Sales Tax Articles
Sales Tax State Activity Update - October 2007
Tennessee Untangles Telecom Tax for Truck Tracking Devices
The taxpayer, Qualcomm, provided a service where customers could gather information about the vehicles within their fleet. Customers contracted for this service to enable their fleet management centers or fleet dispatchers to track and manage their vehicles more efficiently.
In order to use the system, a Mobile Communications Device (MCD) was installed in the customer's fleet of vehicles. The information collected from each truck included its position or location, the vehicle identification number, the date/time stamp and its latitude and longitude.
Information about a vehicle's location could be automatically ascertained at regular intervals (for example, every hour) or could be specifically requested by "pinging" the vehicle. Another feature of the system was a service that allowed text messages to be sent to and from the vehicles through Qualcomm's National Operations Center (NOC).
Between 6 and 10 million messages were processed through the operations center daily, however the vast majority of the messages were commonly and routinely used shipping phrases that were sent by pressing the numbers 1 through 99. The parties did agree that this service did not replace the driver's personal cell phone and that the service was seldom, if ever, used to carry on a conversation between the truck driver and the fleet's management center. Those conversations were typically conducted by means of the driver's cell phone.
Once the vehicle information was processed at the NOC, it was sent to a queue where could be accessed by the customer through its own internet connection.
Special software was purchased and a password was required to log into the system. Qualcomm did not provide the landline or internet connection between the customer and the NOC. Rather it was the customer who determined how frequently the stored information was accessed and how the data could be used to improve operational efficiency.
The Commissioner of Revenue determined that this service constituted taxable "telecommunications" during the audit period. Qualcomm disagreed and filed suit in the Chancery Court seeking a refund of taxes paid and the Court granted their motion for summary judgment. The Commissioner of Revenue disagreed and filed an appeal at the Court of Appeals.
The Court of Appeals, utilizing the "true object test", concluded that the true object or primary purpose of Qualcomm's service was to determine the location and load status of their customer's vehiclesâ€"that is to collect this data and then make it available to their customers. While the system undoubtedly contained the ability to transmit "free form" text messages, acquiring this capability was not the principal aim of the purchasers. The Court held "the fact that a service might employ, involve or be accessed by telecommunications, without more, will not transform it into a taxable telecommunications service."
The Court found Qualcomm's vehicle tracking service was principally used to provide information about the location and status of vehicles and was not subject to sales tax and use tax as telecommunications.
(Qualcomm Incorporated v. Loren L. Chumley, Commissioner of Revenue, State of Tennessee, Appeal from the Chancery Court for Davidson County, No. M2006-01398-COA-R3-CV, Filed 9/26/07)Subscribe to CyberTax News and receive the latest indirect tax news, including rate changes, rule updates, compliance issues, and more, delivered directly to your email.
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