question would not qualify for exclusion because the communications services were not purchased by a communications service provider.
(Ruling of Commissioner, P.D. 07-42, decision issued 3/26/07)
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