Were a municipality's leases of unlit dark fiber subject to Florida communications services tax or sales tax?

Plain-English summary

The Florida Department of Revenue concluded that leasing unlit dark fiber was not a communications service because the fiber transmitted no signal until the customer supplied equipment to light it. The lease charges therefore were not subject to communications services tax.

The municipality's fiber was bolted in place or buried along streets and rights-of-way for long-term use, making it a fixture and real property. Its lease was exempt from sales tax only when the lessee was a utility or communications provider and used the fiber for utility, communications, or television purposes. Otherwise, the lease was taxable as a rental of real property unless another exemption applied.

A qualifying political subdivision or nonprofit could establish an exemption by giving the municipality a valid Florida Consumer's Certificate of Exemption. The Department lacked enough information to decide the treatment of any separate service that lit the fiber or transmitted signals.

What this means for you

Dark-fiber owners

Unlit fiber is not itself a communications service, but its lease can still be a taxable real-property rental.

Governmental and nonprofit lessees

Provide a valid exemption certificate when relying on your entity exemption.

Tax advisors

Confirm both the lessee's status and the fiber's actual use before applying the right-of-way exemption.

Common questions

Q: Was the dark-fiber lease subject to communications services tax?
A: No.

Q: Was every dark-fiber lease exempt from sales tax?
A: No. The utility-use conditions or another exemption had to apply.

Q: Did the ruling decide the tax on services that light the fiber?
A: No; the Department said it lacked enough information.

Citations and references

• Fla. Stat. §§ 202.11, 212.031(1)(a)5., 212.08(6) and (7), and 213.22
• Fla. Admin. Code rr. 12A-1.051(2)(c) and 12A-1.038(3)(a)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 15A19-002

Original ruling text

Executive Director
Marshall Stranburg

QUESTION: ARE THE TAXPAYER’S LEASES OF “DARK FIBER” TO
GOVERNMENTAL AND NON-GOVERNMENTAL AGENCIES SUBJECT TO
COMMUNICATIONS SERVICES TAX AND GROSS RECEIPTS TAX (CST) OR SALES
AND USE TAX (SALES TAX)?
RESPONSE: THE LEASE OF DARK FIBER IS NOT A COMMUNICATIONS SERVICE.
CHARGES FOR THE TAXPAYER’S LEASE OF DARK FIBER ARE NOT SUBJECT TO
CST.
LEASES TO GOVERNMENTAL OR NON-GOVERNMENTAL ENTITIES ARE NOT
SUBJECT TO SALES TAX IF THEY QUALIFY FOR THE EXEMPTION IN S.
212.031(1)(A)5., F.S., OR IF THE TRANSACTION IS OTHERWISE EXEMPT. IN THE
INSTANT CASE, THE DARK FIBER IS A CONDUIT, FIXTURE, OR SIMILAR
IMPROVEMENT LOCATED ON A STREET OR RIGHT OF WAY. IT IS REAL PROPERTY.
IF THE LESSEE IS (1) A UTILITY OR COMMUNICATIONS PROVIDER, AND (2) THE
LEASE OF THE DARK FIBER IS FOR UTILITY, COMMUNICATIONS, OR TELEVISION
PURPOSES, THEN THE LEASE WOULD BE EXEMPT FROM SALES TAX. IF THE
TAXPAYER’S LEASE DOES NOT MEET (1) AND (2) ABOVE, THEN THE LEASE IS
SUBJECT TO SALES TAX AS THE RENTAL OF REAL PROPERTY.
IF THE DARK FIBER LESSEE IS A QUALIFYING POLITICAL SUBDIVISION OR
NONPROFIT ORGANIZATION AND PROVIDES THE TAXPAYER ITS FLORIDA
CONSUMER’S CERTIFICATE OF EXEMPTION, THEN THE TAXPAYER’S LEASE
WOULD BE EXEMPT FROM SALES TAX.
March 18, 2015
RE:

Technical Assistance Advisement – TAA 15A19-002
Communications Services Tax and Sales and Use Tax
XXXX (Taxpayer)
FEI #: XXXX
Chapters 202 and 212, Florida Statutes

Dear XXXX,
This is a response to your letter dated February 4, 2014. You have requested a Technical Assistance
Advisement (TAA) regarding the Department’s position on whether Florida Communications
Services Tax and Gross Receipts Tax (CST) and/ or Sales and Use Tax apply to the lease of dark
fiber. The information provided with your letter established that you meet the requirements for a
TAA.
Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – Howard Moyes, Interim Director  Information Services – Damu Kuttikrishnan, Director

www.myflorida.com/dor
Tallahassee, Florida 32399-0100

Technical Assistance Advisement
Page 2
ISSUE
Are the Taxpayer’s leases of “dark fiber” to governmental and non-governmental agencies subject
to Communications Services Tax and gross receipts tax (CST) or Sales and Use Tax (sales tax)?
FACTS
The Taxpayer is a Florida municipality that sells electricity and other utility services at retail. The
Taxpayer owns a “dark” fiber optic cable network. The Taxpayer explains that the fiber is bolted in
place or buried underground and intended to be left in place for an extended or indefinite period of
time. Because of the high costs of installing dark fiber, the Taxpayer installed significantly more
fiber than was needed for its own use or current demand. This provides additional cables for
expansion and redundancy purposes. When not is use, the Taxpayer leases the excess fiber capacity
to other entities for their own use. This is marketed under XXXX.
The Taxpayer has provided various documents related to the leases, including lease contracts and
sales orders.
The “Agreement to Lease Fiber Optic Services” between the Taxpayer and its customer, The
XXXX, provides, in part:

3. SERVICES TO BE PROVIDED BY THE [TAXPAYER]. …
   A. The [Taxpayer] shall provide to the Customer the specific fiber optic services
   described on one or more Descriptions of Services attached…. The Customer
   acknowledges that the [Taxpayer] will not provide the electronics required to
   “light” the fiber optic cables, and that this Agreement shall only provide access
   to the Network, which consists of “Dark Fiber.”

C. The [Taxpayer] shall maintain all portions of the Network up to the
Demarcation Point. … The [Taxpayer] will have no responsibility for
maintenance of any portion of the Customer’s network.

(Emphasis added.)
Exhibit “A2” provides, in part, the Description of Services, as follows.
1. Description of Work: [Taxpayer] to install and interconnect cable to provide a
six-strand single-mode fiber optic link (the “Link”) between two Demarcation
Points: …

Technical Assistance Advisement
Page 3
Exhibit “A3,” likewise establishes a two-strand link between two additional Demarcation points.
Both exhibits indicate that the “Installation” includes “… fiber optic strands engineered,
constructed, and maintained by the [Taxpayer], which will be located within the [Taxpayer’s]
fiber optic cables. The [Taxpayer] shall perform, or cause to be performed, all engineering,
material procurement, and installation of the aforementioned facilities using the [Taxpayer]
specifications.”
An additional Agreement between the Taxpayer and XXXX, formerly XXXX, contained the
same language and the attached “Exhibit A1” and “Exhibit A2” established a two two-strand
fiber optic links between two demarcation points.
For the XXXX, XXXX, and XXXX, the Taxpayer transitioned to a “Sales Order” instead of the
prior “Customer Agreement.” Each “Sales Order” indicates the lease of “[number]-strand Dark
Fiber Link from Demark 1 to Demark 2.” Notes on the “Sales Order” specify the Demark 1 and
Demark 2 locations. The Sales Orders also refer to the customer agreement to the Terms of
Service, which may be accessed online at XXXX. Of the various documents available at this site,
the Taxpayer indicated by phone, that the “XXXX” (DFLSA) applies to these Sales Orders.
The DFLSA provides, in part:

(B) Definitions
XXXX’s “Network” shall refer to the linked communications system created by
the installation of the fiber optic cables, other cables, wired and wireless devices
owned, leased or otherwise contracted for use by the XXXX. …
“Dark Fiber Link” (DFL) service is a dedicated fiber or fibers creating a
communications pathway between two Demarcations via XXXX’s optical fiber
and Network facilities. You may not use DFL to provide communications services
to other parties or government agencies, except as specifically authorized in the
Sales Order….

For its customer, XXXX, the Taxpayer appears to provide other services, including Internet
access. These other services are not part of the Taxpayer’s request for advisement.
The Taxpayer also provided a map of its fiber optic system to illustrate that the fiber optic lines
are laid in and along streets and rights of ways.
TAXPAYER POSITION
The Taxpayer states in its letter that the lease of dark fiber to governmental and nongovernmental customers is exempt from CST, because it is an Internet access service.

Technical Assistance Advisement
Page 4
In regards to sales tax, the Taxpayer provides that the dark fiber is either bolted in place or
buried underground, and meant to be left in place for an extended or indefinite period of time. As
such, the Taxpayer believes that the dark fiber is a “fixture” to real property. As a fixture, the
Taxpayer states that the dark fiber is located on a street or right of way, is used by a utility, and is
used for communications purposes. Therefore, the Taxpayer opines that the lease of dark fiber is
exempt from sales tax imposed on the lease of real property, pursuant to section 212.031(1)(a)5.,
F.S.
LAW AND DISCUSSION
Communications Services Tax
Communications services are defined, in part, as the transmission, conveyance, or routing of
voice, data, audio, video, and/or any other information or signals to a point or between or among
points, regardless of the medium or methods used. They include transmissions where “computer
processing applications” are used to act on the form, code, or protocol of the content for purposes
of transmission. The definition of communications services excludes information services and
Internet access.
Newton’s Telecom Dictionary, 27th ed., provides the following definition for “dark fiber.”
Optical fiber through which no light is transmitted and which, therefore, no signal
is being carried. Generally speaking, a dark fiber is one of many fibers contained
within a bundle of fibers. Carriers commonly deploy a large number of fibers …
at any given time …. The fibers the carrier is using immediately are “lit,” and
those that currently are unused are left “dark.” The dark fiber is available for
future use. Sometimes dark fiber is sold by a carrier without accompanying
transmission electronics. The customer … is expected to light up that strand of
fiber with his own electronics…. (Emphasis added.)
By definition, dark fiber does not involve the transmission of a signal. The fiber must be “lit”
through the use of specialized electronic equipment before it may be used for purposes of
transmission. The Taxpayer’s lease of dark fiber cannot be Internet access, as the Taxpayer has
opined. Internet access requires that access to the Internet be provided through a network that is
“lit” for use. The lease of dark fiber on its own is not a communications service and, therefore,
not subject to CST.
If the Taxpayer is also “lighting” the fiber or providing other network transmission services, as
appears to be the case for XXXX, then charges for those services may be subject to CST if those
services are communications services. Not enough information has been provided for the
Department to make a determination.

Technical Assistance Advisement
Page 5
Sales and Use Tax
Real property means surface land, improvements to land, and fixtures. A “fixture” is defined in
Rule 12A-1.051(2)(c)l., F.A.C., as “an item that is an accessory to a building, other structure, or
to land, that retains its separate identity upon installation, but that is permanently attached to the
realty.” It is not necessary that the owner of the item also own the real property to which the
fixture is attached. A determination whether an item is a fixture depends upon review of all the
facts and circumstances of each situation. Relevant factors that determine whether a particular
item is a fixture include, but are not limited to, the method of attachment, intent of the property
holder, customization, and licensing and permitting. Rule 12A-1.051(2)(c)3.a., F.A.C, provides
that items that are screwed or bolted in place or buried underground are likely to be classified as
fixtures. Also, if attachment of an item is done in such a way that removal is impossible without
causing substantial damage to the underlying realty, this indicates that an item is a fixture. Rule
12A-1.051(2)(c)3.b., F.A.C, provides that if the intent of the property holder who causes an item
to be attached is for the item to remain in place for an extended or indefinite period of time, the
item is likely to be viewed as a fixture.
The Taxpayer states that its dark fiber network is bolted in place or buried underground and
intended to be left in place for an extended or indefinite period of time. In the instant case, the
Taxpayer’s dark fiber network is installed along streets and rights of ways which would require, at
minimum, permission from relevant authorities for construction and installation as use of streets and
rights of way are generally controlled by a local governing authority. Based on these factors, it is
reasonable to conclude that the Taxpayer’s network of dark fiber is a fixture to and considered real
property.
The lease of real property in Florida is subject to sales tax. However, in s. 212.031(1)(a)5., F.S.,
Florida law does allow an exemption or exclusion for the following:
A public or private street or right-of-way and poles, conduits, fixtures, and similar
improvements located on such streets or rights-of-way, occupied or used by a
utility or provider of communications services, as defined by s. 202.11, for utility
or communications or television purposes. For purposes of this subparagraph, the
term “utility” means any person providing utility services as defined in s.
203.012…. (Emphasis added.)
It must be determined whether the lease of dark fiber meets the above exclusion. Dark fiber is a
“… conduit, fixture, [or] similar improvement….” to real property. In the instant case, it is
located on public or private streets and rights of way, as evidenced by the map provided.
Therefore, it meets the first part of the exclusion.
Additionally, the dark fiber must be used by a utility or provider of communications services, as
defined in s. 202.11 F.S., for utility, communications, or television purposes to meet the
exclusion. While it is clear from the contracts that the lease of the dark fiber is intended to link
two or more demarcation points, the intended use of the fiber by the lessees is unknown.

Technical Assistance Advisement
Page 6
In this instant case, for Taxpayer’s lease of dark fiber (“real property”) to be exempt under
s. 212.031(1)(a)5., F.S., the dark fiber would also need to be occupied or used by a utility or
communications services provider for utility, communications, or television purposes. Based
upon the contracts provided for review, only one of the lessees appears to be a utility or provider
of communications services. However, the use of the “property” is unknown. While the use is
not known, the contracts do indicate that the dark fiber cannot be used to provide
communications services to others.
The lessees, however, may qualify for an exemption for other reasons. Sections 212.08(6) and
(7), and 213.12(2), F.S., provide exemptions from sales tax for purchases by certain qualifying
political subdivisions and nonprofit organizations. Qualifying exempt entities are required to
complete an application and provide required documentation in order to receive a Form DR-14,
Florida Consumer’s Certificate of Exemption, from the Department.
Rule 12A-1.038(3)(a), F.A.C., permits qualifying exempt entities to provide a copy of a valid
Consumer’s Certificate of Exemption to a selling dealer 1, in lieu of paying sales tax for leases of
real property. The Rule requires that the consideration be paid by the exempt entity’s funds and
not by personal funds of the purchasing entity’s authorized representative. A selling dealer who
accepts a valid Consumer’s Certificate of Exemption in good faith will not be held liable for any
tax due on sales made to the exempt organization during the effective dates indicated on the
certificate.
If the lessee of the dark fiber is a qualifying political subdivision or nonprofit organization and
provides the Taxpayer a copy of their Consumer’s Certificate of Exemption, then such entity
would be exempt from sales tax due on the lease of the real property.
If the lessee of the dark fiber is not one of these entities and/or does not provide a Consumer’s
Certificate of Exemption, then it must be demonstrated that the lessee is a utility or
communications provider leasing the dark fiber for utility, communications, or television
purposes.
To conclude, if leasing entities do not supply a Certificate of Exemption, then the Taxpayer must
determine whether the entity is (1) a utility or communications provider, and (2) whether the
lease of the dark fiber is for utility, communications, or television purposes. A utility provides,
“… electricity for light, heat, or power; and natural or manufactured gas for light, heat, or power,
including transportation, delivery, transmission, and distribution of the electricity or natural or
manufactured gas ….” (See s. 203.012, F.S.) A communications provider would provide the “…
transmission, conveyance, or routing” of signals to, between, or among points.
If a lessee does not meet (1) and (2) above, then the lease of the dark fiber would be subject to
sales tax as the rental of real property.

1

There are multiple methods by which the certificate may be provided. This includes by phone and online at
http://dor.myflorida.com/dor/gta.html.

Technical Assistance Advisement
Page 7
Bundled services
If the Taxpayer is providing Internet access in addition to the lease of dark fiber, the charges for
Internet access would not be subject to CST or sales tax, as long as the charge for Internet access
is separately itemized on the customer’s bill or reasonably identified in the Taxpayer’s books and
records.
CONCLUSION
The lease of dark fiber is not a communications service. Charges for the Taxpayer’s lease of dark
fiber are not subject to CST.
Leases to governmental or non-governmental entities are not subject to sales tax if they qualify
for the exemption in s. 212.031(1)(a)5., F.S., or if the transaction is otherwise exempt. In the
instant case, the dark fiber is a conduit, fixture, or similar improvement located on a street or
right of way. It is real property. If the lessee is (1) a utility or communications provider, and (2)
the lease of the dark fiber is for utility, communications, or television purposes, then the lease
would be exempt from sales tax. If the Taxpayer’s lease does not meet (1) and (2) above, then
the lease is subject to sales tax as the rental of real property.
If the dark fiber lessee is a qualifying political subdivision or nonprofit organization and provides
the Taxpayer its Florida Consumer’s Certificate of Exemption, then the Taxpayer’s lease would
be exempt from sales tax.
This response constitutes a Technical Assistance Advisement under s. 213.22, F.S., which is
binding on the Department only under the facts and circumstances described in the request for
this advice as specified in s. 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.
Should you have any questions, please feel free to contact me.
Sincerely,
Carla M. Bruce
Tax Law Specialist
Technical Assistance and Dispute Resolution
(850) 717-6315
Record ID: 161987