Could a cable-television company buy electricity tax-free for resale because electricity helped produce the signal delivered to subscribers?

Plain-English summary

Texas Tax Code Section 151.302 distinguished tangible property sold outright from property used to perform a taxable service. Property used in performing a taxable service was not resold unless the service purchaser received its care, custody, and control.

The Comptroller said the essence of cable television service was providing the signal. Electricity was necessary to do that, but subscribers could not divert the signal's electrical component to power appliances or light their homes. Because subscribers did not control that electricity, the cable company did not resell it and could not use a resale certificate for its electricity purchases.

STAR later added an alert directing readers to Rule 3.285, as amended November 1, 2017, for specific guidance on care, custody, and control of tangible personal property used to provide a taxable service.

What this means for you

A service provider does not establish a resale merely by showing that tangible property is essential to the service. The customer's actual care, custody, and control of that property was the deciding fact in this letter.

Common questions

Was electricity essential to the cable signal? Yes. Was it resold to subscribers? No. Why not? Subscribers could not control or redirect the electrical component. Does STAR flag later guidance? Yes, Rule 3.285 as amended in 2017.

Citations and references

• Texas Tax Code Section 151.302
• 34 Tex. Admin. Code Rule 3.285, as identified in STAR's later alert

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9201L1145G11

Original ruling text

ALERT: For specific guidance relating to the care, custody and control of TPP when providing a taxable service, please see Rule 3.285, Resale Certificates; Sales for Resale (amended 11/01/2017.

January 8, 1992

Dear *****:

Thank you for your follow-up letter to Ms. Glover regarding
electricity used to provide cable television service. I
apologize for not addressing the sale for resale argument.

Tax Code Section 151.302 deals with sales for resale and makes
separate provisions for tangible property that is sold outright
and tangible property that is used to perform taxable services.
Tangible personal property used to perform a taxable service is
not considered resold unless the care, custody, and control of
the tangible personal property is transferred to the purchaser of
the service.

The essence of cable television service is the provision of the
signal. And, while electricity is necessary to provide the
service, cable TV subscribers do not have the ability to divert
the electricity from their television cable to other uses such as
running appliances or lighting their homes. Because cable TV
subscribers do not have control of the electrical portion of the
signal they buy, cable TV companies are not entitled to give
their suppliers resale certificates in lieu of tax for their
electricity purchases.

If you have questions or need more information, please call or
write. You may reach me by calling 463-4680. the number for FAX
transmissions is (512) 475-0900. You may write to me in care of
Tax Administration Division.

Sincerely,

Al Van Allen
Tax Administration Division