Sales Tax Articles
Sales Tax State Activity Update - September 2007
Connecticut Takes a Trip to the Dark Side of the Fiber
A company that was a facilities-based telecommunications provider wanted an opinion on the taxability for sales tax purposes of leases of "dark fiber" and "lit fiber" to its customers.
The company owned a fiber optic network that supported voice, data and internet applications. The fiber optic cable was composed of long, thin strands of transparent glass or plastic and arranged in a bundle. The cable was contained in a conduit and could be buried anywhere from three to six feet underground. The company's customers were banks and other telecommunications providers and the leases gave them exclusive use capacity rights.
"Dark fiber" is the fiber optic cable itself, provided without the equipment needed to energize ("light") the fiber to that it can transmit communications. The company connected the dark fiber to their customer's location, but the customer needed to provide the transmission equipment and connect the equipment to the dark fiber in order to utilize the dark fiber. The company also provided "lit fiber" services that differ from dark fiber in that the company uses its own equipment to light the fiber optic strands for the customers. Fiber optic cable, when "lit", is ready to be used to transmit data or communications.
The Department ruled with respect to the leases of dark fiber that they were leases of tangible personal property. In Connecticut, leases of tangible personal property are subject to sales and use tax. Conn. Gen. Stat. ยง12-407(a)(13) defines "tangible personal property" as "personal property which may be seen, weighed, measured, felt or touched or which in any other manner perceptible to the senses..." Fiber optic cable may be seen, weighed, measured, felt or touched and is perceptible to the senses. Because the fiber optic cable remained tangible personal property after its installation, its lease was also taxable.
With respect to the lit fiber services, the Company was transmitting the customer's communications over the fiber optic cable and, as such, the Company was rendering telecommunications service subject to Connecticut sales and use tax.
(Ruling No. 2007-3, Connecticut Department of Revenue Services, 7/13/07)
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