Sales Tax State Activity Update - June 2006
Virginia Centralizes Telecommunication Taxes
Virginia has restructured its state and local communications taxes and fees by replacing the current state and local taxation system with a centrally administered Communications Sales and Use Tax and a uniform statewide E-911 surcharge.
Communication services, such as landline and wireless telephone service and cable television services are currently subject to numerous state and local taxes and fees. The restructured legislation establishes a centrally administered Virginia Communications Sales and Use Tax at the state level. The tax will be administered by the state and enforced by the Department of Taxation. The Communications Tax will be imposed on customers of communications services at the rate of 5% of the sales price of the service. The new tax will also appear on customer's bills.
The tax will be collected by all service providers that have sufficient nexus with the state using the same rules that apply under the retail sales and use tax. Each provider would separately state the amount of the tax and add that tax to the sales price of the service. The tax would be a debt from the customer to the provider until it is paid to the state. Just like the retail sales and use tax, returns would be required to be filed with the Department on a monthly basis and the tax would be due on or before the twentieth day of the month following the month in which the tax is billed.
Communications services subject to the new tax include:
- Landline and wireless telephone services (including Voice over Internet Protocol)
- Paging Service
- Cable Television
- Satellite television
The sales price on which the tax is levied will not include charges for any of the following:
- A separately stated excise, sales or similar tax levied by the United States or any state or local government on the purchase, sale, use or consumption of any communications service that is permitted or required to be added to the sales price of such service;
- A separately stated fee or assessment levied by the United States or any state or local government, including but not limited to, regulatory fees and emergency telephone surcharges, that is required to be added to the price of service;
- Coin-operated communication services;
- Sale or recharge of a prepaid calling services;
- Provision of air-to-ground radiotelephone services as defined in 47 C.F.R. §22.99;
- Communication service provider's internal use of communication services in connection with its business of providing communication services;
- Charges for property or other services that are not part of the sale of communication services, if separately stated from the charge for communication services;
- Sales for resale;
- Charges for the sale of communication services to the federal government and any agency or instrumentality of the federal government, the state and any political subdivision of the state.
Communication services on which the tax is levied will not include the following services:
- Information services;
- Installation, maintenance or wiring or equipment on a customer's premises;
- The sale or rental of tangible personal property;
- The sale of advertising, including but not limited to, directory advertising;
- Bad check charges;
- Billing and collection services;
- Internet access service, electronic mail service, electronic bulletin board service, or similar services that are incidental to Internet access, such as voice-capable email or instant messaging;
- Digital products that are delivered electronically, including software, downloaded music, ring tones and reading materials;
- Over-the-air radio and television service broadcasts without charge and licensed by the FCC.
The sale of communications service sold on a call-by-call basis must be sourced to Virginia if the call:
- Originates and terminates in Virginia, or
- Either originates or terminates in Virginia and the service address is located in Virginia.
A sale of communication services sold on a basis other than a call-by-call basis must be sourced to the customer's place of primary use. Mobile telecommunication services are sourced to the customer's place of primary use according to the provisions of the Mobile Telecommunications Sourcing Act. There are special sourcing provisions established for the sale of private communications services and postpaid calling services.
The legislation also provides a mandatory procedure for customers to resolve erroneous billings of the Communications and E-911 tax by first contacting their service provider. The legislation also provides information on how to treat the billing of bundled services. If the charge is attributable to services that are taxable and services that are nontaxable, the portion of the charge attributable to the nontaxable services would be subject to tax unless the communications service provider can reasonably identify the nontaxable portion from its books and records kept in the regular course of business.
(H.B. 568 [Chapter 780], signed by the Governor on 4/6/06 and effective 1/1/07)
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