SALT Report 1847 – A Texas Administrative Law Judge ruled that a cable television and telecommunications provider was liable for sales tax on its purchases of commercial equipment and video servers that were used to provide video content to its customers.
During an audit the Taxpayer was assessed additional taxes on its sales of telecommunications and cable television services, fixed asset purchases, and for tax collected and not remitted. The Taxpayer requested a redetermination maintaining that the auditor assessed tax on exempt purchases. The Taxpayer also filed refund requests claiming that refunds were due for taxes paid in error on exempt purchases.
In the Taxpayers’ petition he claimed that the commercial equipment was used to store and insert commercials into cable television broadcasts. The Taxpayer also claimed that the commercial equipment was integrated into other broadcasting equipment so that the commercials would be automatically placed into the broadcast stream.
Because of the way the Taxpayer used the commercial equipment he claimed that they should be exempt under Texas Tax Code 151.3185(a)(1)(A) as “ingredients or component parts of a motion picture, video, or audio recording, a copy of which is sold or offered for ultimate sale, licensed, distributed, broadcast, or otherwise exhibited.” Or, under Texas Tax Code 151.3185(a)(2)(A) as “tangible personal property that is necessary or essential to and used or consumed in or during the production of a motion picture, video, or audio recording, a copy of which is sold or offered for ultimate sale, licensed, distributed, broadcast, or otherwise exhibited.”
Upon review of the case, the Administrative Law Judge ruled that the commercial equipment did not qualify for either exemption because the Taxpayer did not produce motion pictures, videos, or audio recordings. Instead, the Taxpayer received pre-recorded programming and advertisements from third-party producers and distributed that to its subscribers.
Further, the ALJ ruled that the Taxpayer’s purchases of equipment used to process cable television and telephone signals did not qualify for the manufacturing exemption because there was no evidence that the equipment was used to process or manufacture tangible personal property for future sale.
As a result, the ALJ upheld the audit assessment and denied all refund claims.
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