Sales Tax State Activity Update -October 2008

Telephone Directory Assistance Provider’s Equipment Not Exempt in Arizona

The Arizona Court of Appeals, Division One, recently held that a telephone directory assistance provider’s purchases of equipment were not entitled to a transaction privilege tax exemption because the provider was not engaged in providing telecommunications services.

Excell Agent Services, L.L.C. (Excell) furnished outsourced directory assistance services to other telecommunications companies. Using its nationwide database of telephone numbers, Excell provided telephone customers with the phone numbers for requested listings. Excell purchased equipment it used in its business from various sources and paid the use tax on those purchases. Excell, believing it qualified for a transaction privilege tax exemption under A.R.S. section 42-5061(B)(3), filed refund claims on the equipment it purchased. The refund claims were at each appeal level (Administrative Law Judge, Director of the DOR, the Board of Tax Appeals and the Arizona Tax Court). Excell appealed the Arizona Tax Court’s decision to the Arizona Court of Appeals.

A.R.S. section 42-5061(B)(3), provides a transaction privilege tax exemption for “tangible personal property sold to persons engaged in business classified under the telecommunications classification and consisting of central office switching equipment, switchboards, private branch exchange equipment, microwave radio equipment and carrier equipment including optical fiber, coaxial cable and other transmission media which are components of carrier systems.” [Note: There is also a corresponding use tax exemption under A.R.S. section 42-5159(B)(3).] Accordingly, Excell would be exempt from the transaction privilege tax if the equipment at issue was: (1) tangible personal property; (2) sold to a business classified under the telecommunications classification, and (3) was among the enumerated types of equipment. The parties agreed that the first requirement had been met. The equipment was tangible personal property which is defined in the statute as “personal property which may be seen, weighed, measured, felt or touched or is in any other manner perceptible to the senses.” The dispute was whether the other two requirements were met.

The Court held under A.R.S. 42-5064(A) that the telecommunication classification is “comprised of the business of providing intrastate telecommunications services.” A.R.S. 42-5064(E)(4) defines “intrastate telecommunications services” as “transmitting signs, signals, writings, images, sounds, messages, data or other information of any nature by wire, radio waves, light waves or other electromagnetic means if the information transmitted originates and terminates in this state.” Excell provided the information that was transmitted, but did not actually transmit the information. AT&T and Sprint actually owned the phone lines and transmitted the information provided by Excell. Excell did not own the transmission facilities and was not involved in providing exchange or interexchange access.

Because Excell did not electromagnetically transmit information and did not provide telecommunications services as defined in A.R.S. section 42-5064(E)(4), they did not fall under the telecommunications classification. Because they did fall under the telecommunications classification, Excell did not meet the second requirement of the exemption statute. The court declined to address whether the equipment at issue fell under the enumerated types of equipment. The decision of the Tax Court was affirmed. Excell was not entitled to the tax exemptions under sections 42-5061(B)(3) or 42-5159(B)(3).

(Excell Agent Services, L.L.C., Voltdelta Resources, Inc., Comdisco, Inc., Golden Enterprises, Inc., Plaintiffs-Appellants, v. Arizona Department of Revenue, Defendant-Appellee, Arizona Court of Appeals, Division One, No. 1 CA-TX-07-0003, 9/4/2008) 10/08

 

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