Were in-flight air-ground telephone services and FAA-certified aircraft communication-system installations subject to Florida tax under the 1999 rules?

Plain-English summary

Florida concluded that the company's in-flight air-ground radiotelephone service was not subject to gross receipts tax or sales and use tax under the telecommunications definitions then in effect. The service did not fit the listed definitions for local, toll, private, or teletypewriter service, and the Department found that air-ground radiotelephone service was neither specifically listed nor “portable” within the catchall mobile-communications language.

The Department separately exempted the aircraft communication system, its parts and equipment, and the installation charge. The aircraft modifications were performed under authority of a supplemental type certificate issued by the Federal Aviation Administration, bringing them within section 212.08(5)(i).

What this means for you

In-flight communications providers

This was a classification ruling under the 1999 statutory definitions. Its reasoning depended on exactly how air-ground radiotelephone service was described in Chapter 203 at that time.

Aircraft modification businesses

The equipment exemption depended on the modification being performed under an FAA supplemental type certificate. The TAA identified both the installed system and the related parts and installation charges as exempt on those facts.

Common questions

Was passenger air-ground telephone service taxable as telecommunications? No, under the definitions applied in this 1999 TAA.

Did the result depend on where the aircraft or ground station was located? The Department did not reach a sourcing calculation because it first found the service outside the taxable telecommunications definitions.

Were the aircraft system and installation taxable? No. The FAA supplemental type certificate supported the aircraft-modification exemption.

Citations and references

• Fla. Stat. §§ 203.01 and 203.012(3)-(9)
• Fla. Stat. § 212.05(1)(e)1.a.
• Fla. Stat. § 212.08(5)(i)
• Fla. Stat. § 213.22

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99A-007

Original ruling text

SUMMARY

Charges for "air-ground radiotelephone service," which is
used by passengers to make telephone calls from an
aircraft, are not subject to gross receipts tax under s.
203.01, F.S., or sales and use tax under s.
212.05(1)(e)1.a., F.S., because the service does not fall
within any of the definitions of "telecommunication
service," in s. 203.012, F.S.

Additionally, the air-ground system equipment, including
the charge for installation, is exempt from any applicable
Florida sales and use tax pursuant to s. 212.08(5)(i),
F.S., because the aircraft modification service is
performed under authority of a supplemental type
certificate issued by the Federal Aviation Administration.

Feb 11, 1999

Re: Technical Assistance Advisement 99A-007
Sales and Use Tax -Air-ground Services and Equipment
Chapter 203, F.S.; Section 212.05(1)(e), F.S.; Section
212.08(5)(i), F.S.
XXX ("Taxpayer")

Dear :

Your letter of September 15, 1998 requested a Technical
Assistance Advisement concerning the above referenced matter.
This response constitutes a Technical Assistance Advisement
(TAA) under Chapter 12-11, Florida Administrative Code, and is
issued to you under the authority of s. 213.22, Florida
Statutes.

STATED FACTS

The following facts are reprinted herein, exactly as stated in

your letter:

[Taxpayer] is a XXX corporation.... Using the [] brand
name, the Company offers in-flight voice, fax, and data
transmission service to passengers of aircraft, primarily
on commercial airlines. The aircraft are specially-equipped
to facilitate this air-ground service.

Most of the communications are originated by airline
passengers, and such calls may terminate anywhere in the
world. [FN. A passenger can also register to receive
calls, but this is rare.] Using a credit card or calling
card, the passenger dials a number from a handset that is
hardwired into the seatback in front of him, and a radio
signal is transmitted from the airplane. The signal is
received by a "ground station," and the call is routed over
the public switched network to the call destination. The
ground station initially receiving the call is the
"originating ground station," and is generally the station
nearest to the aircraft. As the airplane begins to leave
the range of one ground station, the call is automatically
transferred via "hand-off" technology to the next ground
station along the flight path. Passengers are not furnished
with exclusive or priority use of a telecommunication
channel or group of channels.

The Company has approximately XXX ground stations
throughout the continental United States that facilitate
this service. XXX are in Florida.... XXX ground stations
in the Southeast are located in [five other states.] It is
possible that the nearest ground station to an aircraft
would lack the capacity to handle a call, whereupon another
nearby ground station would do so.

Each ground station serves a radius of approximately XX
miles. As a result, it is likely that a Florida originating
ground station would receive many calls placed from
aircraft in flight over XX, or beyond Florida's territorial
limits in the Atlantic ocean or the Gulf of Mexico. Company
records identify the originating ground station handling
each call, but the Company lacks the capability to

ascertain the location of an aircraft in relation to any
state boundaries. Therefore, the Company cannot distinguish
between calls placed from aircraft in flight over Florida
and calls placed from aircraft in flight over other states
or international waters. In addition, the Company has no
way of determining where an airplane from which a call was
placed took off or landed.

Credit cards are used for a majority of the traffic. The
Company does not issue either the credit cards nor calling
cards that are used. Most of the cards are issued by
unrelated third party financial institutions (credit cards)
and local and interexchange telephone companies (calling
cards). It follows that the Company does not issue bills
for any of the calls, but receives payments from financial
institutions (in the case of calls placed with credit
cards) and the issuers of calling cards. The caller's
billing address is not provided to the Company and the
Company generally has no access to such information.

Passengers are charged a flat amount per call plus a per
minute charge. Rates for calls received on the aircraft are
the same as for air-to-ground calls, and are paid for by
airline passengers in the same manner as calls originated
from the aircraft, that is, by credit card or calling card.
None of the charges is based, in any way, on the distance
of a call.

To facilitate the service, an aircraft must be modified by
the installation of various items of electronic equipment.
Florida is one of a few states in which these modifications
may be accomplished for the Company. The modifications are
performed under the authority of supplemental type
certificates (STCs) issued by the Federal Aviation
Administration, and may involve numerous vendors. Some
vendors furnish the Company with parts and equipment;
others provide the labor to install the equipment in the
aircraft. For installations that occur in Florida, the
parts and equipment are generally shipped to Florida from
outside the State. However, all of the parts and equipment,
whatever their source, are furnished or installed in

connection with a modification authorized by an STC.

REQUESTED ADVISEMENTS

"1. That the Company's air-ground service is not subject to tax
under Chapter 203 or Chapter 212, Florida Statutes."

"2. That the equipment installed on aircraft to facilitate the
service is exempt from Chapter 212 tax by virtue of section
212.08(5)(i), Florida Statutes."

A. Air-Ground Service Is Not a "Telecommunication Service"

APPLICABLE LAW

GROSS RECEIPTS TAX PROVISIONS

Section 203.01(1), F.S., provides, in part:

203.01 Tax on gross receipts for utility services.--

(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....

"Utility service" is defined in Section 203.012(9), F.S., to
include telecommunication services.

Section 203.012(5), F.S., provides:

(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.

Section 203.012(3), F.S., defines "local telephone service":

(3) The term "local telephone service" means:

(a) The access to a local telephone system, and the
privilege of telephonic-quality communication with
substantially all persons having telephone or radio
telephone stations constituting a part of such local
telephone system; or

(b) Any facility or service provided in connection with a
service described in paragraph (a).

The term "local telephone service" does not include any
service which is a toll telephone service; private
communication service; cellular mobile telephone or
telecommunication service; specialized mobile radio, or
pagers and paging, service, including but not limited to

"beepers" and any other form of mobile and portable one-way
or two-way communication; or teletypewriter service.

Section 203.012(4), F.S., defines "private communication
service":

(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.

Section 203.012(6), F.S., defines "teletypewriter 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.

Section 203.012(7), F.S., defines "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.

SALES AND USE TAX PROVISIONS

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

212.05 Sales, storage, use tax.--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....

DETERMINATION

Chapter 203, F.S., imposes a tax on the gross receipts that are
received by a utility provider for any utility service, derived
from business done within this state. Section 203.01(1)(a),
F.S. "Utility service" includes telecommunication services.
Section 203.012(9), F.S. Sales tax is also levied upon charges
for "telecommunication service," as defined in Chapter 203,
F.S., at a rate of seven percent. Section 212.05(1)(e)1.a.,
F.S.

Section 203.012(5)(a), F.S., defines "telecommunication service"
to include local telephone service, toll telephone service,
telegram or telegraph service, teletypewriter service, or
private communication service. These terms, other than
"telegram or telegraph service," are further defined in s.
203.012(3), (4), (6), and (7), F.S. These definitions are
reprinted, infra.

"Air-ground" service does not fall within the definitions of
"local telephone service," "teletypewriter service," "private
communication service," or "toll telephone service."

However, Section 203.012(5)(b), F.S., further defines
"telecommunication service," to include cellular mobile
telephone or telecommunication service, specialized mobile
radio, pagers and paging service (including but not limited to
"beepers"), and any other form of mobile and portable one-way or
two-way communication.

"Air-ground radiotelephone service" is a distinct classification
within "commercial mobile radio service" (CMRS). CMRS includes

private paging, specialized mobile radio service, air-ground
radiotelephone service, cellular radio telecommunication
service, and others. Section 203.012(5)(b), F.S., identifies
mobile communication services, and several types of CMRS are
listed. "Air-ground radiotelephone service" is not listed as a
taxable telecommunication service under this provision.

"Air-ground radiotelephone service" is not taxable as "any other
form of mobile and portable one way or two-way communication,"
because the service is not "portable."

Since "air-ground" service does not fall within any definition
of "telecommunication service" in s. 203.012, F.S., the charge
for such service is not subject to gross receipts tax under s.
203.01, F.S., or sales and use tax under s. 212.05(1)(e)1.a.,
F.S.

B. Parts and Equipment Installed Under Authority of FAA
Supplemental Type Certificate Are Exempt from Sales and Use
Tax

APPLICABLE LAW

Section 212.08(5)(i), F.S., provides:

(i) Aircraft modification services.--There shall be exempt
from the tax imposed by this chapter all charges for
aircraft modification services, including parts and
equipment furnished or installed in connection therewith,
performed under authority of a supplemental type
certificate issued by the Federal Aviation Administration.

DETERMINATION

Taxpayer submitted a copy of a Federal Aviation Administration
(FAA) Supplemental Type Certificate that describes the equipment
in question. Specifically, the description states:
"Installation of [Taxpayer] XXX Air Terminal System in
accordance with FAA approved XXX Master Data List...." A letter
from the FAA refers to the Supplemental Type Certificate, and
refers to the air terminal system in question as "[Taxpayer]

Telephone System for XXX Series Airplane." Therefore, upon
these facts, the charge to install the [Taxpayer] XXX Air
Terminal System is exempt from any applicable Florida sales and
use tax. Additionally, the air terminal system itself, and
parts and equipment furnished or installed in connection
therewith, are also exempt from any applicable Florida sales or
use 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., which are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Your name, address, and any other
details which might lead to identification of the taxpayer must
be deleted by the Department before disclosure. In an effort to
protect confidential information, we request you notify the
undersigned in writing within 15 days of any deletions you wish
made to the request or this response.

Sincerely,

Ralph G. Pepe
Tax Law Specialist
Technical Assistance & Dispute Resolution
(850) 922-4802

Control #: 35309