Rev. Rul. 79-404

ISSUE

Whether the federal excise tax on communication services applies to amounts paid in the United States for certain communications services between telephones in the United States and offshore facilities.

FACTS

X Company offers a service that enables communication between ships at sea or other offshore facilities (such as drilling platforms) and telephone subscribers in the United States. A message or call from a ship's radio station is relayed through an earth satellite, in orbit over the equator, to a landline station of X in the United States that is connected into the regular long distance telephone system for completion of the call. The procedure is reversed for calls from the United States. Thus, the service provided by X offers offshore stations access by radio into the United States land telephone network.

The charge for this service is 3x dollars for the first three minutes or fraction thereof, and 1x dollars for each additional minute or fraction thereof, regardless of the location of either the land telephone or maritime radio stations.

LAW AND ANALYSIS

Section 4251 of the Internal Revenue Code imposes a tax on the amounts paid for local telephone service and toll telephone service.

Section 4252(a)(1) of the Code defines "local telephone service" to include the access to a local telephone system and the privilege of telephonic quality communication with substantially all persons having telephone or radio stations constituting a part of such system, and any facility or service provided in connection with such service. The term "local telephone service" does not include any service that is a "toll telephone service" or a "private communication service."

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

Rev. Rul. 77-49, 1977-1 C.B. 341, holds taxable amounts paid for radio telephone facilities and services that make regular telephone service accessible to offshore subscribers. The ruling points out that such radio service is an adjunct to the landline service by performing that function.

The mere fact that access into the telephone network is by radio is not a basis for exclusion from the tax. This is shown by the specific reference in section 4252(a) of the Code to radio stations, and the position of the Service set forth in Rev. Rul. 77-49. The service in this case is similar to that in Rev. Rul. 77-49 in that it serves as an adjunct to the American continental telephone network by making telephones in that network accessible to the maritime telephone stations.

Literally, the service provided in this case does not come within the definition of "local telephone service" or "toll telephone service" as those terms are currently defined in section 4252 of the Code. It is not local telephone service because it provides access to the long distance telephone system in the United States. It is not toll telephone service because the charge for such service does not vary with distance and therefore does not meet the requirement of section 4252(b)(1).

It is well established, however, that a statute may be given an interpretation other than that which follows from its literal language where such interpretation is required in order to comport with the legislative intent.

The Supreme Court has stated:

There is, of course, no more persuasive evidence of the purpose of a statute than the words by which the legislature undertook to give expression to its wishes. Often these words are sufficient in and of themselves to determine the purpose of the legislation. In such cases we have followed their plain meaning. When that meaning has led to absurd or futile results, however, this Court has looked beyond the words to the purpose of the act. Frequently, however, even when the plain meaning did not produce absurd results but merely an unreasonable one "plainly at variance with the policy of the legislation as a whole" this Court has followed that purpose, rather than the literal words. When aid to construction of the meaning of words, as used in the statute, is available, there certainly can be no "rule of law" which forbids its use, however clear the words may appear on "superficial examination." United States v. American Trucking Associations, 310 U.S. 534, 543-44 (1940).

See also Corn Products Refining Company v. Commissioner, 350 U.S. 46 (1955), 1955-2 C.B. 511, a tax case in which the Supreme Court departed from the literal wording of a statute. The Court did so because to hold otherwise would have been "to defeat rather than further the purpose of Congress." 350 U.S. at 51, 52.

The legislative history of section 4252 of the Code indicates that the type of service at issue here is within the intended scope of taxable "toll telephone service."

Prior to the amendment of section 4252 of the Code by section 302 of the Excise Tax Reduction Act of 1965, 1965-2 C.B. 568, 577-578, one of the services taxed was "toll telephone service", which was defined, in part, as a telephone or radio telephone message or conversation for which (1) there is a toll charge, and (2) the charge is paid within the United States.

Prior to the 1965 amendment the communication service considered here would have been within the definition of toll telephone service. The legislative history pertaining to the Excise Tax Reduction Act of 1965, 1965-2 C.B. 643 and 676, indicates that Congress intended to exempt certain private communication services from the tax and repeal the tax on telegraph service and wire and equipment service. There is no indication that Congress otherwise intended to make changes in the types of service subject to tax.

The service in this case is essentially "toll telephone service" as described in section 4252(b)(1) of the Code, even though the charge for calls between remote maritime stations and stations in the United States vary with elapsed transmission time only. The toll charges described in section 4252(b)(1), that vary in amount with both distance and elapsed transmission time of the individual communication, reflect Congress' understanding of how the charges for long distance calls were computed at the time the section was enacted. The intent of the statute would be frustrated if a new type of service otherwise within such intent were held to be nontaxable merely because charges for it are determined in a manner which is not within the literal language of the statute.

HOLDING

The communication service in this case is toll telephone service within the meaning of section 4252(b)(1) of the Code, and amounts paid in the United States for this toll telephone service are subject to the tax imposed by section 4251(a).