Rev. Rul. 73-171

Advice is requested whether the communications tax imposed by section 4251 of the Internal Revenue Code of 1954 is applicable with respect to amounts paid for the use of certain telephone equipment furnished under the circumstances described below, or whether such equipment is a "private communication service" exempt from tax. In connection with the furnishing of a taxable local telephone service, a telephone company installs two models of its automatic call distributing equipment for use by a newspaper company in handling a large volume of incoming "order" or "information" calls. One model utilizes the same step-by-step type switching equipment as used in PBX systems, and the other employs a specially designed switching system. Both models may be used independently or may be associated with a PBX or Centrex system. The calls are distributed in the approximate order of arrival when attendant positions become available. The one model's common equipment requires a separate equipment room, while the other model does not require an equipment room.

Section 4251 of the Code imposes a tax on amounts paid for certain communication services, including local telephone service.

Section 4252(a) of the Code defines the term "local telephone service" as meaning (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 paragraph (1). This section also provides that the term "local telephone service" does not include a "private communication service" as defined in section 4252(d) of the Code.

Section 4252(d) of the Code defines "private communication service" in pertinent part to include:

1. Communication service furnished to a subscriber which entitles the subscriber to (a) exclusive or priority use of any communication channel or group of channels, or (b) to the use of any intercommunication system for the subscriber's stations, regardless of whether such channel, group of channels, or intercommunication system may be connected through switching with a taxable local telephone service, toll telephone service, or teletypewriter exchange service, and

2. Switching capacity, extension lines and stations, or other associated services which are provided in connection with, and are necessary or unique to the use of, channels or systems described in 1. above.

The automatic call distributing equipment described above is supplied in connection with the furnishing of a taxable local telephone service, and since it implements that service, it is "a facility or service furnished in connection with" a local telephone service, within the meaning of section 4252(a)(2) of the Code. The equipment cannot be used, in itself, as a private communication channel, nor as an intercommunication system for a subscriber's stations. Furthermore, when, as in the instant case, such equipment is provided for use only in connection with a local telephone service, it cannot be said it is a service provided in connection with an exclusive, or priority use communication channel, or with a subscriber's private communication system.

Accordingly, it is held that amounts paid for use of the distribution equipment under the described circumstances are not amounts paid for a "private communication service" defined in section 4252(d) of the Code, but are, rather, amounts paid for a facility or service provided in connection with local telephone service within the meaning of section 4252(a)(2), and subject to the tax imposed by section 4251.