Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 73-34

1973-1 C.B. 441

IRS Headnote

Application of the tax on communication services to long distance telephone calls made in the course of company business by employees of a telephone company on its own lines and the lines of other telephone companies.

Full Text

Rev. Rul. 73-34

Advice has been requested whether the tax on communication services imposed by section 4251 of the Internal Revenue Code of 1954 is applicable to telephone calls made by a telephone company under the circumstances described below.

In the course of company business, employees of Telephone Company X make long distance telephone calls. The calls are of two types:

Type 1. These calls originate on the lines of Company X, and in some instances they require the use of the lines of other telephone companies for completion. Since these calls are business calls originating on the company's own lines, the company makes no charge for the calls.

Type 2. These calls are originated by Company X employees on lines of other telephone companies while the employees are on duty at an office of Company X located within the service area of another telephone company. In some instances, these calls may require the use of another telephone company's lines (including Company X's lines) for completion. When these calls are placed, the full rate for the completed calls is charged to Company X.

Periodically a settlement is made between the companies for the costs of all calls that utilize the lines of two or more companies for completion.

Section 4251(a)(1) of the Code imposes a tax on amounts paid for certain communication services, including toll telephone service. "Toll telephone service" is defined in section 4252(b)(1) of the Code to include telephonic quality communication for which (A) there is a toll charge which varies in amount with the distance and elapsed transmission time of each individual communication and (B) the charge is paid within the United States. The term is further defined in section 4252(b)(2) of the Code to include a service which entitles the subscriber, upon payment of a periodic charge (determined as a flat amount or upon the basis of total elapsed transmission time), to the privilege of an unlimited number of telephonic communications to or from all or a substantial portion of the persons having telephone or radio telephone stations in a specified area which is outside the local telephone system area in which the station provided with this service is located.

Section 4253(f) of the Code provides that no tax shall be imposed under section 4251 on the amount paid for any toll telephone service described in section 4252(b)(2) to the extent that the amount so paid is for use by a common carrier, telephone or telegraph company, or radio broadcasting station or network in the conduct of its business as such.

The telephone calls in Type 1 and Type 2 are calls of the kind described in section 4252(b)(1) of the Code. Therefore, such calls do not come within the exemption provided by section 4253(f) of the Code for calls made in the conduct of telephone company business.

The calls described as Type 1 are business calls of Company X that originate on its own lines and it does not charge itself for the service. Since this Type 1 telephone service is furnished by Company X to itself without charge and not to an outside telephone subscriber, it is held that the Type 1 calls are not subject to the tax imposed by section 4251 of the Code.

The long distance calls described in Type 2 are originated by employees of Company X on the lines of other telephone companies, and the charge for the calls is billed directly to Company X. Therefore, Company X is a telephone subscriber with respect to such calls, and is receiving "toll telephone service" within the meaning of section 4252(b)(1) of the Code. Accordingly, it is further held that the amounts paid for Type 2 service are subject to the tax imposed by section 4251(a) of the Code.