Tax News

CCH (cch.taxgroup.com) reports:

Port modem management services purchased by an Internet service provider from a telecommunications company were telecommunications services subject to Pennsylvania sales tax rather than exempt enhanced services. The taxpayer contended that its primary objective in purchasing services from the telecommunications company was port modem management and that the services should not be classified as taxable basic telecommunications services merely because they were purchased and billed together with transmission services. However, the court determined that "management" was only one component of the services and the remaining services were used for taxable purposes.
The taxpayer also claimed that based on Pennsylvania Department of Revenue Policy Statement 60.20, the services constituted nontaxable enhanced telecommunications services because they were offered over a telecommunications network and some functions were performed by using a computer processing application. The court determined that it was appropriate to consult federal communications law to determine the taxability of the services because although Policy Statement 60.20 provides that exempt enhanced telecommunications services do not include services that use computer processing applications "solely for the management, control or operation of a telecommunication system or the management of a telecommunication service," the policy statement does not define that phrase. The computer processing applications performed by the telecommunications company fell within the Federal Communications Commission's categories of protocol processing that resemble exempt enhanced services but are considered taxable basic telecommunications services. The taxpayer claimed that federal communications law should not be used to interpret Policy Statement 60.20 and that in order to be consistent with the federal Internet Tax Freedom Act (ITFA), the Pennsylvania Department of Revenue could not impose a sales tax on a service that was not a taxable telecommunications service as defined in Policy Statement 60.20. However, the court determined that the ITFA did not apply because the version of the federal law that was in effect at the time of the purchases provided that the term "Internet access" did not include telecommunications services. Finally, Pennsylvania's tax on the services did not constitute a tax on electronic commerce in violation of the ITFA because the services were not transactions "conducted over the Internet or through Internet access."
America Online, Inc. v. Pennsylvania , Pennsylvania Commonwealth Court, No. 621 F.R. 2004, September 7, 2007, ¶203-704
Other References:
Explanations at ¶60-720