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Sales and Use Taxes: Communications Services and Electronic Commerce (Portfolio 1350)

Product Code: TPOR44

$400.00 Print

Description
Table of Contents
Authors

Sales and Use Taxes: Communications Services and Electronic Commerce discusses the application of state sales and use taxes to both traditional and novel communications services and electronic commerce.

Written by James P. Kratochvill, Esq., Morrison & Foerster, Thomas H. Steele, Esq., Morrison & Foerster, and Pilar Mata, Esq., Sutherland, this Portfolio discusses the application of state sales and use taxes to communications services and electronic commerce. As state and local governments determine whether and how to tax electronic commerce and the communications services through which they are carried, taxpayers seek answers to whether their transactions are subject to tax. Communications services include both services provided by traditional telecommunications companies, as well as the newly emerging technologies, such as mobile telephony and paging, wireless telephone services, and the internet.

The Portfolio provides a historical discussion of the Bell System's monopoly and the effects of its breakup. The current status of telephone services and broadcast media is reviewed, including the Telecommunications Act of 1996.

The authors analyze what constitutes a sufficient connection between the taxing state and the taxpayer and between the taxing state and the taxpayer's activity such that the state may have jurisdiction to impose a tax. The Multistate Tax Commission's publication “Draft Guidelines for Application of State's Sales and Use Tax to an Out–of–State Business” is also reviewed, in an attempt to further understand the constitutional principles involved. Next, the Portfolio analyzes other constitutional issues including whether taxes upon interstate services must be apportioned.

The Portfolio then turns to determining whether a service is taxable as telecommunications, examining the taxation of traditional telecommunications services as well as non-traditional services such as information services, internet access, VoIP and communications services bundles. The Portfolio also examines the taxation of traditional interstate telecommunications services, private communications services, WATS/800 services, 900 services and interstate access services.

In addition, the Portfolio covers the historical and current treatment of internet services, including a discussion of the several versions of the federal internet Tax Freedom Act; the sourcing of various forms of telecommunications services; and some of the major issues and developments regarding taxes other than sales taxes.

Updates to the print version of the portfolio will be included on Changes and Analysis pages or incorporated directly into the Detailed Analysis. The Changes and Analysis pages should be filed immediately following the Table of Contents. All updates to the CD and internet version of the portfolio will be incorporated directly into the Detailed Analysis.

Subscribers to the print or CD version of the portfolio will find late-breaking developments reported in the BNA Tax Management Multistate Tax Report. Subscribers to the internet version of the portfolio will find late-breaking developments reported in the BNA Tax Management Weekly State Tax Report.

This Portfolio is part of the Premier State Tax Library, a comprehensive series, which covers major state tax transactions and issues with expert, in-depth analysis, and offers commentary on a wide range of multi-state and state-specific taxation topics, including Sales and Use, Corporate Income, Individual Income, Property, Gross Receipts, Limitations on States' Authorities to Tax, Credits and Incentives, Electronic Commerce, Mergers and Acquisitions, Procedure and Administration, Special Industries, and more.

Detailed Analysis

1350.01. INTRODUCTION

1350.02. OVERVIEW AND DESCRIPTION OF THE INDUSTRY

A. Overlap Between Tax Issues Affecting Communications and Electronic Commerce

B. Other Taxes

C. Basic Description of the Communications Industry and Electronic Commerce

D. The Bell System's Monopoly

1. The Beginning of the Monopoly

2. The Dismantling of the Bell System

E. Post MFJ Structure of the Telecommunications and Information Services Industries

1. Local Telephone Service

2. Long Distance Service

3. Wireless Telephone Service

a. Cellular Telephony

b. Specialized Mobile Radio

c. Personal Communications Service

d. Paging

4. Broadcast Media and Cablecast Services

a. Commercial Television and Radio

b. Cable Television

(1) History and Overview

(2) FCC Regulation of Cable

c. Satellite Broadcast Services

5. The Internet and the World Wide Web

6. Electronic Commerce

F. The Telecommunications Act Of 1996

1350.03. CONSTITUTIONAL LIMITATIONS INVOLVING NEXUS

Introductory Material

A. Overview of the Analytical Framework Governing Nexus Issues

1. Jurisdiction Is Tested at the State Level

2. Jurisdiction over the Subject of the Tax

3. Assuming the State Has Jurisdiction Over the Subject of the Tax, Must the State Also Have Jurisdiction Over the Taxpayer?

4. Nexus Claims Over the Taxpayer or Tax Collector Need Not Be Related To the Subject of the Tax

B. What Constitutes Sufficient Connection Between The Taxing State And The Taxpayer Or Collection Agent?

C. Survey of the Continuing Nexus Controversies

1. Do Periodic Visits By Sales Representatives Create Nexus?

2. Does the Presence of Delivery Trucks and Related Personnel in the State Constitute Substantial Nexus?

3. Nexus Through the Activities of Third Parties

4. Nexus through the "Presence" of Intangible Property within the State

5. Reactions to Geoffrey

6. Reflections upon Nexus Based upon the Presence of Intangible Property within the State

D. Court Decisions Directly Considering Electronic Commerce

E. The MTC Guidelines

1. The MTC's View of the Due Process Requirements

2. The MTC's View of the Commerce Clause Requirements

3. The MTC's Definition of Physical Presence

4. Treatment of the Internet and Electronic Commerce

F. The Road Ahead: Potential Theories to Support Taxation of Communications Services and Electronic Commerce

1. Constructive Property Rights Nexus

2. Intangible Property Located within the State

3. Agency Nexus

4. Constructive Employee Presence Nexus

5. Evaluation of these Potential Theories

G. Concluding Remarks Concerning Nexus

H. State Legislative Action

1. California

2. New York

1350.04. CONSTITUTIONAL LIMITATIONS OTHER THAN NEXUS

Introductory Material

A. Early Commerce Clause Restrictions

B. Apportionment

1. Goldberg v. Sweet: The Traditional Telephone Call

2. Apportionment of Sales Taxes Upon Other Communications Services: Jefferson Lines

3. When Apportionment of Communications Services and Electronic Commerce May Be Required: Beyond Goldberg and Jefferson Lines

C. Discrimination

1. Fair Relation Between the Tax and Services Provided by the State

D. Additional Constitutional Protections

1350.05. SALES AND USE TAXES - AN OVERVIEW

A. Sales Taxes Generally

B. Tax Base: Intra-state v. Inter-state Telecommunications

C. Tax Base: Taxation of Content

1350.06. DETERMINING WHETHER THE SERVICE IS TAXABLE AS TELECOMMUNICATIONS

A. Statutory Guidance

1. Regulatory Definitions

2. The Federal Excise Tax

3. Model Tax Codes

B. Judicial and Administrative Interpretations

C. Recent Expansion of Statutory Reach

1350.07. TAXATION OF INTERSTATE TELECOMMUNICATIONS SERVICES

A. The Interstate Telephone Call

B. WATS/800 Telecommunications Services

1. Ohio

2. Tennessee

3. Arkansas

C. Private Line Services

1. Apportionment of PLS

a. To the Border Method

b. MTC's Attribution Method

2. Taxation of PLS as Intrastate Service

1350.08. TAXATION OF INTERSTATE ACCESS CHARGES

Introductory Material

A. Background

B. Characteristics of Interstate Access Services

C. Taxation of Access Services as an Intrastate Telecommunications Service

1. States Characterizing Purchase of Access Services as an Intrastate Transaction

2. States Characterizing Purchase of Access Services as a Nonâ€“taxable Interstate Transaction

D. Treatment of Access Services as a Sale for Resale

1. States Treating Access Charges as a Sale for Resale

a. Florida

b. Massachusetts

c. South Carolina

d. Texas

e. Wisconsin

2. States Not Treating Access Charges as a Sale for Resale

E. Tax Treatment of Other "Access Services"

F. Gross Receipts Tax Treatment of Access Services

1350.09. TAXATION OF INTERNET ACCESS CHARGES

Introductory Material

A. Description of Internet Access

B. Principles Governing Taxation of Internet Access

C. Taxation of Internet Access

D. Internet Access as Telecommunications

1. Principles Affecting Taxation of Internet Access as Telecommunications

E. State by State Treatment of Internet Access as Telecommunications

F. Analysis of States' Decisions Treating Internet Access as Telecommunications

1350.10. TAXATION OF 900 SERVICES

Introductory Material

A. Characteristics of 900 Services

B. Treatment of 900 Services for Federal Excise Tax Purposes - As Instructive

C. State Taxation of 900 Services as Telecommunications

1. Ohio

2. Connecticut

3. Illinois

D. State Taxation of 900 Services as Information

1. New York

2. Vermont

E. State Taxation of 900 Services as Resold Telecommunications Services

1. Colorado

2. Massachusetts

F. Billers as Tax Collectors/Remitters

1350.11. SOURCING ISSUES

A. No Universal Rule for Sourcing Services

B. Goldberg Holding

C. Difficulties Presented by Mobile Communications

D. The Mobile Telecommunications Sourcing Act

E. Difficulties Presented by Prepaid Telephone Calling Cards

1350.12. OTHER SIMILAR TAXES AND FEES

Introductory Material

A. State Gross Receipts Taxes

B. Local Utility Users Taxes

C. Franchise Fees

D. Federal Excise Taxes

1350.13. TO TAX OR NOT TO TAX: POLICY INITIATIVES DIRECTED AT ELECTRONIC COMMERCE

Introductory Material

A. Internet Tax Freedom Act

1. Provisions of the Act

2. Effect on States

B. Simplified Sales Tax Project

C. Treasury White Paper

D. White House Policy

1350.14. STATE-BY-STATE ANALYSIS

A. Overview

B. Specific States

1. Alabama

a. Telecommunications

b. Internet Access

c. Electronic Commerce