Rev. Rul. 77-49

Advice has been requested whether under the circumstances described below amounts paid for radio telephone facilities and services are subject to the communications tax imposed by section 4251 of the Internal Revenue Code of 1954.

A communications company (Company) is engaged in rendering cable telephone and radio telephone service to the public on a common carrier basis. It operates under a tariff filed with, and a license issued by, the Federal Communications Commission to provide rural radio telephone service in its offshore service area to subscriber stations that are not connected by telephone cable directly with the company's land-based communications terminal located in the local service area of a landline telephone company.

The company provides the offshore subscriber with a radio telephone. To make a call the subscriber lifts the radio telephone handset from the cradle, thus making connection with the company's telephone operator at the company's terminal. This connection is made through the company's nearest radio relay station on its offshore cable network. The company's operator interconnects the call with the marine operator of the local landline telephone company who completes the call. The procedure is reversed for incoming calls. All calls go through the local landline telephone company.

For the rural radio services described above, the subscriber is charged a monthly flat rate plus a fixed rate per minute with a minimum time charge for each call.

Section 4251(a) of the Code imposes a tax on amounts paid for certain communication services, including local and toll 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 that are 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 any service that is a "toll telephone service" or a "private communication service" as defined in sections 4252(b) and (d) respectively.

Section 4252(b) of the Code defines the term "toll telephone service" as (1) a telephonic quality communication for which (A) there is a toll charge which varies in amount with the distance and elapsed transmission time of each individual communication and (B) the charge is paid within the United States.

Section 4252(d) of the Code defines the term "private communication service" as (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 or 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 a service.

In the instant case the radio telephone facilities and services are adjunct to the landline telephone service by making accessible regular telephone service to offshore subscribers. Accordingly, these facilities and services come within the provisions of section 4252(a)(2) of the Code. Since such facilities and services do not provide exclusive or priority use of any communication channel, intercommunication system, or channel mileage within the meaning of section 4252(d), the exclusion for "private communication service" under section 4252(a) does not apply.

Therefore, the amounts paid for these communications services are subject to the tax imposed by section 4251(a) of the Code.

Rev. Rul. 74-559, 1974-2 C.B. 362, which holds certain two-way radio services furnished by a communications company to be nontaxable private communications services, is distinguishable. In that revenue ruling the radio services supplied were for the intracompany use of the subscriber between the subscriber's home office and its mobile units. This was accomplished through a communications company dispatcher, who relayed messages; a private wire line leased from the telephone company; or a dispatch radio station on the subscriber's premises. Thus, those radio services were for private communication.

Rev. Rul. 74-559 is distinguished.