My out-of-state satellite Internet provider furnishes required equipment to New York customers through third-party dealers, and I've never paid New York sales tax on the equipment purchase itself — do I owe New York use tax on that equipment?

Plain-English summary

WildBlue Communications provides satellite Internet access to rural customers who lack DSL access. Customers can only get the service by using WildBlue's required equipment (a satellite dish and modem). Authorized third-party dealers sell this equipment to customers at a steep discount (e.g., WildBlue's own cost is $600, it sells to a dealer for $360, and the dealer resells to the customer for $360 too), and the dealer collects sales tax on that customer-facing sale. WildBlue buys and assembles the equipment entirely outside New York and ships it from out-of-state warehouses to dealers both in and outside New York.

The Department held that WildBlue itself doesn't owe or need to collect New York sales tax on its out-of-state equipment purchases or on its shipments to dealers — that tax burden already falls on the dealer's retail sale to the end customer. But WildBlue's own use of the equipment in New York — since the equipment is really furnished by WildBlue/its dealers as an integral part of WildBlue's Internet access service rather than genuinely sold apart from that service — can trigger New York compensating use tax under Tax Law §1110.

The key relief valve: New York exempts tangible personal property used directly and predominantly (over 50%) in providing exempt Internet access or telecommunications service for sale, under Tax Law §1115(a)(12-a). Since WildBlue's equipment exists specifically to deliver its Internet access service — which is itself exempt from tax under §1115(v) — the equipment qualifies for this exemption as long as it's used more than half the time for that purpose (and not, say, more than half the time for an unrelated taxable service like satellite TV). Installation charges on exempt equipment are exempt too.

What this means for you

Internet and telecommunications equipment providers

If your business model requires customers to use specific equipment that's functionally inseparable from your (exempt) Internet access or telecommunications service, look closely at the §1115(a)(12-a) exemption — it can shield your New York use tax exposure on that equipment even if you never "sell" the equipment as a separate transaction and instead furnish it as an integrated part of the service.

Structuring dealer/reseller arrangements

Where a third-party dealer collects sales tax on its retail sale of required equipment to the end customer, that satisfies the sales-tax side of the equation; the provider's own separate use tax exposure on the same equipment is a distinct question resolved by whether the equipment is genuinely used to provide exempt Internet/telecom service.

Accountants and tax professionals

This opinion is a useful worked example of the interplay between the resale exemption, the compensating use tax under §1110, and the predominant-use test in 20 NYCRR §528.13(c)(4) — and a reminder that "furnished as an integral component of a service" (rather than genuinely sold separately) shifts the analysis from sales tax on a retail sale to use tax on the provider's own consumption of the property.

Common questions

Q: We ship equipment into New York without ever selling it directly to New Yorkers — do we owe sales tax on that?
A: Not sales tax collection by the provider in this scenario, since dealers handle the retail sale and tax collection to the end customer. But the provider can still owe New York compensating use tax on its own use of the equipment in the state, separate from any sales tax collected on the dealer-to-customer sale.

Q: How do we know if our equipment qualifies for the internet-access exemption from use tax?
A: It must be used directly and predominantly (more than 50% of the time) in providing Internet access service (or telecommunications service) for sale. If the same equipment is used more than half the time for something else — like an unrelated taxable service — the exemption may not apply.

Q: We already paid sales/use tax on this equipment to another state — do we owe New York on top of that?
A: New York allows a reciprocal credit under Tax Law §1118(7) for tax already paid to another state without a right to refund, provided that state offers a similar credit — though if the New York rate is higher, the difference is still owed, and any excess paid to the other state isn't refunded.

Q: Does this ruling apply to any equipment-bundled telecom service?
A: No. An advisory opinion binds the Department only as to the taxpayer who requested it and the facts described — here, that the equipment is functionally inseparable from the Internet access service and effectively never sold to non-subscribers. A different bundling or resale structure could change the result.

Citations and references

Statutes and regulations:

• Tax Law §1101(b)(4), (5), (7) (retail sale; sale; use)
• Tax Law §1105(a), (c)(3) (tax on tangible personal property; installation/repair services)
• Tax Law §1110 (compensating use tax)
• Tax Law §1115(a)(12-a) (exemption for property used in providing internet access/telecommunications services for sale)
• Tax Law §1115(v) (Internet access service exemption)
• Tax Law §1118(7) (reciprocal credit for tax paid to another state)
• 20 NYCRR §528.13(c)(4) (predominant-use test)

Cited cases and opinions:

• Matter of Baker Protective Service, Inc., DTA No. 816899
• Mutual Central Alarm Services, Inc., TSB-A-06(31)S
• Bell Signs, Inc., TSB-A-08(21)S (reciprocal credit)

Source

• Landing page: NY Sales Tax Advisory Opinions, 2009
• Original opinion: TSB-A-09(11)S

Original ruling text

New York State Department of Taxation and Finance

TSB-A-09(11)S
Sales Tax
March 2, 2009

Office of Tax Policy Analysis
Technical Services Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S061201A

On December 1, 2006, the Department of Taxation and Finance received a Petition for
Advisory Opinion from WildBlue Communications, Inc., 5970 Greenwood Plaza Boulevard,

300, Greenwood Village, Colorado 80111. Petitioner, WildBlue Communications, Inc,

provided additional information pertaining to the Petition on July 5, 2007.
The issue raised by Petitioner is whether certain customer premises equipment furnished
at a discounted price to customers of Internet access services may be purchased by Petitioner for
resale under section 1105(a) of the Tax Law.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner is a provider of satellite Internet access services with offices located in the state
of Colorado. Petitioner will provide Internet access services to business and residential
customers in a multi-state region. Customers are generally in rural areas that may not have
access to DSL or other Internet service.
Petitioner markets and sells its Internet access service both directly to customers and
through third-party agents (“Dealers”). New customers sign up for a one year contract. Use of
Petitioner's Internet access service requires the installation of certain equipment (“Equipment”),
consisting primarily of a satellite dish and modem, at the customer’s premises. Dealers sell this
Equipment to customers concurrently with the establishment of a contract for Petitioner’s
Internet access services. Customers can only obtain Petitioner’s Internet access service via the
use of the Equipment. Customers may only purchase the Equipment from Petitioner’s authorized
dealers.
Petitioner purchases the separate components of the Equipment from suppliers located
outside of New York. Petitioner takes delivery of the components outside New York and the
Equipment is assembled by Petitioner outside of New York. Petitioner maintains an inventory of
Equipment in warehouses outside of New York. Equipment is shipped directly from these
warehouses to Dealers both inside and outside of New York.
In order to encourage customers to subscribe to Petitioner’s Internet access service,
Equipment will be sold by the authorized Dealers to customers at a discounted price. The
discounted price is typically more than half the wholesale price paid for the Equipment by
Petitioner. For example, Petitioner purchases the Equipment components from its suppliers for a
total cost of $600. Petitioner then furnishes the Equipment to an authorized Dealer for $360. A
New York customer signing up for Petitioner’s Internet access service either directly through a
Dealer, or via Petitioner’s referral of the new customer to a Dealer is sold the Equipment by the

-2TSB-A-09(11)S
Sales Tax
March 2, 2009
Dealer for $360. The Dealer installs Equipment at the customer’s location, and bills the
customer for Equipment and the Dealer’s separately charged installation services. The Dealer
will collect and remit applicable New York sales and use taxes on the charge to the customer for
the Equipment and the installation services. Petitioner bills the customer for Petitioner’s Internet
access service over the period of the contract. Dealer is compensated by Petitioner for obtaining
the subscription via a commission.
If the customer terminates the contract early or otherwise defaults on the contract for the
provision of Internet access service, Petitioner may be entitled to damages arising from the early
termination or default of the service contract. However, regardless of whatever damages the
customer may owe Petitioner occasioned by the early termination or default of the service
contract, the customer retains possession and ownership of the Equipment. Neither Petitioner nor
Dealer is contractually entitled in such case to damages or recovery of the discount in the
purchase price for the Equipment.
In other instances, a New York customer signs up for Internet access services directly
with Petitioner. Petitioner’s authorized installer will obtain the Equipment from the nearest
Dealer and install the Equipment at the customer’s location. Since the Equipment installed at the
customer’s location by Petitioner’s authorized installer was originally furnished by Petitioner to
the Dealer, Petitioner recompenses Dealer for the Equipment item by allowing a credit for Dealer
purchases from Petitioner. Petitioner proposes that it will bill customers for Equipment and
installation services based upon the sales price for the Equipment (e.g., $360) plus the applicable
installation charge, and collect and remit applicable New York State and local sales and use
taxes. Petitioner bills the customer for Internet access over the period of the contract.
Petitioner submitted a sample customer agreement that provides, in part, as follows:
This Agreement describes the terms and conditions between you and [Petitioner]
applicable to [Petitioner’s] Service….
*

*

*

1.1
Description. The Service consists of a satellite-based Internet access service as
further described in this Agreement (the “Service”). Service is in available locations in the
contiguous U.S. with an unobstructed view of the southern sky and its usage is subject to
[Petitioner’s] Fair Access and Acceptable Use Policies. In order to receive the Service, you must
purchase the equipment designated by [Petitioner] (“WildBlue Equipment”) from [Petitioner] or
an authorized distributor of [Petitioner]. Only a [Petitioner]-authorized installer may install the
WildBlue Equipment in your residence.
*

*

*

-3TSB-A-09(11)S
Sales Tax
March 2, 2009
2.3
Installation of Equipment. You represent that there are no legal, contractual or
similar restrictions on the installation of the WildBlue Equipment in locations(s) you have
authorized. . . . You acknowledge and agree that [Petitioner] or our designated service provider
will be required to access your premises or system and to install and maintain the Wildblue
Equipment, including the antenna and its components, necessary for you to receive the Service
inside and outside your home. This will include attaching a satellite modem to your computer,
installing software on your computer and configuring your computer for optimized performance
of the Service. By signing this Agreement, scheduling a service or installation visit, and
permitting us or our service provider to enter your home, you are authorizing [Petitioner] or our
service provider to perform all of the above actions….
*

*

*

5.2
Restrictions On Use Of The Service. [Petitioner] reserves the right to terminate
immediately the Service and this Agreement if you knowingly or otherwise engage in any
prohibited activity or if you use the WildBlue Equipment or Service in a way which is contrary
to any [Petitioner] policy or any policy of a [Petitioner] supplier. You must strictly adhere to
any policy set forth by another service provider accessed through the Service. You agree to
comply with [Petitioner’s] Acceptable Use and Fair Access Policies . . . both of which are
incorporated into and made a part of this Agreement….
*

*

*

5.5
No Unauthorized Use of WildBlue Equipment or Software. You are strictly
prohibited from servicing, altering, modifying, or tampering with the WildBlue Equipment,
Software or Service or permit any other person to do the same who is not authorized by
[Petitioner]. You may not copy, distribute, sublicense, decompile or reverse engineer any of the
Software.
*

*

*

6.
WildBlue Equipment. The terms of sale applicable to the WildBlue Equipment
are governed by your purchase agreement or other documents evidencing such sale and, if
applicable, [Petitioner’s] limited warranty . . . and service plan, if any. In addition, WildBlue
Equipment contains software and/or other intellectual property subject to a license agreement(s)
(“License Agreement”) provided with the WildBlue Equipment. Any breach of the License
Agreement constitutes a breach of this Agreement.
Applicable law and regulations
Section 1101(b) of the Tax Law provides, in part:

-4TSB-A-09(11)S
Sales Tax
March 2, 2009
When used in this article for the purposes of the taxes imposed by subdivisions
(a), (b), (c) and (d) of section eleven hundred five and by section eleven hundred ten, the
following terms shall mean:
*

*

*

(4) Retail sale. (i) A sale of tangible personal property to any person for any
purpose, other than (A) for resale as such or as a physical component part of tangible
personal property, or (B) for use by that person in performing the services subject to tax
under paragraphs (1), (2), (3), (5), (7) and (8) of subdivision (c) of section eleven hundred
five where the property so sold becomes a physical component part of the property upon
which the services are performed or where the property so sold is later actually
transferred to the purchaser of the service in conjunction with the performance of the
service subject to tax. . .
(5) Sale, selling or purchase. Any transfer of title or possession or both, exchange
or barter, rental, lease or license to use or consume . . . conditional or otherwise, in any
manner or by any means whatsoever for a consideration, or any agreement therefor,
including the rendering of any service, taxable under this article, for a consideration or
any agreement therefor.
*

*

*

(7) Use. The exercise of any right or power over tangible personal property or
over any of the services which are subject to tax under section eleven hundred ten of this
article or pursuant to the authority of article twenty-nine of this chapter, by the purchaser
thereof, and includes, but is not limited to, the receiving, storage or any keeping or
retention for any length of time, withdrawal from storage, any installation, any affixation
to real or personal property, or any consumption of such property or of any such service
subject to tax under such section eleven hundred ten or pursuant to the authority of such
article twenty-nine. Without limiting the foregoing, use also shall include the distribution
of only tangible personal property, such as promotional materials, or of any such service
subject to tax under such section eleven hundred ten or pursuant to the authority of such
article twenty-nine.
Section 1105 of the Tax Law provides, in part:
On and after June first, nineteen hundred seventy-one, there is hereby imposed
and there shall be paid a tax . . . upon:
(a) The receipts from every retail sale of tangible personal property, except as
otherwise provided in this article.

-5TSB-A-09(11)S
Sales Tax
March 2, 2009
*

*

*

(c) The receipts from every sale, except for resale, of the following services:
*

*

*

(3) Installing tangible personal property . . . or maintaining, servicing or repairing
tangible personal property . . . not held for sale in the regular course of business, whether
or not the services are performed directly or by means of coin-operated equipment or by
any other means, and whether or not any tangible personal property is transferred in
conjunction therewith, except:
*

*

*

(x) such services rendered with respect to property described in paragraph twelvea of subdivision (a) of section eleven hundred fifteen of this article.
Section 1110 of the Tax Law provides, in part:
(a) Except to the extent that property or services have already been or will be
subject to the sales tax under this article, there is hereby imposed on every person a use
tax for the use within this state on and after June first, nineteen hundred seventy-one
except as otherwise exempted under this article, (A) of any tangible personal property
purchased at retail, (B) of any tangible personal property (other than computer software
used by the author or other creator) manufactured, processed or assembled by the user, (i)
if items of the same kind of tangible personal property are offered for sale by him in the
regular course of business or (ii) if items are used as such or incorporated into a structure,
building or real property by a contractor, subcontractor or repairman in erecting
structures or buildings, or building on, or otherwise adding to, altering, improving,
maintaining, servicing or repairing real property, property or land, as the terms real
property, property or land are defined in the real property tax law, if items of the same
kind are not offered for sale as such by such contractor, subcontractor or repairman or
other user in the regular course of business,…
(b) For purposes of clause (A) of subdivision (a) of this section, the tax shall be at
the rate of four percent of the consideration given or contracted to be given for such
property, or for the use of such property, including any charges for shipping or delivery
as described in paragraph three of subdivision (b) of section eleven hundred one, but
excluding any credit for tangible personal property accepted in part payment and intended
for resale.
(c) For purposes of subclause (i) of clause (B) of subdivision (a) of this section,
the tax shall be at the rate of four percent of the price at which items of the same kind of

-6TSB-A-09(11)S
Sales Tax
March 2, 2009
tangible personal property are offered for sale by the user, and the mere storage, keeping,
retention or withdrawal from storage of tangible personal property by the person who
manufactured, processed or assembled such property shall not be deemed a taxable use
by him; …
(d) For purposes of subclause (ii) of clause (B) of subdivision (a) of this section,
the tax shall be at the rate of four percent of the consideration given or contracted to be
given for the tangible personal property manufactured, processed or assembled into the
tangible personal property the use of which is subject to tax, including any charges for
shipping or delivery as described in paragraph three of subdivision (b) of section eleven
hundred one.
Section 1115(a)(12-a) of the Tax Law provides:
Tangible personal property for use or consumption directly and predominantly in
the receiving, initiating, amplifying, processing, transmitting, retransmitting, switching or
monitoring of switching of telecommunications services for sale or internet access
services for sale or any combination thereof. Such tangible personal property exempt
under this subdivision shall include, but not be limited to, tangible personal property used
or consumed to upgrade systems to allow for the receiving, initiating, amplifying,
processing, transmitting, retransmitting, switching or monitoring of switching of
telecommunications services for sale or internet access services for sale or any
combination thereof. As used in this paragraph, the term “telecommunications services”
shall have the same meaning as defined in paragraph (g) of subdivision one of section
one hundred eighty-six-e of this chapter.
Section 1115(v) of the Tax Law provides:
Receipts from the sale of Internet access service, including start-up charges, and
the use of such service, shall be exempt from the taxes imposed under this article. For
purposes of this subdivision, the term “Internet access service” shall mean the service of
providing connection to the Internet, but only where such service entails the routing of
Internet traffic by means of accepted Internet protocols. The provision of communication
or navigation software, an e-mail address, e-mail software, news headlines, space for a
website and website services, or other such services, in conjunction with the provision of
such connection to the Internet, where such services are merely incidental to the
provision of such connection, shall be considered to be part of the provision of Internet
access service.
Section 1118 of the Tax Law provides, in part:
The following uses of property and services shall not be subject to the
compensating use tax imposed under this article:

-7TSB-A-09(11)S
Sales Tax
March 2, 2009
*

*

*

(7) (a) In respect to the use of property or services to the extent that a retail sales
or use tax was legally due and paid thereon, without any right to a refund or credit
thereof, to any other state or jurisdiction within any other state but only when it is shown
that such other state or jurisdiction allows a corresponding exemption with respect to the
sale or use of tangible personal property or services upon which such a sales tax or
compensating use tax was paid to this state. To the extent that the tax imposed by this
article is at a higher rate than the rate of tax in the first taxing jurisdiction, this exemption
shall be inapplicable and the tax imposed by section eleven hundred ten of this chapter
shall apply to the extent of the difference in such rates, except as provided in paragraph
(b) of this subdivision.
(b) To the extent that the compensating use tax imposed by this article and a
compensating use tax imposed pursuant to article twenty-nine are at a higher aggregate
rate than the rate of tax imposed in the first taxing jurisdiction, the exemption provided in
paragraph (a) of this subdivision shall be inapplicable and the taxes imposed by this
article and pursuant to article twenty-nine shall apply to the extent of the difference
between such aggregate rate and the rate paid in the first taxing jurisdiction. In such
event, the amount payable shall be allocated between the tax imposed by this article and
the tax imposed pursuant to article twenty-nine in proportion to the respective rates of
such taxes.
Opinion
Petitioner sells Internet access delivered via satellite technology. Internet access services
are exempt from sales and use tax. See section 1115(v) of the Tax Law.
Petitioner does not provide and customers cannot effectively utilize Petitioner’s satellite
Internet service other than through the requisite Equipment being installed at the customer’s
premises that is needed to initiate and/or receive such communications. Petitioner’s contract
with its customers provides that its Internet access service is provided to customers only via
Petitioner’s approved Equipment, which Equipment is only to be provided and installed by
Petitioner’s approved contractor/installers. Customers may not service, alter, modify, or tamper
with the Equipment or Petitioner’s software installed on the customer’s computers.
Petitioner purchases the separate components of the Equipment from suppliers located
outside of New York. Petitioner takes delivery of the components outside New York and the
Equipment is assembled by Petitioner outside of New York. Equipment is shipped directly from
these warehouses to Dealers both inside and outside of New York.
Petitioner’s purchases of the components of the Equipment outside New York are not
subject to sales tax. However, the use of the Equipment in New York may be subject to

-8TSB-A-09(11)S
Sales Tax
March 2, 2009
compensating use tax under section 1110 of the Tax Law, unless the Equipment is being sold by
Petitioner to persons in New York. See sections 1101(b)(7) and 1110 of the Tax Law. If the
Equipment is not sold to persons in New York but, rather, is used in providing Petitioner’s
Internet access service to customers, then Petitioner’s use of the Equipment in New York is
subject to use tax under section 1110(a) of the Tax Law, unless the Equipment is otherwise
exempt from tax.
If tangible personal property is manufactured, processed or assembled by the user, then
the use tax is based on either (i) the consideration paid for the property manufactured, processed
or assembled into the tangible personal property the use of which is subject to tax, or (ii) if items
of the same kind of tangible personal property are offered for sale by the user in the regular
course of business, the price at which such items are offered for sale by the user. See sections
1110(c), (d) of the Tax Law.
The facts provided by Petitioner in this Opinion and the sample customer agreement
submitted by Petitioner suggest that Petitioner’s Internet access service may only be used by
customers in conjunction with the Equipment. The use of the Equipment appears to be
interrelated with Petitioner’s service so that it appears unlikely that the Equipment would ever be
sold to persons who do not subscribe to Petitioner’s service or that the Equipment would be used
in conjunction with any other service. The facts in this Opinion present a unique set of
circumstances. It appears from these facts that the Equipment is not sold separately to customers
but rather is furnished by Petitioner or its authorized Dealers in their capacity as third-party
agents of Petitioner as an integral component of Petitioner’s Internet access service. See Matter
of Baker Protective Service, Inc., Det Tx App Trib, November 1, 2001, DTA No. 816899;
Mutual Central Alarm Services, Inc., Adv Op Comm T & F, December 14, 2006,
TSB-A-06(31)S. Therefore, Petitioner is subject to use tax when it uses the Equipment in
New York, unless some exemption applies to the Equipment. Petitioner is not required to collect
sales tax on its shipments of Equipment to Dealers in New York.
It appears that the Equipment is used directly in providing Petitioner’s Internet access
service for sale, for purposes of the exemption from sales and use tax under section
1115(a)(12-a) of the Tax Law. Accordingly, Petitioner’s use of the Equipment in New York will
be exempt from tax if the Equipment is used predominantly (over 50% of its use) in providing
Internet access service for sale. See section 528.13(c)(4) of the Sales and Use Tax Regulations.
If the Equipment is used for purposes other than providing Internet access service, or
telecommunications services, for sale; e.g., providing satellite television services for sale, then it
might not qualify for exemption under section 1115(a)(12-a).
The services of installing, maintaining, servicing or repairing tangible personal property
are subject to sales tax under section 1105(c)(3) of the Tax Law. However, installing,
maintaining, servicing or repairing tangible personal property that qualifies for exemption under
section 1115(a)(12-a) is exempt from sales and use tax. See section 1105(c)(3)(x) of the Tax

-9TSB-A-09(11)S
Sales Tax
March 2, 2009
Law. Thus, if Petitioner’s Equipment qualifies for exemption under section 1115(a)(12-a), the
charges to install the Equipment would be exempt from tax.
It should be noted that if Petitioner has already paid a sales or use tax to another state on
the Equipment components without any right to a refund or credit, and Petitioner owes use tax on
that Equipment in this State, under section 1118(7) of the Tax Law, Petitioner may take a credit
against any use tax Petitioner is required to pay to New York for the tax paid to the other state on
those components, provided the other state would allow a similar reciprocal credit. See A Guide
to New York State Reciprocal Credits for Sales Taxes Paid to Other States, Publication 39
(8/04), for information about computing the applicable amount of the credit and a listing of the
reciprocal credits allowed for taxes paid to other states. If the total tax paid to the other state
exceeds the total use tax due in New York, the excess amount will not be refunded. See Bell
Signs, Inc., Adv Op Comm T & F, April 30, 2008, TSB-A-08(21)S.

DATED: March 2, 2009

NOTE:

/s/
Jonathan Pessen
Director of Advisory Opinions
Office of Counsel

An Advisory Opinion is issued at the request of a person or entity. It is
limited to the facts set forth therein and is binding on the Department only
with respect to the person or entity to whom it is issued and only if the
person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific
time period at issue in the Opinion.