Sales Tax State Activity Update - March 2009

Could Telecom be Considered a Manufactured Good in Connecticut

The Connecticut Department of Revenue Services has ruled that the sale of electricity used to provide telecommunications service does not qualify for an exemption from sales and use tax.

A nationwide provider of wireless telecommunications service, relying on Conn. Gen. Stat. section 12-412(3)(A), contended that providing wireless telecommunication service should be considered the manufacture of a product for the purpose of sale for resale. Conn. Gen. Stat. 12-412(3)(A) provides that the sale, furnishing or service of electricity when delivered to consumers through lines for use directly in fabrication of a finished product to be sold or used in an industrial manufacturing plant is exempt from tax. In order for the exemption to apply, the company would have had to use the electricity directly in the fabrication of a finished product to be sold or the company would have had to use the electricity directly in an industrial manufacturing plant.

The Department started out by stating that tax exemptions are construed strictly against the taxpayer and any ambiguity in the language of the exemption is resolved in favor of the Commissioner. In seeking to discern legislative intent, the legislature looks to the words of the statute itself, along with the legislative history and circumstances surrounding its enactment, to the legislative policy it was designed to implement, and its relationship to existing legislation.

The Department held Conn. Gen. Stat. 12-412 made a distinction between exempt sales of tangible personal property and exempt sales of services. When the legislature intended to exempt tangible personal property, services, or both, it clearly provided for that distinction in the statutes. The legislature recognized and intended that distinction when it incorporated the exemption provisions in section 12-412. In addition, because the sale of telecommunications service is subject to sales and use tax as the sale of a service, telecommunications service cannot be a “finished product” that is the end result of “fabrication” as those terms are used in Conn. Gen. Stat. section 12-412(3)(A). Therefore, the sale of electricity used to provide wireless telecommunications service was not exempt under Conn. Gen. Stat. section 12-412(3)(A).

(Ruling 2008-1, State of Connecticut, Department of Revenue Services, 12/15/08)

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