26 C.F.R. Subpart C—Communications
Title 26 - Internal Revenue
Source: T.D. 6664, 28 FR 7252, July 16, 1963, unless otherwise noted.
(a) In general. Section 4251 imposes a tax on amounts paid for general telephone service; toll telephone service; telegraph service; teletypewriter exchange service; wire mileage service; and wire and equipment service. See §49.4251–2 for rate and application of tax. (b) Termination of tax on general telephone service. (1) Except as otherwise provided in subparagraph (2) of this paragraph, no tax is imposed on amounts paid on or after July 1, 1965, for general telephone service rendered on or after such date. (2) In the case of amounts paid pursuant to bills rendered on or after July 1, 1965, for general telephone service for which no previous bill was rendered, no tax is imposed on that portion of the amount paid pursuant to such bill or bills as is attributable to general telephone service rendered subsequent to April 30, 1965. However, the tax applies to that portion of the amount paid pursuant to any such bill or bills as is attributable to general telephone service rendered prior to May 1, 1965. The tax also applies to amounts paid for general telephone service pursuant to bills rendered before July 1, 1965, without regard to when the payment is made or the service is rendered. [T.D. 6664, 28 FR 7252, July 16, 1963, as amended by T.D. 6694, 28 FR 12929, Dec. 5, 1963; T.D. 6753; 29 FR 12718, Sept. 9, 1964] (a) Rate of tax. Tax is imposed on amounts paid for each of the following services rendered at the rate specified below: (b) Amounts paid. The term “amounts paid” means the amounts collected for the communication services specified in paragraph (a) of this section, without regard to whether the charge therefor is paid or satisfied in money, service, or other valuable consideration. For additional provisions relating to the term “amounts paid” see the section of the regulations relating to the particular taxable service listed in paragraph (a) of this section. (c) Liability for, and return of, tax. The taxes imposed by section 4251 are payable by the person paying for the services rendered, and must be paid to the person rendering the services who is required to collect the tax and return and pay over the tax. [T.D. 6664, 28 FR 7252, July 16, 1963, as amended by T.D. 8442, 57 FR 48186, Oct. 22, 1992] Except as otherwise provided in this section, the applicability of sections 4251 to 4254, inclusive, as amended and in effect on January 1, 1959, and the regulations in this subpart extends only to amounts paid on or after January 1, 1959, for services rendered on or after such date. In the case of amounts paid pursuant to bills rendered on or after January 1, 1959, for services for which no previous bill was rendered, the sections of law and regulations referred to in the preceding sentence are applicable in respect of that portion of the amount paid pursuant to such bill or bills as is attributable to services rendered subsequent to October 31, 1958. For regulations applicable with respect to amounts paid for services rendered prior to November 1, 1958, and amounts paid for services rendered after October 31, 1958, for which a bill was rendered prior to January 1, 1959, see Part 42 of this chapter. See also §§49.0–3 and 49.0–4, relating to the scope of the regulations and the extent to which prior regulations are superseded. (a) In general. In the case of communications services acquired by means of a prepaid telephone card (PTC), the face amount of the PTC is treated as an amount paid for communications services and that amount is treated as paid when the PTC is transferred by any carrier to any person that is not a carrier. This section provides rules for the application of the section 4251 tax to PTCs. (b) Definitions. The following definitions apply to this section: Carrier means a telecommunications carrier as defined in 47 U.S.C. 153. Comparable PTC means a currently available dollar card or tariffed unit card (other than a PTC transferred in bulk or under special circumstances, such as for promotional purposes) that provides the same type and amount of communications services as the PTC to which it is being compared. Dollar card means a PTC the value of which is designated by the carrier in dollars (even if also designated in units of service), provided that the designated value is not less than the amount for which the PTC is expected to be sold to a holder. Holder means a person that purchases other than for resale. Prepaid telephone card (PTC) means a card or similar arrangement that permits its holder to obtain a fixed amount of communications services by means of a code (such as a personal identification number (PIN)) or other access device provided by the carrier and to pay for those services in advance. Tariff means a schedule of rates and regulations filed by a carrier with the Federal Communications Commission. Tariffed unit card means a unit card that is transferred by a carrier— (1) To a holder at a price that does not exceed the designated number of units on the PTC multiplied by the carrier's tariffed price per unit; or (2) To a transferee reseller subject to a contractual or other arrangement under which the price at which the PTC is sold to a holder will not exceed the designated number of units on the PTC multiplied by the carrier's tariffed price per unit. Transferee means the first person that is not a carrier to whom a PTC is transferred by a carrier. Transferee reseller means a transferee that purchases a PTC for resale. Unit card means a PTC other than a dollar card. Untariffed unit card means a unit card other than a tariffed unit card. (c) Determination of face amount—(1) Dollar card. The face amount of a dollar card is the designated dollar value. (2) Tariffed unit card. The face amount of a tariffed unit card is the designated number of units on the PTC multiplied by the tariffed price per unit. (3) Untariffed unit card—(i) Transfer to holder. The face amount of an untariffed unit card transferred by a carrier to a holder is the amount for which the carrier sells the PTC to the holder. (ii) Transfer to transferee reseller—(A) In general. The face amount of an untariffed unit card transferred by a carrier to a transferee reseller is at the option of the carrier— (1) The highest amount for which the carrier sells a PTC that provides the same type and amount of communications services to a holder that ordinarily would not be expected to buy more than one such PTC at a time (if the carrier makes such sales on a regular and arm's-length basis) or the face amount of a comparable PTC (if the carrier does not make such sales on a regular and arm's-length basis); (2) 135 percent of the amount for which the carrier sells the PTC to the transferee reseller (including in that amount, in addition to any sum certain fixed at the time of the sale, any contingent amount per unit multiplied by the designated number of units on the PTC); or (3) If the PTC is of a type that ordinarily is used entirely for domestic communications service, the maximum number of minutes of domestic communications service on the PTC multiplied by the applicable rate. (B) Applicable rate. The applicable rate under paragraph (c)(3)(ii)(A)(3) of this section with respect to a PTC is $0.30 reduced (but not below $0.20) by $0.01 for each full 20 minutes by which the maximum number of minutes of domestic communications service on the PTC exceeds 40 minutes. (C) Sales not at arm's length. In the case of a transfer of an untariffed unit card by a carrier to a transferee reseller otherwise than through an arm's-length transaction, the fair market retail value of the PTC shall be substituted for the amount determined in paragraph (c)(3)(ii)(A)(2) of this section. (4) Exclusion. The amount of any state or local tax imposed on the furnishing or sale of communications services that is separately stated in the bill or on the face of the PTC and the amount of any section 4251 tax separately stated in the bill or on the face of the PTC are disregarded in determining, for purposes of this paragraph (c), the amount for which a PTC is sold. (d) Liability for tax—(1) In general. Under section 4251(d), the section 4251(a) tax is imposed on the transfer of a PTC by a carrier to a transferee. The person liable for the tax is the transferee. Except as provided in paragraph (d)(2) of this section, the person responsible for collecting the tax is the carrier transferring the PTC to the transferee. If a holder purchases a PTC from a transferee reseller, the amount the holder pays for the PTC is not treated as an amount paid for communications services and thus tax is not imposed on that payment. (2) Effect of statement that purchaser is a carrier—(i) On transferor. A carrier that transfers a PTC to a purchaser is not responsible for collecting the tax if, at the time of transfer, the transferor carrier has received written notification from the purchaser that the purchaser is a carrier, and the transferor has no reason to believe otherwise. The notification to be provided by the purchaser is a statement, signed under penalties of perjury by a person with authority to bind the purchaser, that the purchaser is a carrier (as defined in paragraph (b) of this section). The statement is not required to take any particular form. (ii) On purchaser. If a purchaser that is not a carrier provides the notification described in paragraph (d)(2)(i) of this section to the carrier that transfers a PTC, the purchaser remains liable for the tax imposed on the transfer of the PTC. (3) Exemptions. Any exemptions available under section 4253 apply to the transfer of a PTC from a carrier to a holder. Section 4253 does not apply to the transfer of a PTC from a carrier to a transferee reseller. (e) Examples. The following examples illustrate the provisions of this section: Example 1. Unit card; sold to individual. (i) On May 1, 2000, A, a carrier, sells a card it calls a prepaid telephone card at A's retail store to P, an individual, for P's use in making telephone calls. A provides P with a PIN. The value of the card is not denominated in dollars, but the face of the card is marked 30 minutes. The sales price is $9. A tariff has not been filed for the minutes on the card. The toll telephone service acquired by purchasing the card will be obtained by entering the PIN and the telephone number to be called.
(ii) Because P purchased from a carrier other than for resale, P is a holder. The card provides its holder, P, with a fixed amount of communications services (30 minutes of toll telephone service) to be obtained by means of a PIN, for which P pays in advance of obtaining service; therefore, the card is a PTC. Because the value of the PTC is not designated in dollars and a tariff has not been filed for the minutes on the PTC, the PTC is an untariffed unit card. Because it is transferred by the carrier to the holder, the face amount is the sales price ($9). (iii) The card is a PTC; thus, under section 4251(d), the face amount is treated as an amount paid for communications services and that amount is treated as paid when the PTC is transferred from A to P. Accordingly, at the time of transfer, P is liable for the 3 percent tax imposed by section 4251(a). The amount of the tax is $0.27 (3% × the $9 face amount). Thus, the total paid by P is $9.27, the $9 sales price plus $0.27 tax. A is responsible for collecting the tax from P. Example 2. Unit card; given to individual. (i) The facts are the same as in Example 1, except that instead of selling a card, A gives a 30 minute card to P.
(ii) Although the card provides P with a fixed amount of communications services (30 minutes of toll telephone service) to be obtained by means of a PIN, P does not pay for the service. Therefore, the card is not a PTC, even though it is called a prepaid telephone card by A. (iii) Because the card is not a PTC, section 4251(d) does not apply. Furthermore, no tax is imposed by section 4251(a) because no amount is paid for the communications services. Example 3. Unit card; adding value. (i) After using the card described in Example 2, P arranges with A by telephone to have 30 minutes of toll telephone service added to the card. The sales price is $9. P is told to continue using the PIN provided with the card.
(ii) Because P purchased from a carrier other than for resale, P is a holder. The arrangement provides its holder, P, with a fixed amount of communications services (30 minutes of toll telephone service) to be obtained by means of a PIN, for which P pays in advance of obtaining service; therefore, the arrangement is a PTC. Because the value of the PTC is not designated in dollars and a tariff has not been filed for the minutes on the PTC, the PTC is an untariffed unit card. Because it is transferred by the carrier to the holder, the face amount is the sales price ($9). (iii) The arrangement is a PTC; thus, under section 4251(d), the face amount is treated as an amount paid for communications services and that amount is treated as paid when the PTC is transferred from A to P. Accordingly, at the time of transfer, P is liable for the 3 percent tax imposed by section 4251(a). The amount of the tax is $0.27 (3% × the $9 face amount). Thus, the total paid by P is $9.27, the $9 sales price plus $0.27 tax. A is responsible for collecting the tax from P. Example 4. Dollar card; sold other than for resale. (i) On May 1, 2000, B, a carrier, sells 100,000 cards it calls prepaid telephone cards to Q, an auto dealer, for $50,000. Q will give away a card to each person that visits Q's dealership. B provides Q with a PIN for each card. The face of each card is marked $3. The toll telephone service acquired by purchasing the card will be obtained by entering the PIN and the telephone number to be called.
(ii) Because Q purchased from a carrier other than for resale, Q is a holder. Each card provides its holder, Q, with a fixed amount of communications services ($3 of toll telephone service) to be obtained by means of a PIN, for which Q pays in advance of obtaining service; therefore, each card is a PTC even though Q's visitors do not pay for the cards. The value of each PTC is designated in dollars; therefore, each PTC is a dollar card. Because the PTC is a dollar card, the face amount is the designated dollar value ($3). (iii) The cards are PTCs; thus, under section 4251(d), the face amount is treated as an amount paid for communications services and that amount is treated as paid when the PTCs are transferred from B to Q. Accordingly, at the time of transfer, Q is liable for the 3 percent tax imposed by section 4251(a). The amount of the tax is $9,000 (3% × the $3 face amount × 100,000 PTCs). Thus, the total paid by Q is $59,000, the $50,000 sales price plus $9,000 tax. B is responsible for collecting the tax from Q. Example 5. Tariffed unit card; sold to transferee reseller. (i) On May 1, 2000, C, a carrier, sells 1,000 cards it calls prepaid telephone cards to R, a convenience store owner, for $7,000. C provides R with a PIN for each card. The value of the cards is not denominated in dollars, but the face of each card is marked 30 minutes and a tariff of $0.33 per minute has been filed for the minutes on each card. R agrees that it will sell the cards to individuals for their own use and at a price that does not exceed $0.33 per minute. R actually sells the cards for $9 each (that is, at a price equivalent to $0.30 per minute). The toll telephone service acquired by purchasing the card will be obtained by entering the PIN and the telephone number to be called.
(ii) Because R purchased from a carrier for resale, R is a transferee reseller. Because R's customers will purchase other than for resale, they will be holders. Each card sold by R provides its holder, R's customer, with a fixed amount of communications services (30 minutes of toll telephone service) to be obtained by means of a PIN provided by the carrier, for which R's customer pays in advance of obtaining service; therefore, each card is a PTC. Because the value of each PTC is not designated in dollars and C sells the PTCs to R subject to an arrangement under which the price at which the PTCs are sold to holders will not exceed the designated number of minutes on the PTC multiplied by C's tariffed price per minute, each PTC is a tariffed unit card. Because the PTCs are tariffed unit cards, the face amount of each PTC is $9.90, the designated number of minutes on the PTC multiplied by the tariffed price per minute (30 × $0.33), even though the retail sale price of each card is $9. (iii) The cards are PTCs; thus, under section 4251(d), the face amount is treated as an amount paid for communications services and that amount is treated as paid when the PTC is transferred from C to R. Accordingly, at the time of transfer, R is liable for the 3 percent tax imposed by section 4251(a). The amount of the tax is $297 (3% × the $9.90 face amount × 1,000 PTCs). Thus, the total paid by R is $7,297, the $7,000 sales price plus $297 tax. C is responsible for collecting the tax from R. Example 6. Unit card; sold to transferee reseller. (i) On May 1, 2000, D, a carrier, sells 10,000 cards it calls prepaid telephone cards to S, a convenience store owner, for $60,000. D provides S with a PIN for each card. The value of the cards is not denominated in dollars, but the face of each card is marked 30 minutes. A tariff has not been filed for the minutes on each card. S will sell the cards to individuals for their own use for $9 each. D also sells a card that provides 30 minutes of the same type of communications service at its retail store for $9. The toll telephone service acquired by purchasing the card will be obtained by entering the PIN and the telephone number to be called.
(ii) Because S purchased from a carrier for resale, S is a transferee reseller. Because S's customers will purchase other than for resale, they will be holders. Each card sold by S provides its holder, S's customer, with a fixed amount of communications services (30 minutes of toll telephone service) to be obtained by means of a PIN provided by the carrier, for which S's customer pays in advance of obtaining service; therefore, each card is a PTC. Because the value of each PTC is not designated in dollars and a tariff has not been filed for the minutes on the PTC, each PTC is an untariffed unit card. (iii) The PTCs are untariffed unit cards transferred by the carrier to a transferee reseller. Thus, the face amount is determined under paragraph (c)(3)(ii) of this section, which permits D to choose from three alternative methods. Under paragraph (c)(3)(ii)(A)(1) of this section, the face amount of each PTC would be $9, the highest amount for which D sells to holders purchasing a single PTC. Alternatively, under paragraph (c)(3)(ii)(A)(2) of this section, the face amount of each PTC would be $8.10, computed as follows: 135% × the $60,000 sales price ÷ 10,000 PTC's. Finally, under paragraph (c)(3)(ii)(A)(3) of this section (assuming the PTCs are of a type that ordinarily is used entirely for domestic communications services), the face amount of each PTC would be $9 ($0.30 × 30 minutes). (iv) The cards are PTCs; thus, under section 4251(d), the face amount is treated as an amount paid for communications services and that amount is treated as paid when the PTCs are transferred from D to S. Accordingly, at the time of transfer, S is liable for the 3 percent tax imposed by section 4251(a). Assuming that D chooses to determine the face amount as provided in paragraph (c)(3)(ii)(A)(2) of this section, the amount of the tax is $2,430 (3% × the $8.10 face amount × 10,000 PTCs). Thus, the total paid by S is $62,430, the $60,000 sales price plus $2,430 tax. D is responsible for collecting the tax from S. Example 7. Transfer of card that is not a PTC. (i) On May 1, 2000, E, a carrier, provides a telephone card to T, an individual, for T's use in making telephone calls. E provides T with a PIN. The card provides access to an unlimited amount of communications services. E charges T $0.25 per minute of service, and bills T monthly for services used. The communications services acquired by using the card will be obtained by entering the PIN and the telephone number to be called.
(ii) Although the communications services will be obtained by means of a PIN, T does not receive a fixed amount of communications services. Also, T cannot pay in advance since the amount of T's payment obligation depends upon the number of minutes used. Therefore, the card is not a PTC. (iii) Because the card is not a PTC, section 4251(d) does not apply. However, the 3 percent tax imposed by section 4251(a) applies to the amounts paid by T to E for the communications services. Accordingly, at the time an amount is paid for communications services, T is liable for tax. E is responsible for collecting the tax from T. (f) Effective date. This section is applicable with respect to PTCs transferred by a carrier on or after the first day of the first calendar quarter beginning after January 7, 2000. [T.D. 8855, 64 FR 1057, Jan. 7, 2000; 65 FR 10153, Feb. 25, 2000] (a) In general. The term “general telephone service” means any telephone or radio telephone service furnished in connection with any fixed or mobile telephone or radio telephone station which may be connected, directly or indirectly, to an exchange operated by a person engaged in the business of furnishing communication service, if by means of such connection communication may be established with any other fixed or mobile telephone or radio telephone station. Such term includes generally the ordinary residential and business or commercial telephone service within a local service area, and includes all types of such service, such as individual line and party line telephones, and extension telephones. Where, in addition to the basic periodic charge for such telephone service within the local service area, there are additional charges, for example, for calls in excess of a certain number or for calls between certain points within the same local service area, the telephone service for which such additional charges are made is included within the term “general telephone service”. These additional charges for services within a local service area, generally referred to as “message units”, are not considered to be “toll charges”. General telephone service, however, is not limited to service furnished within a local service area. Except as otherwise provided in this paragraph, the term includes any service furnished which is telephonic in nature, regardless of the commercial or other name or term by which such service may be known or designated, if the fixed or mobile telephone or radio telephone station used in conjunction with such service may be connected (directly or indirectly) to an exchange whether located within or without the local service area operated by a person engaged in the business of furnishing communication service, and if by means of such connection communication may be established with any other fixed or mobile telephone or radio telephone station. If the described facilities may be connected to such an exchange, the service constitutes general telephone service whether or not it is the practice of the subscriber to the service to make such connection, and whether or not the person engaged in the business of furnishing communication service permits the subscriber to make such connection. General telephone service also includes the use of any private branch exchange (and any fixed or mobile telephone or radio telephone station connected, directly or indirectly, with a private branch exchange), and any tie line or extension line (including an off-premise extension line), which may be connected, directly or indirectly, to an exchange operated by a person engaged in the business of furnishing communication service, if by means of such connection communication may be established with any other fixed or mobile telephone or radio telephone station. However, the term does not include any service which is toll telephone service or wire and equipment service. For the definition of the term “toll charge”, see paragraph (a) of §49.4252–2. For provisions relating to coin-operated telephones, see section 4253(a) and §49.4253–1. (b) Amounts paid. For purposes of the tax in respect of general telephone service, the term “amounts paid” means the amounts collected for the service, whether the charge is made on a monthly or other periodic basis, or is based on the number of calls made, or is in the form of an assessment as in the case of a mutual telephone system. Where a basic periodic charge is made for the service, with additional charges for all calls or additional calls above a certain number, the additional charges are also subject to the tax. Other rules relating to amounts paid are as follows: (1) Where the charge for telephone service includes an additional charge for not making payment within a specified time, the total amount paid including the additional charge is the basis for computing the amount of tax due. Similarly, where a discount is allowed for the payment within a specified time of a charge for service rendered, the tax is to be computed on the amount actually paid. (2) Assessments or charges paid by members or subscribers of a mutual or cooperative telephone company, association, or system for switching services, or for the repair or replacement of instruments, poles, wires, equipment, etc., incidental to ordinary maintenance, are subject to the tax. (3) All amounts paid by subscribers for private branch exchange service, for the use of switchboard, switching, and other telephone equipment, for the use of trunk line facilities, for tie lines connecting private branch exchanges, and for any extension line, are subject to the tax on general telephone service. (4) The tax attaches to the total charge made to a hotel or similar subscriber for general telephone service furnished to the hotel or its guests, but no tax attaches to any charge made by the hotel for service rendered in placing the calls for its guests. (5) In cases where a person leases lines or channels, equipment, and other facilities used in conjunction with general telephone service, the amounts paid by such person for such lines or channels, equipment, and other facilities constitute amounts paid for general telephone service, notwithstanding the fact that the lines or channels, equipment, and other facilities used in conjunction with such service are supplied by different persons or in part by the user of such service. (c) Cross reference. For other provisions relating to general telephone service, see §49.4252–4. (a) In general. The term “toll telephone service” means any telephone or radio telephone message or conversation for which there is a toll charge, and the charge is paid within the United States. A toll charge is a charge made for such a message or conversation to a place beyond the local service area. For the meaning of the term “United States”, see paragraph (d) of §49.4252–4. (b) Amounts paid. (1) The tax in respect of toll telephone service is imposed on the total amount paid for the service, including any charge, in addition to the basic toll charge, made for “overtime” in connection with a telephone or radio telephone message or conversation. (2) The tax attaches to the total charge made to a hotel or similar subscriber for toll telephone service furnished to the hotel or its guests, but no tax attaches to any charge made by the hotel for service rendered in placing the calls for its guests. (c) Cross reference. For provisions relating to toll telephone messages communicated through the use of coin-operated telephones, see section 4253(a) and §49.4253–1. For other provisions relating to toll telephone service, see §49.4252–4. (a) In general. The term “telegraph service” means a telegraph, cable, or radio dispatch or message for which the charge is paid within the United States. For the meaning of the term “United States”, see paragraph (d) of §49.4252–4. (b) Amounts paid. A charge made for a telephone toll call used by a telegraph company in effecting delivery of a telegraph message shall be added to the basic charge for the transmission of the telegraph message for the purpose of determining the amount subject to tax. In such case, the telegraph company is not liable for tax on the amount paid by it to the telephone company for the toll call. A charge made for a telephone call which is used to reach a telegraph office for the purpose of sending a telegraph message should not be added to the basic charge for the transmission of the telegraph message, as the telegraph message is considered to begin at the telegraph office. (c) Cross reference. For provisions relating to telegraph messages communicated through the use of coin-operated telephones, see section 4253(a) and §49.4253–1. For other provisions relating to telegraph service, see §49.4252–4. (a) In general. The tax applies to all amounts paid for services rendered which are incidental to the transmission of a message or conversation. Where dispatches, messages, or conversations are transmitted by telephone, radio telephone, telegraph, cable, or radio free of any charge whatsoever, no tax attaches, but where the carrier in fact makes some charge for the transmission, either in money, service, or other valuable consideration, such charge is subject to the tax upon the basis of the amount of the charge computed in money or money's worth. The tax is payable by the person paying the transmission charge and is to be collected by the person receiving the payment. If a message, dispatch, or conversation is transmitted “collect”, the person who pays the charge therefor is liable for the tax. All telephone and telegraph transmission services when rendered for hire are subject to tax whether or not the agency furnishing such services is a common carrier. For provisions relating to the computation of tax with respect to charges for telephone and telegraph services, see section 4254 and §§49.4254–1 and 49.4254–2. (b) When transmission begins and ends. Transmission begins when the message is delivered by the sender to the carrier, or its agent, and continues until receipt by the addressee or his agent. Thus, an amount paid to a telephone, telegraph, radio, or cable company for messenger service in bringing the recipient of a message to the telephone, or in delivering a dispatch or message, must be included in determining the total amount subject to tax. However, an amount paid for messenger service rendered by a hotel or similar establishment is not to be included in the total charge on which the tax is computed. (c) Services rendered under contract. (1) Except as an exemption may otherwise be specifically provided for in this part, where, under the provisions of a contract, dispatches, messages, or conversations are transmitted by telephone, radio telephone, telegraph, cable, or radio in consideration of the payment of a lump sum of money or the performance of services, the amounts paid for such transmissions are subject to tax regardless of whether such dispatches, messages, or conversations relate to the operation of the business of a common carrier and whether they are “on line” or “off line”. (2) Where a telegraph company agrees to transmit over its wires dispatches or messages relating to the business of a carrier free or at reduced rates in consideration of services to be performed by the carrier in transporting men or materials of the telegraph company, all such dispatches or messages are subject to tax. (d) Meaning of the term “United States”. For purpose of section 4252 (b) and (c), the term “United States” includes the States and the District of Columbia. Such term also includes inland waters (such as rivers, lakes, bays, etc.) lying wholly within the United States, and, where an international boundary line divides inland waters, such parts of such inland waters as lie within the boundary of the United States, and also the waters known as a marine league from low tide on the coast line. Ships within these limits whether of foreign or domestic registry are considered to be within the United States. (e) Exemptions. For exemptions from the taxes imposed on amounts paid for telephone and telegraph services, see sections 4253, 4292, 4293, and 4294, and the regulations thereunder contained in this part. (a) In general. The term “teletypewriter exchange service” means any service where a teletypewriter (or similar device) may be connected, directly or indirectly, to an exchange operated by a person engaged in the business of furnishing communication service, if by means of such connection communication may be established with any other teletypewriter (or similar device). If the teletypewriter or similar device used in conjunction with such service may be connected to such an exchange, the service constitutes teletypewriter exchange service whether or not it is the practice of the subscriber to the service to make such connection, and whether or not the person engaged in the business of furnishing communication service permits the subscriber to make such connection. (b) Amounts paid. In determining the amount of tax due, the amount paid for the service shall include all charges made in connection with the furnishing of any teletypewriter exchange service, such as salaries of operators, if in the employ of the person furnishing such service, charges for equipment, instruments, and other apparatus. In cases where a person leases lines or channels, equipment, and other facilities used in conjunction with teletypewriter exchange service, the amounts paid by such person for such lines or channels, equipment, and other facilities constitute amounts paid for teletypewriter exchange service, notwithstanding the fact that the lines or channels, equipment, and other facilities used in conjunction with such service are supplied by different persons or in part by the user of such service. (c) Exemptions. For exemptions from the tax imposed on amounts paid for teletypewriter exchange service, see sections 4253, 4292, 4293, and 4294, and the regulations thereunder contained in this part. (a) In general. The meaning of the term “wire mileage service” differs depending upon the date on which the service is furnished. For services furnished on or after January 1, 1963, the term means any telephone or radiotelephone service not used in the conduct of a trade or business, and any other wire or radio circuit service not used in the conduct of a trade or business, which is not included in §§49.4252–1 through 49.4252–3, 49.4252–5, and 49.4252–7. The term “trade or business” as used in this section includes activities of organizations which are conducted with no purpose of gain or profit. For services furnished before January 1, 1963, the term means any telephone or radiotelephone service, and any other wire or radio circuit service, which is not included in §§49.4252–1 through 49.4252–3, 49.4252–5, and 49.4252–7. However, regardless of the date on which the service is furnished, any service which is exempt from tax for any reason specified in section 4253 is not included in wire mileage service. In general, the term means (except as qualified by the preceding sentences of this paragraph) any telephone or radiotelephone service, and any other wire or radio circuit service, which may not be connected, directly or indirectly, to an exchange operated by a person engaged in the business of furnishing communication service. Wire mileage service ordinarily relates to private line or private channel service where lines or channels, equipment, and other facilities are furnished (usually but not necessarily, on a contractual basis) to enable users to communicate between specified locations continuously or for specified periods, as distinguished from the sending of single dispatches, messages, and conversations by telephone, radiotelephone, telegraph, cable, or radio, for which tolls are charged by the carrier. The communications may be telephonic or in code, or may be reproduced at the terminating end in the form of a typewritten page or tape, or picture facsimile. The term “wire mileage service” does not include any service which is used exclusively in furnishing wire and equipment service. (b) Examples. The following are examples of wire mileage service (except that in the case of services furnished on or after January 1, 1963, wire mileage service does not include any such services used in the conduct of a trade or business): (1) Channels and equipment for private telephone service, (2) Channels and equipment for private code service, (3) Channels and equipment for private teletypewriter or teleprinter service, (4) Channels and equipment for program transmission, and (5) Channels and equipment for photograph, picture or facsimile transmission, etc. (c) Amounts paid. In determining the amount of tax due, the amount paid for the service shall include all charges made in connection with the furnishing of any wire mileage service, such as salaries of operators, if in the employ of the person furnishing such service, charges for equipment, instruments, and other apparatus other than station terminal equipment. In cases where a person leases lines or channels, equipment, and other facilities used in conjunction with wire mileage service, the amounts paid by such person for such lines or channels, equipment, and other facilities constitute amounts paid for wire mileage service, notwithstanding the fact that the lines or channels, equipment, and other facilities used in conjunction with such service are supplied by different persons or in part by the user of such service. (d) Exemptions. For exemptions from the tax imposed on amounts paid for wire mileage service, see sections 4253, 4292, 4293, and 4294, and the regulations thereunder contained in this part. (a) In general. The term “wire and equipment service” includes stock quotation and information services, burglar alarm or fire alarm service, and all other similar services (whether or not oral transmission is involved). In general, the term relates to wire lines or channels and equipment by means of which information or services are furnished to the subscriber. The phrase “all other similar services” includes innovations in the wire and equipment field. The term does not include teletypewriter exchange service or any service furnished by any means other than wire communication. Tax is imposed on the amounts paid for such wire lines or channels, equipment, and information or services. (b) Examples. The following are examples of wire and equipment service: (1) Burglar, fire, or other alarm service where the service consists of wire lines or channels furnished between a remote point and the subscriber's premises, or a police or fire station, or a central station, and over which a signal is transmitted in the case of illegal entry, fire, leakage, etc. (2) Wire lines or channels furnished between a point of origin and the subscriber's premises over which are given stock and bond market quotations and reports, racing results, baseball scores, and other sporting results, news items, musical programs, weather reports, the time, etc. (3) Metering services, including wire lines or channels and equipment, furnished between a remote point and the subscriber's premises, over which signals are transmitted so that the subscriber may obtain information as to a given condition at the remote point, such as water level, water pressure, gas pressure, etc. (4) Remote control wire lines or channels furnished between a remote point and the subscriber's premises over which signals are transmitted which will actuate an instrument at the remote point. (c) Amounts paid. In determining the amount of tax due, the amount paid for the service shall include all charges made in connection with the furnishing of any wire and equipment services, such as salaries of operators, if in the employ of the person furnishing such service, charges for equipment, instruments, and other apparatus. Where the service rendered includes the furnishing of information or programs such as stock market quotations, baseball scores, racing results, weather reports, or musical programs, etc., any amounts charged for information or programs furnished shall also be included, whether or not individual items are charged or billed separately. In cases where a person leases lines or channels, equipment, and other facilities used in conjunction with wire and equipment service, the amounts paid by such person for such lines or channels, equipment, and other facilities constitute amounts paid for wire and equipment service, notwithstanding the fact that the lines or channels, equipment, and other facilities used in conjunction with such service are supplied by different persons or in part by the user of such service. (d) Relationship to wire mileage service. The tax on wire mileage service does not apply in respect of any service which is used exclusively in furnishing wire and equipment service. See §49.4252–6. (e) Exemptions. For exemptions from the tax imposed on amounts paid for wire and equipment service, see sections 4253, 4292, 4293, and 4294, and the regulations thereunder contained in this part. (a) In general. Except as provided in paragraph (b) of this section, the tax imposed on amounts paid for general telephone service is not applicable to a single telephone conversation paid for by inserting coins in a public coin-operated telephone. The tax imposed on amounts paid for toll telephone service or telegraph service is not applicable to a single telephone conversation for which a tool charge is made (see paragraph (a) of §49.4252–2), or to a telegraph message, if the charge for such toll telephone service (including any additional charge for overtime) or telegraph service is less than 25 cents and is paid for by inserting coins in a public coin-operated telephone. (b) Exception where service furnished for a guaranteed amount. Where a coin-operated telephone service is furnished for a guaranteed amount, the amount paid under such guarantee plus any fixed monthly or other periodic charge is subject to the tax imposed on amounts paid for general telephone service. The tax applies to the full amount of the guarantee whether such amount is paid out of receipts from the coin-box of the telephone or from funds of the subscriber. (a) In general. The exemption for news services provided by section 4253(b) is applicable to payments for services of the kind listed in section 4251, except general telephone service. The exemption will apply only with respect to payments for services which are utilized exclusively: (1) In the collection of news for the public press or radio or television broadcasting or in the dissemination of news through the public press or by means of radio or television broadcasting; or (2) In the collection or dissemination of news by a news ticker service furnishing a general news service similar to that of the public press. For the exemption to apply, the charge for the services must be billed in writing to the person paying for the services and such person must certify in writing that the services are so utilized. (b) Scope of the exemption. (1) The exemption applies to amounts charged for messages from any newspaper, press association, radio or television news broadcasting agency, or news ticker service, to any other newspaper, press association, radio or television news broadcasting agency, or news ticker service or to or from their bona fide correspondents, which messages deal exclusively with the collection of news items for, or the dissemination of news items through, the public press, radio or television broadcasting, or a news ticker service furnishing a general news service similar to that of the public press. The exemption does not extend to messages of an administrative nature such as messages transmitting funds to correspondents, messages to correspondents relating to assignments or hotel accommodations, etc. (2) The exemption does not extend to the collection and dissemination of information or matters for publication in magazines, periodicals, and trade and scientific publications issued to supply information on certain subjects of interest to particular groups; or to amounts paid by newspapers, press associations, radio or television news broadcasting agencies or networks, or news ticker services, for general telephone service taxable under section 4251. (a) The American National Red Cross. The taxes imposed by section 4251 do not apply to amounts paid for services furnished to the American National Red Cross. (b) International organizations. The taxes imposed by section 4251 do not apply to amounts paid for services furnished to an international organization. See section 7701(a) (18) for the definition of “international organization”. An international organization is designated as such by the President of the United States through an Executive order or orders. When an organization has been designated by the President as entitled to enjoy the privileges, exemptions, and immunities conferred by the International Organizations Immunities Act, or part thereof, including exemption from tax, the exemption applies to the taxes imposed by section 4251 on amounts paid for services unless the President otherwise provides. The exemptions is subject to withdrawal or revocation by the President. In case of withdrawal or revocation, unless otherwise provided by the President, the exemption is inapplicable to payments made on or after the date of issuance of the order of withdrawal or the date of revocation. (c) Exemption certificate. (1) No exemption certificate is required under this section where the payment for the services furnished is made by the American National Red Cross direct to the person furnishing the services. In all other cases the right to exemption under section 4253(c) shall be evidenced by properly executed exemption certificates in substantially the following form:
Exemption of I certify that ___________ to __________ (International Organization, etc.); that the charges of $___ will be paid from __________ (International Organization, etc.) funds; and that the charges are exempt from tax under section 4253(c) of the Internal Revenue Code. Note: Penalty for fraudulent use, $10,000 or imprisonment or both. (a) In general. The exemption provided by section 4253(d) is applicable to any payment received for any telephone or radio telephone message or call which originates within a combat zone, as defined in section 112, from a member of the Armed Forces of the United States performing service in such combat zone, if a properly executed certificate of exemption substantially in the form shown in paragraph (c) of this section is furnished to the person receiving such payment. (b) Service in combat zone. Service is performed in a combat zone only if it is performed in an area which the President of the United States has designated by Executive order, for the purpose of section 112, as an area in which Armed Forces of the United States are or have engaged in combat, and only if it is performed on or after the date designated by the President by Executive order as the date of the commencing of combatant activities in such zone and on or before the date designated by the President by Executive order as the date of the termination of combatant activities in such zone. (c) Exemption certificate. (1) The exemption certificate shall be in substantially the following form:
Exemption Certificate (Overseas Telephone Calls) I certify that the toll charges of $_____ are for telephone or radio telephone messages originating at _____________ a member of the Armed Forces of the United States performing service in such combat zone; that the transmission facilities were furnished by __________ (Name of carrier); and that the charges are exempt from tax under section 4253(d) of the Internal Revenue Code. Note: Penalty for fraudulent use, $10,000 or imprisonment or both. (2) See §49.4253–11 for further provisions relating to exemption certificates. A dispatch, message, or conversation transmitted by toll telephone, telegraph, or teletypewriter exchange over the combined facilities of several lines or stations of one or more persons is considered to be one dispatch, message, or conversation, and is subject to only one payment of tax under section 4251. (a) In general. (1) The taxes imposed by section 4251 on amounts paid for wire mileage service and wire and equipment service do not apply to amounts paid for any such services to the extent that the amounts paid are for services utilized by a common carrier, telephone or telegraph company, or television or radio broadcasting station or network in the conduct of its business as such. (2) The tax imposed by section 4251 on amounts paid for general telephone service does not apply to amounts paid for the use of a continuous telephone or radio telephone line or channel to the extent that the amounts paid are for use by a common carrier, telephone or telegraph company, or television or radio broadcasting station or network in the conduct of its business as such, if such line or channel connects stations between any two of which there would otherwise be a toll charge. A line or channel connects stations between which there would otherwise be a toll charge if the telephone company makes a toll charge for a single message transmitted between the two stations in the case of the ordinary residential and business or commercial telephone service. A line or channel connecting two stations is considered a continuous line or channel if such line or channel does not connect with any switchboard interposed between the two stations, which makes it possible to carry on two or more independent conversations simultaneously. Where a line or channel connects with such a switchboard, the exemption is inapplicable to so much of the amount paid as is attributable to the portion of the line or channel which extends from a station to a switchboard located in the same local service area. (b) Exemption inapplicable. This particular exemption is not applicable in the case of the taxes imposed on amounts paid for other services by section 4251, even though such services are utilized by the companies described in the conduct of their business as such. (a) In general. The taxes imposed by section 4251 do not apply to any amount paid as is properly attributable to the installation of any instrument, wire, pole, switchboard, apparatus, or equipment. (b) Maintenance charges subject to tax. The exemption provided by section 4253(g) and paragraph (a) of this section is applicable only to amounts paid for installation. Amounts paid for the repair or replacement of instruments, wires, poles, switchboards, apparatus, or equipment, incidental to ordinary maintenance, are subject to tax. The taxes imposed by section 4251 do not apply to so much of any amount paid for wire mileage service as is paid for, and properly attributable to, the use of any sending or receiving set or device which is station terminal equipment. In general, the term “station terminal equipment” refers to any sending or receiving set or device which is located at the terminals of a line or channel, and does not refer to any such set or device which is otherwise a part of such line or channel. (a) In general. The taxes imposed by section 4251 do not apply to amounts paid for wire mileage service or wire and equipment service, if such service is rendered through the use of an interior communication system. (b) Interior communication system. The term “interior communication system” means any system: (1) No part of which is situated off the premises of the subscriber, and which may not be connected, directly or indirectly, with any communication system any part of which is situated off the premises of the subscriber; or (2) Which is situated exclusively in a vehicle of the subscriber and which is not connected with a communications system. (c) Examples. The following are examples of interior communication systems:
(1) Burglar, fire, or other alarm service, where the service consists of lines or channels and equipment which are contained solely in the building of the subscriber, and by means of which an alarm is sounded in the building in the case of illegal entry, fire, leakage, etc. (2) Metering services, including lines or channels and equipment, furnished between two points which are located upon the subscriber's property, and which are not separated by property not owned or leased by the subscriber, over which signals are transmitted so that the subscriber may obtain information as to a given condition at one of the points, such as water level, water pressure, gas pressure, etc. (a) In general. The tax imposed by section 4251 on amounts paid for general telephone service does not apply to amounts paid for any such service furnished on or after January 1, 1963, to the extent that the amounts paid are for use of any telephone or radio telephone line or channel (including equipment, instruments, and other apparatus furnished exclusively for use in connection with the line or channel) in the conduct of a trade or business when such line or channel is furnished between specified locations in different States or between specified locations in different counties, municipalities, or similar political subdivisions of a State. The term “trade or business” as used in this section includes activities of organizations which are conducted with no purpose of gain or profit. A line or channel is considered to be furnished between specified locations only when the line or channel connects preselected points without the use of switching functions performed by a communications company exchange. Where an amount is paid which includes a charge for such a line or channel and also a charge for the service provided by means of switching functions performed by a communications company exchange, the exemption is applicable only to that portion of the amount so paid as is attributable to such a line or channel. The preselected points must be located in different States or in different counties or municipalities of the same State. If the preselected points are located in a State in which the political subdivisions are not denominated as counties or municipalities, then the preselected points must be in different political subdivisions of such State which correspond to counties or municipalities. For purposes of this paragraph the term “municipality” means the largest political subdivision of a State below the level of county or similar subdivision. For the exemption to apply, the charge for the service must be billed in writing to the person paying for the service and such person must certify in writing that the service is for use in the conduct of a trade or business. (b) Exemption inapplicable. This particular exemption is not applicable in the case of taxes imposed on amounts paid for other services by section 4251, even though such services are utilized in the conduct of a trade or business. A separate exemption certificate (as required by §§49.4253–3 and 49.4253–4) shall be furnished for each message paid for as a separate item, but where periodic payments are made, a blanket certificate (for a period not to exceed four calendar quarters) may be accepted as evidence of the right to exemption. An agent of a telegraph, telephone, radio, or cable company should not accept an exemption certificate unless satisfied, on the basis of proper credentials or otherwise, that the person who signed it is the person whom he represents himself to be and that the exemption claimed is allowable under the law. Exemption certificates should be retained with the record of the services rendered for inspection by internal revenue officers as provided in section 6001 and the regulations in Subpart G of this part. For exemptions applicable to amounts received as payment for services furnished to the government of any State or political subdivision of a State, to the District of Columbia, to the government of the United States, or to certain nonprofit educational organizations, see sections 4292, 4293, and 4294, and the regulations thereunder contained in Subpart F of this part. (a) General rule. Except as provided in paragraph (b) of this section, when a bill is rendered to the taxpayer covering charges for general telephone service, toll telephone service, or telegraph service, with respect to which a tax is imposed by section 4251, the amount upon which the tax with respect to such services shall be based shall be the sum of all such charges for such services included in the bill. (b) Special rule in certain cases. When a bill is rendered to the taxpayer covering charges for general telephone service, toll telephone service, or telegraph service, with respect to which a tax is imposed by section 4251, by a person who groups individual items for purposes of rendering the bill and computing the tax, then the amount on which the tax with respect to each such group shall be based shall be the sum of all items within that group, and the tax on remaining items not included in any such group shall be based on the charge for each item separately. Where the tax on a toll telephone or radio telephone message or conversation, or a telegraph, cable, or radio dispatch or message is paid by inserting coins in a coin-operated telephone, the tax shall be computed to the nearest multiple of 5 cents, and where the tax is midway between multiples of 5 cents, the next highest multiple shall apply. In other words, one-half or a greater fraction of 5 cents shall be treated as 5 cents and a smaller fraction shall be ignored.
Title 26: Internal Revenue
PART 49—FACILITIES AND SERVICES EXCISE TAXES
Subpart C—Communications
§ 49.4251-1 Imposition of tax.
§ 49.4251-2 Rate and application of tax.
Rate of Taxable service tax (percent) General telephone service................................... 10Toll telephone service...................................... 10Telegraph service........................................... 10Teletypewriter exchange service............................. 10Wire mileage service........................................ 10Wire and equipment service.................................. 8
§ 49.4251-3 Applicability of sections 4251 to 4254, inclusive.
§ 49.4251-4 Prepaid telephone cards.
§ 49.4252-1 General telephone service.
§ 49.4252-2 Toll telephone service.
§ 49.4252-3 Telegraph service.
§ 49.4252-4 Provisions common to telephone and telegraph services.
§ 49.4252-5 Teletypewriter exchange service.
§ 49.4252-6 Wire mileage service.
§ 49.4252-7 Wire and equipment service.
§ 49.4253-1 Exemption for certain coin-operated service.
§ 49.4253-2 Exemption for news services.
§ 49.4253-3 Exemption for certain organizations.
§ 49.4253-4 Exemption for servicemen in combat zone.
§ 49.4253-5 Exemption for items otherwise taxed.
§ 49.4253-6 Exemption for common carriers and communications companies.
§ 49.4253-7 Exemption for installation charges.
§ 49.4253-8 Exemption for terminal facilities in case of wire mileage service.
§ 49.4253-9 Exemption for certain interior communication systems.
§ 49.4253-10 Exemption for certain private communications services.
§ 49.4253-11 Use and retention of exemption certificates.
§ 49.4253-12 Cross reference.
§ 49.4254-1 Computation of tax.
§ 49.4254-2 Payment for toll telephone service or telegraph service in coin-operated telephones.
