Internal Revenue Service
Revenue Ruling
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smRev. Rul. 75-9
1975-1 C.B. 348
IRS Headnote
Communications; telephone service used in radio broadcasting. A radio station's payments for separate telephone service which enables callers from the local area, callers from outside the local area using foreign exchange channels, and out-of-town persons who call or are called via a special two-way line, to participate in the station's talk show are, except for the foreign exchange channel mileage charge, subject to the tax imposed by section 4251 of the Code. The treatment of amounts paid for local and toll telephone service and accessory service or equipment in connection with the broadcast of news and sporting events from the points of origin is also set forth. Rev. Rul. 73-242 superseded.
Full Text
Rev. Rul. 75-9
The Internal Revenue Service has reconsidered Rev. Rul. 73-242, 1973-1 C.B. 442, which relates to the applicability of the tax imposed by section 4251 of the Internal Revenue Code of 1954 to amounts paid by a radio station for certain communication services furnished in two situations described therein. Subsequent to publication of Rev. Rul. 73-242, the Service has received additional and more specific information concerning the nature of some of the services described in situation (1) of that Revenue Ruling. Such information requires modification of certain facts and conclusions set forth in Rev. Rul. 73-242 as they pertain to these services. As a result, the Service also deems it advisable to elaborate more fully on the basis for distinguishing between all the various communication services described in that Revenue Ruling.
Service (1). A radio station engaged in public broadcasting provides a program format of a type that is generally known and referred to as "talk show." Under this format, listeners among the general public may discuss various issues and topics on the air with the announcer of the particular program by dialing certain telephone numbers. The station utilizes local service telephone lines furnished by the telephone company for this purpose. Calls made through the assigned telephone numbers go directly into the studio broadcasting system. These lines are not used for outgoing calls and the station's business and administrative calls are handled on entirely separate lines.
Service (2). In addition to providing service for local callers on the talk show, the radio station also arranges for so-called "foreign exchange service" by means of which listeners in a foreign exchange area, an area outside the local exchange area of the radio station, may by dialing a local number in the foreign exchange area reach the station and participate in the program. The telephone company makes two charges to the radio station for this service: a charge for the channel mileage to the foreign exchange area plus a charge for the local service furnished within the foreign exchange area.
Service (3). In connection with the talk show, the telephone company also provides the radio station with a special two-way line over which long distance phone calls are made to and from out-of-town celebrities and other special guests who are interviewed or otherwise participate on the talk show by telephone. The telephone company charges the station for this long distance service on a call by call basis.
Service (4). Another radio station, as part of its regular programming, broadcasts certain news and sporting events directly from the points of origin, both within and without the local area. The radio station places local and toll service telephone calls over the public telephone system to transmit these broadcasts to the studio where they are then transmitted over regular facilities to listeners. For purposes of this type of transmission, the telephone company also furnishes, at an additional charge, a device known as a "QKT" which when connected to the transmitting telephone at the source of a news or sporting event permits the announcer to send his program back to the station without the danger of loud portions of the program leaking into adjacent wires in the telephone cable and causing "crosstalk."
In service (4), the station also utilizes an additional single telephone installed by the telephone company at the point of origin of the remote news or sports broadcast for the sole purpose of setting up and controlling the program. The telephone, referred to as a "coordinating telephone," is used to establish volume levels at the start of the broadcast, to synchronize watches, or to receive further instructions from the studio during the program, all of which communication is accomplished by means of calls over the public telephone system. Following a broadcast at a remote location, the coordinating telephone hook-up may be either disconnected completely by the telephone company, or the hook-up may remain connected for use at a later date, in which case only the instrument is removed from the premises.
Section 4251(a) of the Code imposes a tax on amounts paid for local telephone service, toll telephone service, and teletypewriter exchange service.
Section 4252(a) of the Code provides that, for purposes of the tax imposed by section 4251(a), the term "local telephone service" means (1) the access to a local telephone system, and the privilege of telephonic quality communication with substantially all persons having telephone or radio telephone stations constituting a part of such local telephone system, and (2) any facility or service provided in connection with a service described in (1). That section also provides that the term local telephone service does not include any service which is a "toll telephone service" as defined in section 4252(b) or is a "private communication service" as defined in section 4252(d).
Section 4252(b) of the Code provides definitions of toll telephone service, for purposes of the tax imposed by section 4251(a). Under the provisions of section 4252(b)(1), the term toll telephone service means a telephonic quality communication for which (A) there is a toll charge that varies in amount with the distance and elapsed transmission time of each individual communication and (B) the charge is paid within the United States. Under the provisions of section 4252(b)(2), the term toll telephone service also means 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.
Under the provision of section 4252(d)(3) of the Code, the term "private communication service" includes the channel mileage which connects a telephone station located outside a local telephone system area with a central office in such local telephone system. Such term does not include any communication service unless a separate charge is made for such service.
Section 4253(b) of the Code provides that no tax shall be imposed under section 4251, except with respect to local telephone service, on any payment received from any person for services used in the collection of news for the public press, or a news ticker service furnishing a general news service similar to that of the public press, or radio broadcasting, or in the dissemination of news through the public press, or a news ticker service furnishing a general news service similar to that of the public press, or by means of radio broadcasting, if the charge for such service is billed in writing to such person.
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.
As indicated in the statutory provisions set forth above, the exemptions from the taxes on communication services provided by sections 4253(b) and 4253(f) of the Code are not applicable to local telephone service. Thus, in determining whether amounts paid for communication services are subject to the tax or whether they are exempt, it must first be determined whether those services come within the definition of local telephone service, as defined in section 4252(a). If the services are local telephone services, amounts paid therefor are subject to tax regardless of whether they are used for any of the purposes enumerated in sections 4253(b) or 4253(f).
In service (1), above, the telephone lines used by the radio station to handle incoming calls from local service listeners who participate in the talk show program provide access to a local telephone system and the privilege of telephonic quality communication for all persons who use the numbers provided. Accordingly, this service is local telephone service as defined in section 4252(a) of the Code, and amounts paid by the station for such service are subject to the tax imposed by section 4251(a), irrespective of the fact that the service is used exclusively for broadcasting on the air.
In service (2), the channel mileage furnished to connect the radio station with the local service within the foreign exchange area is private communication service as set forth in section 4252(d)(3) of the Code. Therefore, under the provisions of section 4252(a), the tax imposed by section 4251 does not apply to the amount paid by the radio station to the telephone company for the separate charge for the channel mileage. However, the tax does apply to the amount paid by the station for the separate charge made by the telephone company for local telephone service furnished within the foreign exchange area.
With respect to Service (3), there is no exemption for local telephone service furnished to a broadcasting station unless, as indicated above, such service comes within the definition of private communication service. However, an exemption is provided by section 4253(f) of the Code for toll telephone service furnished to a broadcasting station for use in the conduct of its business if the toll telephone service falls within the type of service described in section 4252(b)(2). The Senate Finance Committee Report to accompany the Excise Tax Reduction Act of 1965 (S. Rep. No. 324, 89th Cong., 1st Sess. (1965), 1965-2 C.B. 676 at 704) indicates that the type of toll telephone service described in section 4252(b)(2) is the so-called "WATS" service (wide area telephone service).
In service (3), the two-way line furnished by the telephone company and used by the station for making or receiving long distance calls in connection with celebrities or special guests who participate on the talk show constitutes toll telephone service, as defined in section 4252(b)(1) of the Code, rather than wide area toll telephone service, as defined in section 4252(b)(2). Accordingly, the exemption provided by section 4253(f) does not apply to amounts paid by the station for such service, even though such service may be used exclusively for broadcasting on the air.
In service (4), when the station places local telephone calls to transmit news or sporting events from the source, amounts paid by the station for such telephone service are subject to the tax imposed by section 4251(a) of the Code since the amounts paid are for local telephone service. However, where news or sporting programs are transmitted through toll telephone calls, amounts paid by the station for this service are exempt from tax under the provisions of section 4253(b) regardless of the type of toll telephone service involved, because the exemption under that section is applicable to any toll telephone service used in the collection and dissemination of news.
Where a QKT is used in connection with the transmission of news and sporting events by means of local telephone calls, amounts paid for use of a QKT are subject to the tax imposed by section 4251(a) of the Code, whereas amounts paid for use of a QKT in connection with toll calls are exempt from tax by reason of section 4253(b), provided the QKT is used entirely in connection with the news or sporting broadcasts.
Where coordinating telephones are used at remote locations exclusively in connection with transmission of news or sporting broadcasts from the source by means of toll telephone calls, amounts paid for use of such telephone service are exempt from the tax imposed by section 4251(a) of the Code. However, where coordinating telephones are used at such locations in connection with broadcasting of news or sporting events by means of local telephone calls, amounts paid for this service are subject to the tax imposed by section 4251(a).
Under the provisions of section 7805(b) of the Code, the conclusions set forth in this Revenue Ruling regarding the local telephone service furnished within the foreign exchange area described in service (2) and the special two-way long distance line described in service (3) will not be applied to amounts paid for such services prior to April 1, 1975.
Rev. Rul. 73-242 is hereby superseded.