Does a microwave carrier collect New York sales tax on local vs. interstate telecom service, and is its transmission equipment exempt?

Plain-English summary

Local Area Telecommunications, Inc. is an FCC-licensed microwave common carrier providing both intrastate and interstate voice and data telecom services. It buys transmission equipment, installs it on towers or rooftops, and bills customers monthly; it owns, operates, and repairs the equipment. It asked three questions: whether it must collect sales tax on (1) local and (2) interstate telecom services, and (3) whether it owes tax on its purchases of transmission equipment used to provide service for sale.

The Department's answers:

• Local (intrastate) service — taxable. Under Tax Law § 1105(b) and regulation § 527.2(a), the carrier must collect sales tax on charges to customers for local (intrastate) telecommunication services. (This is the "consumer's utility tax," read broadly — "telephony and telegraphy" covers any apparatus transmitting sound or signals.)
• Interstate service — not taxable. Section 1105(b) excludes interstate and international telephony/telegraphy, so the carrier's charges for interstate telecom services are not subject to state or local sales tax.
• Transmission equipment — exempt if it qualifies. Because the carrier provides telecom service for sale, its purchases of transmission equipment are not taxed under § 1105(a) and instead fall within the § 1115(a)(12) / § 528.13 exemption — but only for central office equipment or station apparatus used directly and predominantly in receiving at destination, initiating, or switching telephone communication. The exemption does not reach parts with a useful life of one year or less, tools, supplies, or other equipment such as testing equipment (per Example 3 and the MCI opinion, TSB-A-91(71)S).

What this means for you

Intrastate telecom is taxed; interstate is not

New York's § 1105(b) utility tax reaches intrastate telephony/telegraphy and telephone/telegraph service of whatever nature, but carves out interstate and international service. A carrier selling both must separate its local charges (collect tax) from its interstate charges (don't).

The equipment exemption is for switching/initiating/receiving gear — not everything

A carrier buying equipment to provide service for sale can claim the § 1115(a)(12) exemption, but it's limited to central office equipment and station apparatus used directly and predominantly to receive-at-destination, initiate, or switch communications. Ancillary items — testing equipment, tools, supplies, and short-life parts (useful life of a year or less) — don't qualify.

"Directly and predominantly" is the test to document

Whether a given device qualifies turns on its actual function. Initiating/receiving is generally done by station apparatus and switching by central office equipment; devices that merely test or monitor (e.g., a transmission-level tester on a relay rack) neither initiate, receive, nor switch, so they're taxable.

Common questions

Q: Does a carrier collect New York sales tax on local phone/telecom service?
A: Yes. Charges to customers for local (intrastate) telecommunication service are taxable under § 1105(b).

Q: What about interstate service?
A: Not taxable. Section 1105(b) excludes interstate and international telephony/telegraphy and telephone/telegraph service.

Q: Is the carrier's transmission equipment taxable when it buys it?
A: Not if it qualifies as central office equipment or station apparatus used directly and predominantly to receive-at-destination, initiate, or switch communications (§ 1115(a)(12), § 528.13).

Q: What equipment doesn't qualify for the exemption?
A: Parts with a useful life of one year or less, tools, supplies, and other equipment such as testing devices that don't initiate, receive, or switch communication.

Citations and references

Statutes, regulations, and authorities:

• Tax Law § 1105(b) (tax on intrastate telephony/telegraphy and telephone/telegraph service of whatever nature, except interstate and international)
• Tax Law § 1115(a)(12) (exemption for telephone central office equipment/station apparatus used directly and predominantly in receiving at destination, initiating, or switching communication; excludes parts with a useful life of one year or less, tools, supplies)
• 20 NYCRR § 527.2 (imposition and broad construction of the § 1105(b) utility tax)
• 20 NYCRR § 528.13 (scope of the central office equipment/station apparatus exemption; Example 3 — testing devices not exempt)
• MCI Telecommunications Corp. et al., TSB-A-91(71)S (switching function performed by central office equipment)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1991.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a91_77s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-91 (77)S
Sales Tax
December 19, 1991

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S910823A

On August 23, 1991 a Petition for Advisory Opinion was received from Local Area
Telecommunications, Inc., 17 Battery Place, Rm. 1200, New York City, New York 10004.
The issues raised by Petitioner, Local Area Communications, Inc., are:
1.
Whether Petitioner is liable for collecting sales tax on charges to customers for sales
of local telecommunication services.
2.
Whether Petitioner is liable for collecting sales tax on charges to customers for sales
of interstate telecommunication services.
3.
Whether Petitioner incurs a sales tax liability on purchases of telecommunication
transmission equipment which petitioner used to provide telecommunication service for sale.
Petitioner is a microwave telecommunications common carrier, licensed by the Federal
Communications Commission, that provides both intrastate and interstate voice and data
telecommunications services to customers via microwave transmission equipment.
Petitioner purchases transmission equipment from several telecommunications equipment
vendors. Petitioner installs the transmission equipment on communication towers or roof tops for
the purpose of providing telecommunication service to customers. Petitioner bills the customers on
a monthly basis.
Petitioner owns, operates and repairs all of the telecommunication equipment. Petitioner's
sales of services are both intrastate and interstate.
Section 1105(b) of the Tax Law imposes sales tax upon:
(b)
The receipts from every sale,. . .other than sales for resale, of
telephony or telegraphy and telephone and telegraph service of whatever nature
except interstate and international telephony and telegraphy and telephone and
telegraph service.
Section 1115 of the Tax Law states, in relevant part:
(a)
Receipts from the following shall be exempt from the tax on retail sales
imposed under subdivision (a) of section eleven hundred five and the compensating
use tax imposed under section eleven hundred ten:
(12). . .telephone central office equipment or station apparatus or comparable
telegraph equipment for use directly and predominantly in receiving at destination
or initiating and switching telephone or telegraph communication, but not including

-2­
TSB-A-91 (77)S
Sales Tax
December 19, 1991
parts with a useful life of one year or less or tools or supplies used in connection with
such machinery, equipment or apparatus. . . .
Section 527.2 of the New York State Sales and Use Tax Regulations states, in part:
Sale of utility and similar services. (Tax Law, §1105[b]) (a) Imposition.
(1) Section 1105(b) of the Tax Law imposes a tax on the receipts from every sale,
except a sale for resale. . .of
(ii) telephony and telegraphy and telephone and telegraph service of
whatever nature except interstate and international telephony and
telegraphy and telephone and telegraph service.
(2) Although this tax is generally known as the "consumer's utility tax", the intention
of the statute is to tax the enumerated sales and services whether or not rendered by
a company subject to regulation as a utility company. The words "of whatever nature"
indicate that a broad construction is to be given the terms describing the items taxed.
...
(d) Telephony or telegraphy; telephone and telegraph service. (1) The provisions
of section 1105(b) of the Tax Law with respect to telephony and telegraphy and
telephone and telegraph service impose a tax on receipts from intrastate
communication by means of devices employing the principles of telephony and
telegraphy.
(2) The term telephony and telegraphy includes use or operation of any apparatus
for transmission of sound, sound reproduction or coded or other signals.
Section 528.13 of the Sales and Use Tax Regulations states, in relevant part:
(a) Exemption.
(1) An exemption is allowed from the tax imposed under section 1105(a) of the Tax
Law, and from the compensating use tax imposed under section 1110 of the Tax
Law, for receipts from sales of:
*

*

*

(ii) telephone central office equipment or station apparatus or comparable telegraph
equipment for use directly and predominantly in receiving at destination or initiating
and switching telephone or telegraph communication.
*

*

*

-3­
TSB-A-91 (77)S
Sales Tax
December 19, 1991
(f) Telephone and telegraph equipment.
(1) Telephone and telegraph central office equipment and station apparatus, used
directly and predominantly in receiving at destination, initiating or switching
telephone and telegraph communication is exempt, when such equipment and
apparatus is purchased or leased by the vendor of such service for sale.
*
Example 1:

*

*

A telephone company purchases switchboards and handsets
for installation at a subscriber's premises. Such purchases are
exempt.
*

*

*

(3) The exemption does not apply to other equipment used in conjunction with
telephone and telegraph communication, such as testing equipment.
Example 3:

A telephone company purchases devices which are installed
on relay racks and are used to test two-way trunk transmission
level. These devices are not exempt as they neither initiate,
receive or switch communication.

Under the provisions of Section 1105(b) of the Tax Law and Section 527.2(a) of the Sales
and Use Tax Regulations, Petitioner is liable for collecting sales tax on charges to customers for
sales of local (intrastate) telecommunication services. However, Petitioner's charges to customers
for sales of interstate telecommunication services are not subject to state or local sales tax.
In order for the purchases of telephone communication assets to qualify for the tax exemption
provided under Section 1115(a)(12) of the Tax Law and Section 528.13 of the Sales and Use Tax
Regulations such assets must meet the statutory tests of being classified as either central office
equipment or station apparatus and of being used both directly and predominantly in performing the
function of receiving telephone communication at its destination, of initiating telephone
communication or of switching telephone communication.
The functions of initiating telephone communication and receiving telephone communication
at its destination is generally performed by certain station apparatus.
The function of switching telephone communication is generally performed by central office
equipment. Re MCI Telecommunications Corp, MCI International Telecommunications Corp, RCA
Global Communications, Inc. and Western Union International, Inc. Advisory Op Comm of T & F,
November 12, 1991, TSB-A-91(71)S.
Because Petitioner is providing telecommunication services for sale to customers, Petitioner's
purchases of telecommunication transmission equipment which Petitioner uses to provide

-4­
TSB-A-91 (77)S
Sales Tax
December 19, 1991
telecommunication services for sale will not be subject to the tax imposed under Section 1105(a) of
the Tax Law but will fall within the exemption provided under Section 1115(a)(12) of the Tax Law
and Section 528.13 of the Sales and Use Tax Regulations when such equipment is used to perform
the functions of directly and predominantly receiving at destination or initiating and switching
telephone communications.

DATED: December 19, 1991

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.