Were backhaul services and Internet Protocol port charges subject to Florida communications taxes?

Subject

Backhaul Services

Plain-English summary

Backhaul services and Internet Protocol port access were taxable telecommunications services. Florida gross receipts and sales tax applied when the service originated or terminated in Florida and was billed or charged to a Florida device, number, or customer.

A purchaser could give a resale certificate only if registered as a telecommunications provider and buying the service for resale rather than its own use. An Internet access provider was treated as the ultimate consumer because Internet access itself was not a telecommunications service. The export exemption did not apply because it covered tangible personal property, not telecommunications.

What this means for you

The ruling is explicitly historical: it applied the system in effect before communications-tax changes scheduled for October 1, 2001. Its transaction-level distinction between resale and consumption came from the stated provider registration and actual use.

Common questions

Q: Were both backhaul and IP port charges taxable? Yes, when the stated Florida sourcing and billing conditions were met.

Q: Could an Internet access provider claim resale? No, for telecommunications it consumed to provide Internet access.

Q: Did the export exemption apply? No.

Citations and references

• Fla. Stat. §§ 203.01, 203.012, 203.013, 203.60 — gross receipts tax and telecommunications
• Fla. Stat. §§ 212.05, 212.054 — sales tax on telecommunications
• Fla. Stat. § 212.06(5)(b) — export provision for tangible personal property
• Fla. Stat. § 212.02(19) — tangible personal property
• Fla. Admin. Code rr. 12B-6.004, 12A-1.064 — gross receipts and export rules
• Goldberg v. Sweet, 488 U.S. 252 (1989)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 00A-042

Original ruling text

SUMMARY

QUESTION 1: Are charges for Backhaul Services and Internet
Protocol Ports subject to sales tax or gross receipts tax?

ANSWER 1 - Based on Facts Below: Yes. Charges to
Taxpayer's customers for Backhaul Services and Internet
Protocol Ports are charges for telecommunication services.
Both charges are subject to sales tax and gross receipts
tax when the service originates or terminates in Florida
and is billed to a Florida device, Florida number, or
Florida customer.

QUESTION 2: Does the resale exemption apply to charges for
Backhaul Services and Internet Protocol Ports?

ANSWER 2 - Based on Facts Below: A resale certificate may
be provided by purchasers when (1) the purchaser is
registered as a telecommunication service provider with the
Florida Department of Revenue and (2) the purchase is for
the purpose of resale and is not for the purchaser's own
use. Since Internet access is not a telecommunication
service, Internet access service providers may not extend a
resale certificate for their purchases of telecommunication
services used to provide Internet access.

QUESTION 3: Does the export exemption apply to sales of
telecommunication services?

ANSWER 3 - Based on Facts Below: No. The export exemption
only applies to tangible personal property.

Jul 26, 2000

Re: Technical Assistance Advisement TAA 00A-042
XXX [hereinafter "Taxpayer"]
Sales and Use Tax and Gross Receipts Tax - Backhaul
Services

Sections: 203.01, 203.012, 203.013, 203.60, 212.05,
212.054, 212.06(5)(b), and 212.02(19), Florida Statutes
(F.S.)
Rules: 12B-6.004 and 12A-1.064, Florida Administrative Code
(F.A.C.)

Dear :

This is a response to your letter of February 15, 2000,
requesting a Technical Assistance Advisement (TAA) regarding the
above-referenced matter. This response to your request
constitutes a TAA under Chapter 12-11, F.A.C., and is issued to
you under the authority of Section 213.22, F.S.

FACTS

In your letter you state:

Taxpayer,..., hereby requests a Technical Assistance
Advisement regarding the taxability of backhaul (transport)
services.

I. United States Backhaul Plus Internet Protocol Port
(USBH+IP):

USBH+IP allows customers, including foreign telephone
companies and internet service providers, (customers) to
connect with [Taxpayer]'s internet network. This
connectivity provides access to U.S.-based internet content
for internet users in foreign countries. Only internet
protocol (IP) traffic is transported through this product no traditional voice telephone calls.

Customers are responsible for sending their IP traffic to a
cable landing station or satellite earth station. The
cable landing station or satellite earth station is the
point at which the traffic enters the U.S. From that
point, [Taxpayer] backhauls (or transports) the traffic via
[Taxpayer] facilities to an IP port located at a [Taxpayer]
internet node. An IP port is a physical "plug" or "jack"
to which the circuit connects. Via the IP port, the

customer's internet traffic is sent out on the internet
over [Taxpayer]'s internet network. USBH+IP traffic can go
both directions; any return traffic takes the exact reverse
path as incoming traffic.

Contracts for USBH+IP are in yearly increments with a
minimum of one year. There are separate cost components
for the backhaul service and the IP port. Backhaul is
priced based on mileage (between the cable landing station
or satellite earth station and the [Taxpayer] internet
node), the bandwidth required, and the contract term. The
IP port is priced based on bandwidth (or capacity) required
and term of the contract. Installation and other charges
may apply or may be waived, and quantity discounts may be
available for multiple circuit orders.

[Taxpayer] requests guidance on whether the charges for the
backhauling service and IP ports in the following USBH+IP
situations are taxable:

A. The IP traffic enters the U.S. via a cable
landing station or satellite earth station
located in Florida. It is backhauled to a
[Taxpayer] IP port located in Florida.

B. The IP traffic enters the U.S. via a cable
landing station or satellite earth station
located in Florida. It is backhauled to a
[Taxpayer] IP port located outside of Florida.

C. The IP traffic enters the U.S. via a cable
landing station or satellite earth station
located outside of Florida. It is backhauled to
a [Taxpayer] IP port located in Florida.

II. International Carrier Backhaul (ICBH):

ICBH allows foreign customers to connect to points in the
United States. Customers can send any type of information
on these circuits that they wish - voice, video, data, or a
combination. ICBH circuits can terminate at any point in

the United States other than a [Taxpayer] IP node. For
example, traffic can be backhauled to a customer's U.S.
business location or to an IP node owned by any company
other than [Taxpayer].

Customers are responsible for sending their traffic to a
cable landing station or satellite earth station. The
cable landing station or satellite earth station is the
point at which the traffic enters the U.S. From that
point, [Taxpayer] backhauls (or transports) the traffic via
[Taxpayer] facilities to the termination point designated
by the customer. ICBH functions much like a "private line"
from the cable landing station or satellite earth station
to its termination point. The customer can choose
virtually any termination point, but the termination point
for a particular circuit is always the same. ICBH traffic
can go both directions; any return traffic takes the exact
reverse path as incoming traffic.

Contracts for ICBH are in yearly increments with a minimum
of one year. Backhaul is priced based on mileage (between
the cable landing station or satellite earth station and
the customer-designated termination point), the bandwidth
required, and the contract term. Installation and other
charges may apply or may be waived, and quantity discounts
may be available for multiple circuit orders.

[Taxpayer] requests guidance on whether the following ICBH
situations are taxable:

A. The IP traffic enters the U.S. via a cable
landing station or satellite earth station
located in Florida. It is backhauled to a
customer-designated termination point located in
Florida.

B. The IP traffic enters the U.S. via a cable
landing station or satellite earth station
located in Florida. It is backhauled to a
customer-designated termination point located
outside of Florida.

C. The IP traffic enters the U.S. via a cable
landing station or satellite earth station
located outside of Florida. It is backhauled to
a customer-designated termination point located
in Florida.

III. Customer Exemption Issues:

The backhauling services discussed above are targeted for
sale to international customers including foreign telephone
companies and foreign internet service providers. Many, if
not most, of these companies are unlikely to be registered
with the Florida Department of Revenue, and thus would be
unable to provide a valid resale exemption certificate,
pursuant to Fla. Admin. Code Ann. [Rule] 12A-1.038(5).

In addition, the benefit of backhauling services, as
described above, inures to customers outside the United
States. However, because backhauling is not an item of
tangible personal property which can be delivered "for
shipment outside the states" as required by Fla. Stat.
[Section] 212.06(5)(a)(1), [Taxpayer] is unsure whether its
backhauling services can qualify for the export exemption.

[Taxpayer] requests guidance on whether either the resale
or export exemptions would apply to the following types of
customers:

A. A foreign (not registered in Florida) customer
purchasing backhauling services and IP ports for
use in the provision of internet access services
to its customers located outside the United
States.

B. A foreign (not registered in Florida) customer
purchasing backhauling services for use in
providing wholesale telecommunications services
(other than internet access) to its customers
located outside the United States.

C. A foreign (not registered in Florida) customer
purchasing backhauling services for use in
providing retail telecommunications services
(other than internet access) to its customers
located outside the United States.

D. A foreign (not registered in Florida) customer
purchasing backhauling services for that
customer's own internal use. (Emphasis in
Original.)

REQUESTED ADVISEMENT

Whether the above-described situations are subject to taxation
in Florida and, if so, whether the above-described resale or
export exemptions are applicable?

APPLICABLE LAW

The following statutory and administrative provisions are
relevant to the issues at hand:

Section 203.01, F.S., provides, in pertinent part:

(1)(a) Every person that receives payment for any utility
service shall report by the last day of each month to the
Department of Revenue, under oath of the secretary or some
other officer of such person, the total amount of gross
receipts derived from business done within this state, or
between points within this state, for the preceding month
and, at the same time, shall pay into the State Treasury an
amount equal to a percentage of such gross receipts at the
rate set forth in paragraph (b). Such collections shall be
certified by the Comptroller upon the request of the State
Board of Education.

(b) Beginning July 1, 1992, and thereafter, the rate shall
be 2.5 percent.

(3) The term "gross receipts" as used herein does not
include gross receipts of any person derived from:

***
(c) The sale of telecommunication services for resale of
telecommunication services wholly or partially within this
state;

provided the person deriving gross receipts from such sale
demonstrates that a resale in fact occurred and complies
with the following requirements: A resale in this state
must be in strict compliance with the rules and regulations
of the Department of Revenue; and any person making a sale
for resale in this state which is not in strict compliance
with the rules and regulations of the Department of Revenue
shall be liable for and pay the tax. Any person making a
sale for resale in this state may, through an informal
protest provided for in s. 213.21 and the rules of the
Department of Revenue, provide the department with evidence
of the exempt status of a sale. The department shall adopt
rules which provide that valid proof and documentation of
the resale in this state by a person making the sale for
resale in this state will be accepted by the department
when submitted during the protest period but will not be
accepted when submitted in any proceeding under chapter 120
or any circuit court action instituted under chapter 72.

(4) Gross receipts subject to the tax imposed by this
section shall not include receipts from sales or leases of
telecommunications service for use in the conduct of a
telecommunications service for hire or otherwise for
resale.

Section 203.012, F.S., provides, in pertinent part:

(1) The term "access charge" or "right of access" means any
charge to any person for the right to use or for the use of
a telephone system which includes equipment, facilities, or
services to originate or terminate any of the services
defined in subsection (4), subsection (5), subsection (6),
or subsection (7) and which specifically includes customer
access line charges, which includes the gross amount paid
by subscribers and users in this state for access into the
intrastate or interstate interexchange network as

authorized by the Federal Communications Commission or the
Florida Public Service Commission.

(4) The term "private communication service" means:

(a) A communication service furnished to a subscriber or
user that entitles the subscriber or user to exclusive or
priority use of a communication channel or groups of
channels, or to the use of an intercommunication system for
the subscriber's stations, regardless of whether such
channel, groups of channels, or intercommunication system
may be connected through switching with a service described
in subsection (3), subsection (6), or subsection (7);

(b) Switching capacity, extension lines, and stations, or
other associated services which are provided in connection
with, and which are necessary or unique to the use of,
channels or systems described in paragraph (a); or

(c) The channel mileage which connects a telephone station
located outside a local telephone system area with a
central office in such local telephone system.

(5) The term "telecommunication service" means:

(a) Local telephone service, toll telephone service,
telegram or telegraph service, teletypewriter service, or
private communication service; or

(b) Cellular mobile telephone or telecommunication service;
or specialized mobile radio, and pagers and paging,
service, including but not limited to "beepers" and any
other form of mobile and portable one-way or two-way
communication; but does not include services or equipment
incidental to telecommunication services enumerated in this
paragraph such as maintenance of customer premises
equipment, whether owned by the customer or not, or
equipment sales or rental for which charges are separately
stated, itemized, or described on the bill, invoice, or
other tangible evidence of the provision of such service.

The term "telecommunication service" does not include any
Internet access service, electronic mail service,
electronic bulletin board service, or similar on-line
computer service.

(6) The term "teletypewriter service" means the access from
a teletypewriter, telephone, or other data station of which
such station is a part, and the privilege of
intercommunication by such station with substantially all
persons having teletypewriter, telephone, or other data
stations constituting a part of the same teletypewriter
system, to which the subscriber or user is entitled upon
payment of a charge or charges, whether such charge or
charges are determined as a flat periodic amount, on the
basis of distance and elapsed transmission time, or some
other method. The term "teletypewriter service" does not
include local telephone service or toll telephone service.

(7) The term "toll telephone service" means:

(a) A telephonic-quality communication for which there is a
toll charge which varies in amount with the distance and
elapsed transmission time of each individual communication;
or

(b) A service which entitles the subscriber or user, upon
the payment of a periodic charge which is determined as a
flat amount or upon the basis of total elapsed transmission
time, to the privilege of an unlimited number of telephonic
communications to or from all or a substantial portion of
the persons having telephone or radio telephone stations in
a specified area which is outside the local telephone
system area in which the station provided with this service
is located.

The term "toll telephone service" includes interstate and
intrastate wide-area telephone service charges.

(8) The term "interstate," as applied to telecommunication
services, means originating in this state but not
terminating in this state, or terminating in this state but

not originating in this state.

(9) The term "utility service" means electricity for light,
heat, or power; natural or manufactured gas for light,
heat, or power; or telecommunication services.

Section 203.013(1), F.S., provides:

(1) The tax on gross receipts from the provision of
interstate telecommunication services, other than
interstate private communication services, the charge for
which is billed or charged to a Florida telecommunication
number or device, Florida telephone number or telephone, or
Florida customer shall be reported and paid in the manner
as provided in part II.

Section 203.60(1), F.S., provides:

(1) It is the intent of the Legislature that interstate
telecommunication services, other than interstate private
communication services, the charge for which is billed or
charged to a Florida telecommunication number or device,
Florida telephone or number, or Florida customer, shall be
subject to the tax imposed by this part.

Section 212.05(1)(e), F.S., provides, in pertinent part:

It is hereby declared to be the legislative intent that
every person is exercising a taxable privilege who engages
in the business of selling tangible personal property at
retail in this state, including the business of making mail
order sales, or who rents or furnishes any of the things or
services taxable under this chapter, or who stores for use
or consumption in this state any item or article of
tangible personal property as defined herein and who leases
or rents such property within the state.

(1) For the exercise of such privilege, a tax is levied on
each taxable transaction or incident, which tax is due and
payable as follows:

(e)1. At the rate of 6 percent on charges for:

a. All telegraph messages and long-distance telephone calls
beginning and terminating in this state, telecommunication
service as defined in s. 203.012, and those services
described in s. 203.012(2)(a), except that the tax rate for
charges for telecommunication service is 7 percent....

3. Telegraph messages and telecommunication services which
   originate or terminate in this state, other than interstate
   private communication services, and are billed to a
   customer, telephone number, or device located within this
   state are taxable under this paragraph....

Rule 12B-6.004, F.A.C., provides, in pertinent part:

(2) Exempt Sales.
(a) All receipts derived from the sale of any of the things
or services specified in Chapter 203, F.S. shall be taxable
unless specifically exempt. The exempt status of the gross
receipt must be established by the vendor and the tax shall
be paid by such vendor unless a valid resale certificate
has been received from the vendee. However, a vendee's
failure to register or to provide a valid resale
certificate shall not negate the vendee's liability for the
tax, in which event either the vendor or vendee shall be
liable for the tax.

(c) Effective January 1, 1985, access charges between
telecommunication carriers shall be deemed to be for resale
when the vendee acquires from the vendor access or right of
access to the vendor's network and the vendee resells the
same as an ingredient in its final sale to the ultimate
consumer. The vendee shall furnish the vendor a resale
certificate thereby exempting the vendor from the tax on
the amount received as access charges. Intrastate toll
activity is taxable to the vendee on the total toll
revenues and the vendee shall furnish a resale certificate
to the vendor providing access services. Interstate tolls
shall be taxable as provided in Section 203.013, F.S.

Section 212.06(5)(b), F.S., provides:

(b)1. Notwithstanding the provisions of paragraph (a), it
is not the intention of this chapter to levy a tax on the
sale of tangible personal property to a nonresident dealer
who does not hold a Florida sales tax registration,
provided such nonresident dealer furnishes the seller a
statement declaring that the tangible personal property
will be transported outside this state by the nonresident
dealer for resale and for no other purpose.... (Emphasis
Supplied.)

Section 212.02(19), F.S., provides:

(19) "Tangible personal property" means and includes
personal property which may be seen, weighed, measured, or
touched or is in any manner perceptible to the senses,
including electric power or energy, boats, motor vehicles
and mobile homes as defined in s. 320.01(1) and (2),
aircraft as defined in s. 330.27, and all other types of
vehicles. The term "tangible personal property" does not
include stocks, bonds, notes, insurance, or other
obligations or securities; intangibles as defined by the
intangible tax law of the state; or pari-mutuel tickets
sold or issued under the racing laws of the state.

Rule 12A-1.064(2)(b), F.A.C., provides, in pertinent part:

(b)1. If delivery of tangible personal property, other than
any aircraft, boat, motor vehicle, or mobile home, is made
in Florida to a nonresident dealer who does not hold a
Florida certificate of registration, it is taxable unless
the nonresident dealer furnishes the seller a statement
stating that the tangible personal property will be
transported outside Florida by the dealer for resale and
for no other purpose.... (Emphasis Supplied.)

DETERMINATION

I. Taxation of Services.

Section 203.01(1), F.S., imposes a gross receipts tax on every
person that receives payment for any utility service, including
telecommunication services, at the rate of 2.5%. Section
212.05(1)(e)1.a., F.S., provides that charges for
telecommunication services are subject to sales tax at the rate
of 7%.

The transactions at issue include charges for "Backhauling
Services" and "Internet Protocol Port Charges." These services
allow customers access to a telephone system to transmit data,
voice, or other signals to a customer designated point. In this
instance, Taxpayer intercepts the signal at a Continental U.S.
Cable Landing Station or a satellite earth station. Utilizing
its own facilities and equipment, the signal(s) is transmitted
to the customer designated termination point, be it an Internet
Protocol Port, other node, or the customer's U.S. business
location.

The charge to Taxpayer's customers for Backhauling Service and
Internet Protocol Ports is a charge for access to a telephone
system. Such charges are subject to Florida's gross receipts
tax and sales tax. (Sections 203.01(1), 203.012(1), and
212.05(1)(e)1., F.S.) Gross receipts tax and sales tax are
imposed on charges for telecommunication services when the
service originates or terminates in Florida and is billed or
charged to a Florida device, Florida number, or Florida
customer.

Taxpayer receives signals originating from outside the United
States at its cable landing station or satellite earth station,
both located in Florida. Taxpayer then transmits the signal to
a customer designated termination point located in Florida or
outside Florida. Taxpayer's charges to its customers for
transmitting the signal to a designated termination point
located within Florida are subject to Florida gross receipts tax
and sales tax.

This method of Florida taxation complies with current Commerce
Clause case law. In Goldberg v. Sweet, 488 U.S. 252 (1989), the
state of Illinois attempted to tax the entire cost of an
interstate communication that originated or terminated and was

billed in Illinois. The Court upheld the Illinois tax, and held
that a state may tax 100 percent of the charge for an interstate
communication when the communication originates or terminates
and is billed in the taxing state. The Court stated that "[a]n
apportionment formula based on mileage or some other geographic
division of individual telephone calls would produce
insurmountable administrative and technological barriers."
Goldberg, 488 U.S. at 264-65.

II. Exemption Issues.

In response to your request for guidance regarding the
applicability of the resale and export exemptions, the following
is provided.

A. Purchases for Resale.

Telecommunication service providers separately registered with
the Department for gross receipts tax and sales tax may purchase
telecommunication services, for the purposes of resale at
wholesale or retail, tax exempt. Providers are required to
obtain resale certificates from their customers, in lieu of
remitting gross receipts tax and collecting and remitting sales
tax on charges subject to Florida tax.

Customers that purchase Taxpayer's services and utilize those
services for their own use may not extend a resale certificate
to make tax exempt purchases. The sale of telecommunication
services to an Internet access provider are not "sales of
telecommunication services for resale." Charges by an Internet
access service provider to its customers for Internet access
service are not charges for telecommunication services. See
Section 203.012(5), F.S. Thus, purchases of telecommunication
services by an Internet access service provider are not for
resale. The Internet access provider is deemed to be the
ultimate consumer of the telecommunication services used to
provide Internet access to its customers. Sales of
telecommunication services to Internet access providers are
subject to both gross receipts tax and sales tax.

B. Purchases for Export.

Section 212.06(5)(b), F.S., provides that it is not the intent
of Chapter 212, F.S., to tax sales of tangible personal
property, as defined in Section 212.02(19), F.S., to a
nonresident dealer. The statutory provision refers only to
tangible personal property. Telecommunication services, as
defined in Section 203.012, F.S., are not included within the
statutory definition of tangible personal property. Thus, the
export provisions in Section 212.06(5)(b), F.S., and Rule 12A1.064, F.A.C., do not apply to telecommunication services.

Please be aware that the enactment of Chapter Law 2000-260,
L.O.F., will dramatically change the taxation of communication
services in Florida. While the law has already been enacted, it
will not alter the current system of taxation until October 1,
2001. Additionally, the Legislature has not specified the new
tax rates at this time. Therefore, this advisement does not
take into account the new legislation. The Taxpayer may want to
consider re-submitting this request after the 2001 Legislative
session to have this determination updated.

This response constitutes a Technical Assistance Advisement
under Section 213.22, F.S., which is binding on the Department
only under the facts and circumstances described in the requests
for this advice, as specified in Section 213.22, F.S. Our
response is predicated on those facts and the specific situation
summarized above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules, upon which this advice is based, may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response, your request and
related backup documents are public records under Chapter 119,
F.S., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the

taxpayer. Your response should be received by the Department
within 15 days of the date of this letter.

Sincerely,

Jennifer J. Silvey
Senior Attorney
Technical Assistance & Dispute Resolution

Control #: 40381
JJS/