Rev. Rul. 74-559

Advice has been requested whether the tax on communication services imposed by section 4251(a) of the Internal Revenue Code of 1954 applies to amounts paid to a communications company for the communication services described below.

Service A. This is a two-way service enabling subscribers to communicate by radio from their mobile units directly with a dispatcher in the communications company's office. Usually, the subscriber's office calls the dispatcher by landline telephone and the dispatcher radios the message to a mobile unit, or the mobile unit calls the dispatcher and the dispatcher relays the message to the subscriber's office. However, it is possible for the dispatcher to interconnect a radio message with a landline telephone so that the mobile unit can communicate directly with a landline station.

Service B. This is a two-way service by which the subscriber may talk directly to his mobile units through the communication company's base station, without relaying of the messages by the company's dispatchers. The subscriber has installed in his office a direct dispatch facility connected to the base station by a private wire-line leased from the telephone company. The mobile units of all subscribers under this plan are technically capable of communicating with each of the other mobile units constituting a part of the system.

Service C. This is a two-way service whereby communication between the subscriber's office and his mobile units is achieved directly through the communication company's base station entirely by radio without the aid of any landline telephone system facilities, public or private. The use of a radio unit known as a dispatch radio station, located in the subscribers office, eliminates the necessity for relaying messages by the communications company's dispatcher, for calling the company's message center by public landline telephone, and for leasing private lines from the telephone company.

Section 4251(a) 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 (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).

Section 4252(d) of the Code defines private communication service as meaning:

(1) the communication service furnished to a subscriber which entitles the subscriber

(A) to exclusive or priority use of any communication channel or groups of channels, or

(B) to the use of an intercommunication system for the subscriber's stations, regardless of whether such channel, groups of channels, or intercommunication system may be connected through switching with a service described in subsection (a) as local telephone service, (b) toll telephone service, or (c) teletypewriter exchange service

(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 paragraph (1), and

(3) the channel mileage which connects a telephone station located outside a local telephone system area with a central office in such local telephone system,

except that such term does not include any communication service unless a separate charge is made for such service.

With respect to Service A, that part of the facilities and services furnished by the communications company that is not part of the connecting arrangement with the local telephone service comes within the definition of private communication service as that term is defined in section 4252(d) of the Code. Accordingly, amounts paid for that part of the service are not subject to the tax imposed by section 4251(a) if the communications company makes a separate charge therefor.

All the facilities and services provided by the communications company with respect to the services designated as B and C come within the definition of "private communication service," as that term is defined in section 4252(d) of the Code. Accordingly, amounts paid for these communication services are not subject to the tax imposed by section 4251(a).