Does the federal preemption on local taxes for direct-to-home satellite TV programming also cover local sales tax on the satellite equipment itself?

Plain-English summary

A telephone cooperative partnered in a digital satellite company that sells satellite equipment, accessories, and satellite television programming through agents who are not authorized by the manufacturer to sell the equipment directly. The equipment sat in the company's warehouse in one city before being consigned to agents doing business outside that city's limits; after an agent facilitated a sale, the company invoiced the customer from its home-city office. The company had been advised to use its home city's local tax rate on these sales and asked whether that was still correct.

The Comptroller confirmed local sales tax on the equipment is due at the home city's rate, citing Rule 3.374 on collection and allocation of city sales tax. Separately, the Comptroller explained that the federal Telecommunications Act of 1996 preempts local taxing jurisdictions from taxing direct-to-home satellite programming — but that preemption is narrow: it does not extend to sales of the satellite equipment itself, which remains subject to ordinary local sales tax sourcing rules.

What this means for you

Satellite TV equipment sellers and telecommunications companies

Don't assume the federal preemption on taxing satellite programming covers your equipment sales too — it doesn't. Equipment sales (dishes, receivers, accessories) are taxed under normal Texas local sales tax sourcing rules (Rule 3.374), separate from the tax-free programming service.

Accountants and tax professionals

When advising satellite/telecom clients, keep the "programming" and "equipment" halves of a bundled satellite business analytically separate — federal preemption protects only the programming charge.

Common questions

Q: Is local sales tax due on satellite TV programming?
A: No — the Telecommunications Act of 1996 preempts local taxing jurisdictions from imposing sales tax on direct-to-home satellite programming.

Q: Is local sales tax due on the satellite equipment (dishes, receivers, etc.)?
A: Yes. The federal preemption does not extend to equipment sales, which are taxed under ordinary local sales tax sourcing rules (Rule 3.374).

Q: Can another company rely on this exact letter?
A: No. This is a Texas STAR letter ruling binding on the Comptroller only for the taxpayer it addresses (34 Tex. Admin. Code Rules 3.1, 3.10); confirm your own facts with a tax professional.

Citations and references

Rules and federal law:

• 34 Tex. Admin. Code § 3.374 (collection and allocation of city sales tax)
• Telecommunications Act of 1996 (federal preemption of local taxes on direct-to-home satellite programming, not equipment)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9710842L

Original ruling text

October 9, 1997

Dear****:

Thank you for your recent letter which is restated in part with response below.

My company is a Telephone Cooperative and we are partners in a Digital
Satellite Company. This company sells satellite equipment, accessories and
satellite television programming. We have agents who are not authorized by the
manufacturer to sell the equipment. We place the equipment on consignment at
their location of the programming agent. The location of the equipment is in
our CITY A warehouse before it is consigned to the agent, who does business
outside the city limits of CITY A. After the agent facilitates a sale of
programming and equipment to a customer, the agent sends the information to our
CITY A office so we can invoice the customer. We had previously been advised by
your office to invoice these customers using the CITY A tax rates, since our
agents are programming agents and not authorized to sell the equipment. Please
advise your opinion writing if we should continue to use the CITY A tax rate.

Response: CITY A local sales tax is due on the equipment sales. I am
enclosing Rule 3.374 regarding "Collection and Allocation of the City Sales
Tax" for your reference. The Telecommunications Act of 1996 preempts local
taxing jurisdictions from imposing sales tax on direct satellite to home
programming. The preemption does not extend to sales of equipment.

This opinion is rendered based on the facts presented. If there are additional
or different facts, the opinion may change.

You may call me toll free at 1-800-531-5441, ext. 3-4680. The direct line is
512/463-4680. You may also write to Tax Policy, Comptroller of Public
Accounts. The email address is .

Sincerely,

Al Van Allen
Tax Policy Division