Ruling 96-4, Sales and Use Taxes / Telecommunications Services / Sales for Resale
A telecommunications service provider (the "Company") is located in Connecticut and is registered as a retailer for purposes of charging sales and use taxes on telecommunications service enumerated in Conn. Gen. Stat. §12-407(2)(k). The Company plans to provide service to another telecommunications company, located outside the United States (the "Foreign Company").
The service the Company will provide to the Foreign Company is described as follows: A customer of the Foreign Company who wishes to place a long distance call will originate the call outside the United States with the Foreign Company. The call will include information such as the customer's account number, personal identification number and the telephone number that the customer wishes to call. While the customer remains on the line, the Foreign Company's switching system will transmit the information to the Company's switching system located in Connecticut. The Company's switching system, working through a domestic long distance carrier's network, will then establish a U.S. dial tone for the customer of the Foreign Company. The Company's switching system will then connect the Foreign Company's customer with the U.S. dial tone, and the customer will use the dial tone to make the telephone call. The call will terminate either in the United States or in another foreign country, depending on where the Foreign Company's customer wishes to call. The use of the U.S. dial tone will result in a reduced overall cost to the Foreign Company's customer.
The domestic long distance carrier will charge the Company based on the elapsed time and distance of the calls placed by the Foreign Company's customers. The Company will purchase the services of the domestic long distance carrier and will, in turn, charge the Foreign Company an amount that will include its charges from the domestic long distance carrier plus a markup. The Foreign Company will then separately bill its customers for the Company's charges, plus a markup of its own. The Foreign Company is obligated to pay the Company whether or not the Foreign Company's customers pay the Foreign Company, and the Company has no recourse to the Foreign Company's customers for payment.
-
Whether the services to be purchased by the Company from the domestic long distance carrier are "telecommunications services" enumerated in Conn. Gen. Stat. §12-407(2)(k) and defined in §12-407(26) and subject to sales and use taxes under §12-407a, and whether the Company must provide resale certificates to the domestic long distance carrier; and
-
Whether the services to be sold by the Company to the Foreign Company are "telecommunications services" enumerated in Conn. Gen. Stat. §12-407(2)(k) and defined in §12-407(26) and subject to sales and use taxes under §12-407a, and whether the Foreign Company must provide resale certificates to the Company.
DISCUSSION:
Sales and use taxes are imposed, under Conn. Gen. Stat. §12-407(2)(k), on "the rendering of telecommunications services, as defined in subsection (26) of this section . . . ." Section 12-407(26)(a) defines "telecommunications service" to include
the transmission of any interactive electromagnetic communications including but not limited to voice, image, data and any other information, by means of but not limited to wire, cable, including fiber optic cable, microwave, radio wave or any combinations of such media, and the leasing of such service. "Telecommunications service" includes but is not limited to basic telephone service, including any facility or service provided in connection with such basic service, toll telephone service and teletypewriter or computer exchange service . . . .
The statute further provides that "telecommunications service" does not include
(4) access or interconnection service purchased by a provider of telecommunications service from another provider of such service for purposes of rendering such service, provided the purchaser submits to the seller a certificate attesting to the applicability of this exclusion, upon receipt of which the seller is relieved of any tax liability for such sale as long as the certificate is taken in good faith by the seller.
The Company will provide telecommunications services to the Foreign Company within the definition in the first part of Conn. Gen. Stat. §12-407(26), in that it will transmit interactive electromagnetic voice communications. The Company will also purchase, from the domestic long distance carrier, services that come within that definition. However, the services it purchases from the domestic long distance carrier will then be provided, together with the access to the local U.S. dial tone it establishes, to the Foreign Company. The Company will be selling "access or interconnection service" to the Foreign Company on a resale basis, as contemplated by Conn. Gen. Stat. §12-407(26)(a)(4) . Therefore, both the services it purchases and the services it sells will be excluded from the definition of "telecommunication service." Whether the Company must provide resale certificates to the domestic long distance carrier when it purchases those services and whether it must obtain resale certificates from the Foreign Company when it sells its own services depends on whether the services would otherwise be subject to sales and use taxes under §12-407a. That statute provides, in pertinent part, as follows:
(a) The rendering of telecommunications service shall be subject to tax under this chapter as a sale, for purposes of [§12-407(2)(k)] when such service is (1)(A) originated in this state and terminated in this state, (B) originated in this state and terminated outside this state and with respect to which such service is charged to a telephone number, customer or account located in this state or to the account of any transmission instrument in this state or (C) originated outside this state and terminated in this state and with respect to which such service is charged to a telephone number, customer or account located in this state or to the account of any transmission instrument in this state . . . .
When the Company purchases services from the domestic long distance carrier, those services will originate and terminate in Connecticut, at the point at which the Company connects the Foreign Company to the U.S. dial tone. The domestic long distance carrier also will bill the Company in Connecticut for its services. Therefore, the services would otherwise be subject to sales and use taxes in Connecticut under Conn. Gen. Stat. §12-407a, were they not purchased for resale. The Company must provide the domestic long distance carrier with resale certificates for these services. The Sales and Use Tax Resale Certificate, the form of which is prescribed in Conn. Agencies Regs. §12-426-1, should be used for this purpose.
The services the Company will render to the Foreign Company may be considered to originate in Connecticut, since the Company's provision of access to the U.S. dial tone and to the domestic long distance services originates at the Company's facilities in Connecticut. However, the Company's services will never be charged to a telephone number, customer or account located in Connecticut, or to the account of any transmission instrument in Connecticut. Instead, the services will be charged to the Foreign Company's account in the foreign country. Therefore, the services the Company provides to the Foreign Company will not be subject to sales and use taxes in Connecticut under Conn. Gen. Stat. §12-407a. Since there is no underlying presumption of the imposition of the tax, the use of resale certificates by the Foreign Company is unnecessary.
The services the Company will purchase from the domestic long distance carrier are eligible for the resale exclusion from "telecommunications service" in Conn. Gen. Stat. §12-407(26)(a)(4), and the Company may purchase the services from the domestic long distance carrier on a resale basis, without payment of sales and use taxes, if the Company provides resale certificates to the domestic long distance carrier.
The services the Company will sell to the Foreign Company are eligible for the resale exclusion from "telecommunications service" in Conn. Gen. Stat. §12-407(26(a)(4), but the Foreign Company need not provide the Company with resale certificates, because the services are not subject to sales and use taxes, since they will not originate or terminate in Connecticut, or be charged to a telephone number, customer or account, or to the account of any transmission instrument, located in Connecticut.
LEGAL DIVISION
JUNE 14, 1996