Is Texas sales tax owed on direct-to-home satellite TV installation, equipment rental, and programming charges, and does local tax apply?

Subject

Direct — To — Home Satellite Television Services — Federal Telecommunications Act Of 1996 Preempts Collection Of Local Taxes

Plain-English summary

A customer wrote in confused about a bill from a satellite TV provider ("XYZ") for a direct broadcast satellite television system, questioning whether the sales tax charged -- 6.58% of the total invoice -- was correct. The invoice covered three items: an installation fee, two months of equipment rental, and two months of programming.

The Comptroller confirmed the tax was billed correctly, but explained that two different tax rates applied to the same invoice:

• Equipment rental and installation are taxable at the full combined rate of 6.75% (6.25% state tax plus 0.5% county tax, here for Kendall County).
• Programming charges are also taxable, but only at the 6.25% state rate, because the federal Telecommunications Act of 1996 (effective February 8, 1996) preempts local governments from taxing direct broadcast satellite programming charges.

The letter is explicit that this federal preemption of local tax applies only to the programming charge -- it does not extend to the purchase, rental, or lease of the satellite equipment or its installation, which remain subject to local tax just like any other taxable equipment rental.

What this means for you

Satellite TV subscribers

If your bill from a direct broadcast satellite provider includes separate line items for equipment rental/installation and for programming, expect to see (and be correctly charged) two different combined tax rates: the full state-plus-local rate on the equipment and installation charges, and state tax only on the programming charge, thanks to federal preemption of local tax on satellite programming.

Satellite TV providers and billing departments

When itemizing invoices, keep equipment rental, installation, and programming as distinct line items, since each is taxed differently. Programming charges should be taxed at the 6.25% state rate only (no local tax), while equipment rental and installation charges should carry the full state-plus-applicable-local rate for the customer's location.

Accountants and tax professionals

This letter illustrates how a single federal statute (the Telecommunications Act of 1996) can create a split tax treatment within one transaction: local tax preemption applies narrowly to the "programming" component of a direct broadcast satellite bill, not to tangible equipment charges bundled into the same invoice.

Common questions

Q: Was the customer's satellite TV bill taxed correctly?
A: Yes. The Comptroller confirmed the 6.58% blended tax rate on the invoice was correct given the mix of taxable items.

Q: What tax rate applies to equipment rental and installation for satellite TV?
A: The full combined rate, 6.75% in this case (6.25% state tax plus 0.5% county tax for Kendall County).

Q: What tax rate applies to satellite TV programming charges?
A: Only the 6.25% state sales tax rate -- no local tax, because the Telecommunications Act of 1996 preempts local taxation of direct broadcast satellite programming charges.

Q: Does the federal preemption cover the satellite equipment too?
A: No. The letter is explicit that the federal preemption of local tax on programming "does not apply to the purchase, rental or lease of equipment and its installation."

Q: When did this federal preemption take effect?
A: February 8, 1996, per the letter.

Citations and references

Statutes:

• Telecommunications Act of 1996 (federal law preempting local taxation of direct broadcast satellite programming charges, effective February 8, 1996)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9609L1436B01

Original ruling text

September 10, 1996

Dear ***:

Thank you for your letter concerning your billing from XYZ for the direct
broadcast satellite television system you had installed August 15th.

The components of the invoice included:

Installation Fee $***
Equipment Rental (2 months) $**
Programming (2 months) $****

The total tax charged, $***, is 6.58% of the
total of the three items. XYZ advised you that the tax charged is Texas sales
tax. You asked if this tax charge is correct.

You are being billed the tax correctly. The charge for
the equipment rental and the installation of that equipment is taxable. The
sales tax rate you are required to pay on the charges for the equipment rental
and installation is 6.75% (6 1/4% state tax and 1/2% county tax for Kendall
County). The charge for programming service is also taxable, but it is only
subject to the 6.25% state sales tax. A federal law (the Telecommunications
Act of 1996) which took effect February 8, 1996, preempts the collection of
local tax (including the 1/2% Kendall County) on the charge for programming.
However, the federal preemption of local tax on direct broadcast satellite
television programming does not apply to the purchase, rental or lease of
equipment and its installation.

This opinion is based on the facts you submitted. Other facts, though
similar, may yield different results.

You may call me toll free at 1-800-531-5441, ext. 5-0030. The direct line
is 512/475-0030. You may also write to Tax Policy, Comptroller of Public
Accounts.

Sincerely,

David Somerville
Tax Policy Division

NOTE: Previous Accession Number 9609684L