SALT Report 1987 – A New Jersey tax court ruled that a cable television service provider was entitled to an exemption from sales and use tax for its purchases of converter boxes but not for its purchases of remote controls.
The converter boxes are provided to cable television subscribers and are used to convert television signals from the transmission frequency to the frequency of the channel in which the customer’s television is tuned.
N.J.S.A 54:32B-8.13 provides an exemption for items or apparatus and equipment used to provide cable television programming services to subscribers. The machinery, apparatus, and equipment must be used directly and primarily to produce or transmit radio or television information. However, the exemption does not apply to sales of machinery, equipment, or apparatus whose use is incidental to the activities provided in the exemption.
The court determined that although the converter boxes performed other functions, their primary function was the transmission of information, making them eligible for the exemption. However, the court noted that because the converter boxes can be operated manually the remote controls are merely functional interface devices that are not required to receive transmission information. As a result, the remotes do not qualify for the exemption and are subject to tax.
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