Rev. Rul. 89-84

1989-1 C.B. 296, 1989-26 I.R.B. 18.

                       Internal Revenue Service

                                 Revenue Ruling

                PUBLIC ANNOUNCEMENT SERVICE; COMMUNICATIONS TAX

                            Published: June 26, 1989

Section 4251. - Imposition of Tax, 26 CFR 49.4251: Imposition of Tax.

(Also Sections 4252, 4291.)

  Public announcement service; communications tax. Tax consequences under section 4251 of the Code are described for amounts paid for a public announcement service.

ISSUE

  Are amounts paid for, or in connection with, providing a public announcement service (PAS) subject to the tax imposed by section 4251 of the Internal Revenue Code, and, if so, who is liable for the tax under the circumstances described below?

FACTS

  PAS is a service that enables a subscriber to a local telephone company to call one or more telephone numbers of an information provider (IP) and hear recorded information on stock prices, sports scores, soap opera summaries, or news and weather reports.

  When a subscriber calls a PAS number, the telephone company bills the subscriber 50 cents a call, a price selected by the IP. Pursuant to the tariff filed with and approved by the state utility commission, the entire per call transmission charge by the telephone company is borne by the IP. Thus, when the telephone company bills a subscriber (the call initiator) 50 cents for a completed call to a PAS telephone number, the telephone company retains out of the 50 cents collected a 30 cent transmission charge to the IP for local telephone service, and remits the net amount of 20 cents to the IP. If the telephone company is unable to collect the 50 cents from the subscriber then the telephone company bills the IP for the 30 cent transmission charge.

  IP's payments to the telephone company for PAS also include a one-time service establishment charge, a flat monthly charge for each telephone number assigned to it, and a change charge for each IP requested change in the IP selected price, telephone number, or program name.

LAW AND ANALYSIS

  Section 4251(a)(1) of the Code imposes a tax on amounts paid for certain communications services, including local telephone service as provided in section 4251(b)(1)(A). Section 4251(a)(2) provides that the tax shall be paid by the person paying for the service, and section 4291 provides that the tax shall be collected by the person receiving payment for the service.

  Section 4252(a) of the Code provides that 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).

  Section 4253(g) of the Code provides that no tax shall be imposed under section 4251 on so much of any amount paid for the installation of any instrument, wire, pole, switchboard, apparatus, or equipment as is properly attributable to such installation.

  In Rev. Rul. 75-102, 1975-1 C.B. 351, a telephone company sold 'time-of-day' and 'weather forecast' services to businesses that wished to advertise their products. When one of these services was purchased by an advertiser, the telephone company assigned a specific number for the service and the persons calling would hear the correct time or weather forecast as well as the advertising message prepared by the advertiser. The advertiser subscribing to such service was billed monthly by the telephone company on the basis of the number of incoming calls.

  Rev. Rul. 75-102 holds that the time-of-day and weather forecast services furnished by the telephone company provide the advertiser with access to a local telephone system and the privilege of telephonic quality communication with all persons having telephones in the system. Thus, such services are 'local telephone service' and amounts paid by the business advertisers for such services are subject to the tax imposed by section 4251(a) of the Code.

  The IP in this case is no different from an advertiser or any other service provider that wishes to communicate a message or information using the local telephone system. Subject to the approval of the state utility commission, the telephone company can determine the charge (tariff) for accessing the local telephone system in order to communicate a message or information, and whether an IP will bear some, all, or none of this charge.

  In this case, pursuant to the tariff filed with and approved by the state utility commission, the entire telephone access and transmission charge is borne by the IP, the call recipient. The telephone company bills the telephone subscriber for the IP, selected price of 50 cents for every completed call to a PAS telephone number, retains out of the 50 cents collected a 30 cent transmission charge to the IP for local telephone service, and remits the net amount of 20 cents to the IP. The IP's constructive payment of the 30 cent charge (per completed PAS call) to the telephone company provides the IP with local telephone service in the form of access to the local telephone system and the privilege of telephonic quality communication with all persons having telephones in the system.

  However, the net amount (20 cents per completed PAS call) remitted to the IP by the telephone company is not an amount paid for local telephone service in the form of a 'service provided in connection with a [local telephone] service', as provided in section 4252(a)(2) of the Code. This is because the providing of PAS does not implement, facilitate, or otherwise assist in accessing or transmitting local telephone service. Compare Rev. Rul. 73-171, 1973-1 C.B. 445, which holds that amounts paid for automatic call distributing equipment are amounts paid for taxable local telephone service because such equipment helps to implement that service, with Rev. Rul. 72-616, 1972-2 C.B. 575, which holds that amounts paid for yellow pages listings are not amounts paid for taxable local telephone service because such listings are a form of advertising.

  Although the one-time service establishment charge paid by the IP is in the nature of an installation fee that is exempt from tax under section 4253(g) of the Code, the flat monthly charge and the change charges paid by the IP are taxable charges for local telephone service under section 4251.

HOLDING

  The IP is liable for the tax imposed by section 4251 of the Code on the 30 cents per call amount it is deemed to have paid to the telephone company for its local telephone service in connection with providing PAS. Amounts paid by the call initiators for PAS, including the 20 cents per call remitted by the telephone company to the IP, are not subject to the section 4251 tax.

DRAFTING INFORMATION

  The principal author of this revenue ruling is Frank Boland, Office of Assistant Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue ruling contact Mr. Boland on (202) 566-4077 (not a toll-free call).

Rev. Rul. 89-84, 1989-1 C.B. 296, 1989-26 I.R.B. 18.