sweet sixteen? developments and trends under the mobile...
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Sweet Sixteen? Developments and Trends Under the Mobile Telecommunications Sourcing Act
Dustin Davis Ryan
Matt Boch DDH
Telestrategies Communications Taxation
May 17, 2016
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Sweet Sixteen? Developments and Trends Under the Mobile Telecommunications Sourcing Act
Agenda – Overview of the Mobile Telecommunications Sourcing Act – What services are subject to MTSA – Application of MTSA sourcing – Bootstrapping of MTSA sourcing for other taxes or services – Unbundling
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Mobile Telecommunications Sourcing Act
MTSA Overview – Why was it needed? – What’s excluded? – What does it establish?
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MTSA Overview Why was it needed? – Increasing number of cellular phone subscribers – Use of cellular service in multiple jurisdictions during a billing period – Trend toward flat-fee billing – Validity of billing address taxation under Goldberg? – Potential for multiple taxation – Difficulty in compliance and auditing
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MTSA Overview
What did it establish? – Required sourcing of mobile telecommunications services to “place of
primary use” – Allowed unbundling of nontaxable charges for mobile
telecommunications services – Creates provisions for electronic database containing jurisdiction
information for addresses – Sets limitations
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Services Subject to MTSA
What is Mobile Telecommunications Service? – “[C]ommercial mobile radio service, as defined in section 20.3 of title 47
of the Code of Federal Regulations as in effect on June 1, 1999.” 4 U.S.C. § 124(7).
What services are excluded? – Prepaid telephone calling services – Air-ground radio telephone services – Services excluded by the ITFA
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Services Subject to MTSA
Sample definition § “The term includes cellular telecommunications services, personal
communications services (PCS), specialized mobile radio services, wireless voice over Internet protocol services, and paging services. The term does not include telephone prepaid calling cards or airground radio telephone services as defined in 47 C.F.R. 22.99 of FCC regulations in effect on June 1, 1999.” Tex. Admin. Code tit. 34, § 3.344(6).
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Services Subject to MTSA
Inclusion of VoIP services in MTSA – Internet Tax Freedom Act of 2007 (amending §1105(5)(D)) – Removes voice, audio or video programing that uses the internet or
successor protocols from the list of protected internet services – Allowed states to begin taxing VOIP (Voice Over Internet Protocol)
services as telecommunications services
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Services Subject to MTSA
VOIP: Kansas Private Letter Ruling P-2013-001 (Jul. 3, 2013) – Conferencing and Video Solutions company, using the internet along
with the PSTN – Verified that Kansas treats VOIP services as telecommunications
services – Since they are considered telecom services, the sourcing rules will
follow the MTSA and use customers’ primary places of use – Looked to other decisions treating VOIP as telecom § Cable One, Inc. v. Arizona Dept. Revenue (2013) (property tax) § Baltimore v. Vonage (2008) (local telecom tax)
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Services Subject to MTSA VOIP in Flight?
Illinois Letter Ruling ST-10-0005-PLR (Aug. 9, 2010) § Company provides VoIP service via Wi-Fi on commercial airplanes
§ Service provided to airlines allowing airline personnel to place and receive calls in flight
§ Phones on aircraft are assigned telephone numbers that have an area code associated with the location of the data center the signal travels through
§ Data centers are located in Illinois
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Services Subject to MTSA VOIP in Flight? (cont’d)
Illinois Letter Ruling ST-10-0005-PLR (Aug. 9, 2010) § Determined service provided is an air to ground radio telephone service
§ Thus it is sourced using the Telecommunications Excise Act instead of the MTSA
§ Reduced tax burden, because TET is only due on when an airline originates or terminates calls while equipment is located in IL and the bill for service is sent to an Illinois address
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Sourcing
What if the customer moves outside of the licensed service area? Texas Policy Ltr. STAR 200208353L (Aug. 6, 2002) – If a customer has actually moved, the old address is no longer a place of
primary use. Use new address as place of primary use. – “The Mobile Telecommunications Sourcing Act did not contemplate
such situations since it was assumed for economic reasons that service providers would not sell mobile telecommunications services outside their licensed service areas, and even if some did, that a customer would soon switch to a service provider with a licensed service area that covered the customer.”
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Sourcing
What if the customer lives where no service is available? Utah State Tax Commission PLR 02-028 (Jan. 14, 2003) – If an alternative address (office, second home, etc.) is available, use that
alternative address. – Otherwise, treat home address as place of primary use despite obvious
absence of any actual use
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Sourcing
Nomadic VOIP Ill. Dep’t of Revenue OAH TC 12-01 (Feb. 3, 2012) – Company provides VoIP service which allows customers to place and
receive telephone calls wherever they can connect to a broadband network
– Under the ITFA amendments, Congress specifically allows states to tax VoIP services
– Found that even with a “nomadic VoIP,” the billing address of the customer constitutes substantial nexus and a place of primary use
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Sourcing
No billing address? IL ST 14-0003-PLR (Jun. 26, 2014) – Company offers VoIP and other online telecommunications services – Company does not collect billing address information – IP address captured during registration process; can use IP address
lookup service to associate with physical address – Use of IP registration address allowed as place of primary use
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Sourcing
International roaming – overseas residents visiting USA – International roaming charges for customers of foreign carriers making
calls in USA – Can a user have an overseas place of primary use? Rulings – Fla. Dep’t of Revenue Tech. Assistance Advisement 15A19-001 (Jan. 7,
2015) – Ill. Dep’t of Revenue Hearing TC 14-01 (Aug. 22, 2012) – N.Y. Dep’t of Tax’n & Fin. TSB-A-10(5)C / TSB-A-10(24)S (May 4, 2010
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Sourcing
International roaming – USA residents traveling abroad Texas Comptroller Hearing 201006688H (Jun. 4, 2010) – Texas cannot apply MTSA place of primary use to tax non-US
international calls (e.g. intra-Mexico calls)
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Sourcing
Telecommunications service vs. other service Texas Letter Ruling 201207533L (Jul. 31, 2012) – Company offers multiple online technology infrastructure services – “Service D” provides use of a cloud-based email software and server
power in lieu of an in-house email solution – Taxable as telecommunications service, not data processing – Source under landline rules or under MTSA place of primary use
approach?
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Bootstrapping MTSA to Other Impositions or Services
Universal Service Fees Federal Communications Commission FC 10-185 (Nov. 5, 2010) – Provides insight on Universal Service Fund contribution methodology – In paragraphs 18-21 the MTSA is adopted to determine where the USF
fees should be billed – Prevent customers from double-paying fees – Noted reasonableness for use of customer’s 911 location as proxy for
primary place of use
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Application of MTSA to Other Impositions or Services
Prepaid Wireless Cases – States sometimes apply MTSA primary use principles to telecoms not
specifically eligible for MTSA – Does imposition based on place of primary use mean that an E-911 tax
does not apply to prepaid wireless?
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Application of MTSA to Other Impositions or Services
Prepaid Wireless Cases (cont’d) – TracFone Wireless, Inc. v. Dep’t of Revenue, 242 P.3d 810 (Wash. 2010) – Commission on State Emergency Communications v. Tracfone Wireless,
Inc., 343 S.W.3d 233 (Tex. App. 2011) – T-Mobile South, LLC v. Bonet, 85 So. 3d 963 (Ala. 2011) – Virgin Mobile USA, L.P. v. Ariz. Dep’t of Revenue, 282 P.3d 1281 (Ariz. Ct.
App. 2012) – Virgin Mobile USA, L.P. v. Commonwealth of Kentucky (Ky. App. 2012),
rev’d 448 S.W.4d 241 (Ky. 2014)
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Application of MTSA to Other Impositions or Services Satellite radio
South Carolina Revenue Ruling #06-8 (Nov. 16, 2016) § “It is the Department’s opinion charges for mobile satellite communication
services, such as automobile satellite radio programming or other mobile communication services, are sourced to the primary place of use of the customer (e.g., the residence of an individual customer) as defined in the Mobile Telecommunications Sourcing Act.”
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Application of MTSA to Other Impositions or Services
Cloud Computing & Digital Products Chicago - Nonpossessory Computer Leases & Amusement Services – Personal Property Lease Transaction Tax Ruling #12 – FAQ #2- Customer’s location isn’t clear § Use MTSA stating with PPU § Can use apportionment between Chicago use and non-Chicago use
– Similar guidance for amusement tax SSUTA & Kentucky – Kentucky required to change place of primary use statute (2009)
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Application of MTSA to Other Impositions or Services
Message services – Haw. Letter Ruling No. 2012-11 (Jul. 17, 2012) – Taxpayer provides remote phone-answering services – While this appears to have been an analog service, the DOT applies
MTSA place of primary use principles
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MTSA Unbundling
Bundling Provision – “If a taxing jurisdiction does not otherwise subject charges for mobile
telecommunications services to taxation and if these charges are aggregated with and not separately stated from charges that are subject to taxation, then the charges for nontaxable mobile telecommunications services may be subject to taxation unless the home service provider can reasonable identify charges not subject to such tax, charge, or fee from its books and records that are kept in the regular course of business.”
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MTSA Unbundling
New York v. Sprint Nextel Corp. ( N.Y. Oct. 20, 2015) – Sprint being held liable for failing to collect sales taxes on the interstate
component of their bundled wireless phone services – New York False Claims act suit brought on by a whistle blower – In 2005 Sprint unbundled its wireless offerings for sales tax purposes – They took it a step further to separate the fees related to interstate calls
versus intrastate calls – They did this in order to avoid paying tax on interstate calls as they
were not subject to sales tax
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MTSA Unbundling
New York v. Sprint Nextel Corp. ( N.Y. Oct. 20, 2015) (cont’d) – What does this have to do with the MTSA? – Sprint used the argument that the MTSA preempts the New York sales
tax laws – New York Supreme Court found that the New York tax law doesn’t
conflict with the MTSA – Also, “that the tax law unambiguously imposes a tax on receipts from
the sale of mobile telecommunications that are voice services sold for a fixed periodic charge”
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MTSA Unbundling
Helio, LLC, DTA No. 525010 (N.Y. Div. Tax App. June 12,2014), aff’d by No. 525010 (N.Y. Tax. App. Trib. July 2, 2015) – Helio sold wireless products and services generally sold as plans for fixed monthly charge
– Helio collected New York sales tax on charges for intrastate voice service based on FCC safe harbor percentages
– Helio also didn’t tax data charges as they considered these separately stated internet access charges
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MTSA Unbundling
Helio, LLC, DTA No. 525010 (N.Y. Div. Tax App. June 12,2014), aff’d by No. 525010 (N.Y. Tax. App. Trib. July 2, 2015) – State once again found that the total receipts from fixed periodic
charges for mobile services were subject to tax not just intrastate charges
– Case law dictates that to determine the proper tax treatment of any service, you must focus on the service in its entirety versus a review of its components
– After examination it also found the MTSA doesn’t prevent the states from taxing both intrastate and interstate services
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MTSA Unbundling
Helio, LLC, DTA No. 525010 (N.Y. Div. Tax App. June 12,2014), aff’d by No. 525010 (N.Y. Tax. App. Trib. July 2, 2015) – Helio argued that its internet access services were not subject to New
York sales tax – State argued that internet access services were a component of the
bundle, not separately stated, and thus subject to tax – Court found that Helio was able to determine the component amount
of the bundle that was charged for Internet access services, and that this portion was non-taxable
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MTSA’s Future
What will constitute mobile telecommunications service? – Application of sourcing to the Internet of Things? Continued adoption of “place of primary use” concept for taxing
other services Integration of MTSA with Digital Goods and Services Tax Fairness Act
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Questions?
Matthew Boch Dover Dixon Horne PLLC
[email protected] 501-978-9929
Dustin Davis Ryan, LLC
[email protected] 972-934-0022 x10-1286
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