830 CMR: DEPARTMENT OF REVENUE
830 CMR 63.00: TAXATION OF CORPORATIONS
830 CMR 63.00 is amended by adding the following section:
830 CMR 63.38.11: Apportionment of Income of Telecommunication Industry
Regulation 830 CMR 63.38.11: Apportionment of Income of Telecommunications Industry
830 CMR: DEPARTMENT OF REVENUE
Table of Contents
(1) Statement of Purpose, Outline of Topics, Effective Date
(a) Statement of Purpose. The purpose of 830 CMR 63.38.11 is to explain the allocation and apportionment of income derived from sales of telecommunications and ancillary services, pursuant to the Commissioner's authority under M.G.L. c. 63, § 38(j). The rules in this regulation apply whether the telecommunications service income is earned by a traditional telephone company, a VOIP company, a cable company, an electric company or any other type of entity subject to the apportionment rules set forth in M.G.L. c. 63. § 38.
(b) Outline of Topics. 830 CMR 63.38.11 is organized as follows:
(1) Statement of Purpose, Outline of Topics, Effective Date
(2) General Rule
(4) Property Factor
(5) Sales Factor
(c) Effective Date. The provisions of 830 CMR 63.38.11 shall be effective for taxable years beginning on or after January 1, 2009.
(2) General Rule
A taxpayer providing telecommunications or ancillary services that is subject to the apportionment rules set forth in M.G.L. 63, § 38 shall allocate and apportion its net income under the rules set forth in that section and the rules and regulations issued thereunder, except as modified by this regulation.
For purposes of 830 CMR 63.38.11 the following terms shall have the following meanings unless the context requires otherwise:
800 service, a "telecommunications service" that allows a caller to dial a toll-free number without incurring a charge for the call. The service is typically marketed under the name "800", "855", "866", "877", and "888" toll-free calling, and any subsequent numbers designated by the Federal Communications Commission.
900 service, an inbound toll "telecommunications service" purchased by a subscriber that allows the subscriber's customers to call in to the subscriber's prerecorded announcement or live service. "900 service" does not include collection services provided by the seller of the "telecommunications services" to the subscriber, or service or product sold by the subscriber to the subscriber's customer. The service is typically marketed under the name "900" service, and any subsequent numbers designated by the Federal Communications Commission.
Air -to-ground radiotelephone service, a radio service, as that term is defined in 47 CFR 22.99, in which common carriers are authorized to offer and provide radio telecommunications service for hire to subscribers in aircraft.
Ancillary service, services that are associated with or incidental to the provision of telecommunications services, including but not limited to the following subcategories: detailed telecommunications billing, directory assistance, vertical service, conference bridging service and voice mail services. The term "ancillary service" is defined as a broad range of services and is broader than the sum of the subcategories.
Bundled transaction, the retail sale of two or more products where (1) the products are otherwise distinct and identifiable, and (2) the products are sold for one non-itemized price. For purposes of this regulation, a "bundled transaction" does not include the sale of any products in which the "sales price" varies, or is negotiable, based on the selection by the purchaser of the products included in the transaction. A transaction that otherwise meets the definition of a "bundled transaction" is not a "bundled transaction" if it is: (1) the "retail sale" of two products where the first product is essential to the use of the second product, and the first product is provided exclusively in connection with the second, and the true object of the transaction is the second; (2) the "retail sale" of more than one product, but the products are sourced the same under this special rule; or (3) the "retail sale" of more than one product, but the sum of the "purchase price" or "sales price" of products which are sourced differently under this special rule is de minimis.
C all -by-call basis, any method of charging for telecommunications services where the price is measured by individual calls.
Coin- operated telephone service, a "telecommunications service" paid for by inserting money into a telephone accepting direct deposits of money to operate.
Communications channel, a physical or virtual path of communications over which signals are transmitted between or among customer channel termination points.
Conference bridging service. an ancillary service that links two or more participants of an audio or video conference call and may include the provision of a telephone number. Conference bridging service does not include the telecommunications services used to reach the conference bridge.
Customer, the person or entity that contracts with the seller of telecommunications services. If the end user of telecommunications services is not the contracting party, the end user of the telecommunications service is the customer of the telecommunication service. "Customer" does not include a reseller of telecommunications service or, for mobile telecommunications service, of a serving carrier under an agreement to serve the customer outside the home service provider's licenses service area.
Customer channel termination point, the location where the customer either inputs or receives the communications.
Detailed telecommunications billing service, an ancillary service of separately stating information pertaining to individual calls on a customer's billing statement.
Directory assistance, an ancillary service of providing telephone number information, and/or address information.
End user, the person who utilizes the telecommunication service. In the case of an entity, "end user" means the individual who utilizes the service on behalf of the entity.
Fixed wireless service ,a telecommunications service that provides radio communication between fixed points.
Home service provider, a home service provider as that term is defined in Section 124(5) of Public Law 106-252 (Mobile Telecommunications Sourcing Act).
International, a "telecommunications service" that originates or terminates in the United States and terminates or originates outside the United States, respectively. United States includes the District of Columbia or a U.S. territory or possession.
Interstate, a "telecommunications service" that originates in one United States state, or a United States territory or possession, and terminates in a different United States state or United States territory or possession.
Intrastate, a "telecommunications service" that originates in one United States state or a United States territory or possession, and terminates in the same United States state or a United States territory or possession.
Mobile telecommunications service, the same as that term is defined in Section 124(7) of Public Law 106-252 (Mobile Telecommunications Sourcing Act).
Mobile wireless service, a telecommunications service that is transmitted, conveyed or routed regardless of the technology used, whereby the origination and/or termination points of the transmission, conveyance or routing are not fixed, including, by way of example only, telecommunications services that are provided by a commercial mobile radio service provider.
Network access service, the provision by a local exchange telecommunication service provider of the use of its local exchange network by an inter-exchange telecommunication service provider to originate or terminate the inter-exchange telecommunication service provider's traffic carried to or from a distant exchange.
Outerjurisdictional property, tangible personal property, such as orbiting satellites, undersea transmission cables and the like, that are owned or rented by the taxpayer and used in a telecommunications or ancillary service business, but that are not physically located in any particular state.
Paging service , a telecommunications service that provides transmission of coded radio signals for the purpose of activating specific pagers; such transmissions may include messages and/or sounds.
Pay telephone service, a telecommunications service provided through any pay telephone.
Place of primary use, the street address representative of where the customer's use of the telecommunications service primarily occurs, which shall be the residential street address or the primary business street address of the customer. In the case of mobile telecommunications services, "place of primary use" shall be within the licensed service area of the home service provider.
Post -paid calling service, the telecommunications service obtained by making a payment on a call-by-call basis either through the use of a credit card or payment mechanism such as a bank card, travel card, credit card, or debit card, or by charge made to a telephone number which is not associated with the origination or termination of the telecommunications service. A post-paid calling service includes a telecommunications service, except a prepaid wireless calling service, that would be a prepaid calling service except for the fact that it is not exclusively a telecommunication service.
Prepaid calling service, the right to access exclusively telecommunications services, which must be paid for in advance and which enables the origination of calls using an access number or authorization code, whether manually or electronically dialed, and that is sold in predetermined units or dollars of which the number declines with use in a known amount.
Prepaid wireless calling service, the sale of a telecommunications service that provides the right to utilize mobile wireless service as well as other non-telecommunications services including the download of digital products delivered electronically, content and ancillary services, which must be paid for in advance that is sold in predetermined units of dollars of which the number declines with use in a known amount.
Private communications service, a telecommunications service that entitles the customer to exclusive or priority use of a communications channel or group of channels between or among termination points, regardless of the manner in which such channel or channels are connected, and includes switching capacity, extension lines, stations, and any other associated services that are provided in connection with the use of such channel or channels.
Product, tangible personal property, digital good or service.
Property factor, the property factor as determined under M.G.L. c. 63, § 38, including any rules and regulations issued thereunder, as further modified by this regulation.
Sales factor, the sales factor as determined under M.G.L. c. 63, § 38, including any rules and regulations issued thereunder, as further modified by this regulation.
Service address, as follows:
(a) The location of the customer's telecommunications equipment, to which the customer's call is charged, and from which the call originates or terminates, regardless of where the call is billed or paid.
(b) If the location in subsection (A) is not known, service address means the origination point of the signal of the telecommunications services first identified by either the seller's telecommunications system or in information received by the seller from its service provider, where the system used to transport such signals is not that of the seller.
(c) If the location in subsection (A) and subsection (B) are not known, the service address means the location of the customer's place of primary use.
Telecommunications service, the electronic transmission, conveyance, or routing of voice, data, audio, video, or any other information or signals to a point, or between or among points. The term "telecommunications service" includes such transmission, conveyance, or routing in which computer processing applications are used to act on the form, code or protocol of the content for purposes of transmission, conveyance or routing without regard to whether such service is referred to as voice over Internet protocol services or is classified by the Federal Communications Commission as enhanced or value added.
(a) The term "telecommunication service" is defined as a broad range of services. The term includes, but is broader than the sum of, the following subcategories 800 service, 900 service, wireline service, fixed wireless service, mobile wireless service, paging service, prepaid calling service, prepaid wireless calling service, private communication service, value-added non-voice data service, coin-operated telephone service, international telecommunications service, interstate telecommunications service, intrastate telecommunications service, network access service and pay telephone service.
(b) The term "telecommunications service" does not include:
1. Data processing and information services that allow data to be generated, acquired, stored, processed, or retrieved and delivered by an electronic transmission to a purchaser where such purchaser's primary purpose for the underlying transaction is the processed data or information;
2. Installation or maintenance of wiring or equipment on a customer's premises;
3. Tangible personal property;
4. Advertising, including but not limited to directory advertising;
5. Billing and collection services provided to third parties;
6. Internet access service;
7. Radio and television audio and video programming services, regardless of the medium, including the furnishing of transmission, conveyance and routing of such services by the programming service provider. Radio and television audio and video programming services shall include but not be limited to cable service as defined in 47 USC 522(6) and audio and video programming services delivered by commercial mobile radio service providers, as defined in 47 CFR 20.3;
8. "Ancillary services"; or
9. Digital products "delivered electronically", including but not limited to software, music, video, reading materials or ring tones.
(c) Examples of Included and Excluded Services.
Example 1. An entity provides dedicated network service to an entity which will resell that service as intrastate telecommunications service. Both entities are providing a telecommunications service.
Example 2. An entity provides an interstate telecommunications service to an internet service provider which will use that service in the provision of internet access service. The entity providing interstate telecommunications service is providing a telecommunications service. The entity providing internet service is not providing a telecommunications service.
Example 3. An entity primarily engaged in the provision of cable television provides an interstate telecommunications service. The entity is engaged in the provision of telecommunications service.
Value -added non-voice data service, a service that otherwise meets the definition of "telecommunications services" in which computer processing applications are used to act on the form, content, code, or protocol of the information or data primarily for a purpose other than transmission, conveyance or routing.
Vertical service, an ancillary service that is offered in connection with one or more telecommunications services, which offers advanced calling features that allow customers to identify callers and to manage multiple calls and call connections, including conference bridging services.
Voice mail service, an ancillary service that enables the customer to store, send or receive recorded messages. Voice mail service does not include any vertical services that the customer may be required to have in order to utilize the voice mail service.
(4) Property Factor
Outerjurisdictional property that is used by a taxpayer in providing a telecommunications or ancillary service shall be excluded from the numerator and denominator of the property factor.
(5) Sales Factor
Sales of telecommunications and ancillary services shall be included or excluded from the numerator and/or denominator of the sales factor as follows.
(a) Gross receipts from the sale of telecommunications services, other than those defined in 830 CMR 63.38.11(5)(c)-(g), which are sold on a call-by-call basis are in this state when (a) the call originates and terminates in this state or (b) the call either originates or terminates and the service address is also located in this state.
(b) Gross receipts from the sale of telecommunications services, other than those defined in 830 CMR 63.38.11(5)(c)-(g), which are sold on other than a call-by-call basis, are in this state when the customer's place of primary use is in this state.
(c) Gross receipts from the sale of mobile telecommunications services, other than air-to-ground radiotelephone service and prepaid calling service, are in this state when the customer's place of primary use is in this state pursuant to the Mobile Telecommunications Sourcing Act.
(d) Gross receipts from the sale of pre-paid calling service, pre-paid wireless calling service and post-paid calling service are in this state when the origination point of the telecommunications signal is first identified in this state by either (1) the seller's telecommunications system, or (2) information received by the seller from its service provider, where the system used to transport such signals is not that of the seller.
(e) Gross receipts from the sale of a private communication service are in this state:
1. if such service is for a separate charge related to a customer channel termination point, when the customer channel termination point is located in this state;
2. if under such service all customer termination points are located entirely within one state, when the customer channel termination points are located in this state;
3. if such service is for segments of a channel between two customer channel termination points located in different states and such segments of channel are separately charged, when the customer channel termination points are in this state, provided however that only fifty percent of such gross receipts shall be sourced to this state; and
4. if such service is for segments of a channel located in more than one state and such segments are not separately billed, when the customer channel termination points are in this state, provided however that only a percentage of such gross receipts, determined by dividing the number of customer channel termination points in the state by the total number of customer channel termination points, are in this state.
(f) A portion of the total gross receipts from sales of telecommunication services to other telecommunication service providers for resale is in this state in an amount determined by multiplying such total gross receipts by a fraction, the numerator of which is "total carrier's carrier service revenues" for this state and the denominator of which is the sum of "total carrier's carrier service revenues" for all states in which the taxpayer is doing business, as reported by the Federal Communications Commission in its report titled Telecommunications Revenues by State, Table 15.6, or successor reports which include such information, for the most recent year available as of the due date of the return, determined without regard to extensions.
(g) Gross receipts attributable to the sale of an ancillary service are in this state when the customer's place of primary use is in this state.
(h) Gross receipts attributable to the sale of a telecommunication or ancillary service sold as part of a bundled transaction are in this state when such gross receipts would be this state in accordance with the provisions of 830 CMR 63.38.11(5)(a)-(g).
1. The amount of gross receipts attributable to the sale of a telecommunication or ancillary service which is sold as part of a bundled transaction shall be equal to the price charged by the taxpayer for such service when sold separately, adjusted by an amount equal to the quotient of a) the difference between 1) the price charged by the taxpayer for the bundled transaction, and 2) the sum of the prices charged by the taxpayer for each of the included products when sold separately, and b) the number of products included in the bundled transaction.
Example. Bundler offers a package of services that includes monthly cable television access, Internet access and phone service for $90 a month. The price for these three services when sold separately is $120 a month, $50 for cable, $40 for Internet access and $30 for phone service. The amount of gross receipts attributable to the sale of the telecommunications services included in the bundle is determined as follows.
30 - [(120 - 90)/3)]
30 - [30/3]
30 - 10
2. If the amount of such gross receipts is not determinable under subsection H.1., then they may be determined by reasonable and verifiable standards from taxpayer's books and records that are kept in the regular course of business for purposes including, but not limited to, non-tax purposes.
(i) Gross receipts from the sale of telecommunications services which are not taxable in the State to which they would be apportioned pursuant to 830 CMR 63.38.11(5)(a)-(g), shall be excluded from the denominator of the sale factor. For purposes of this rule, a taxpayer is taxable in another state if: (1) in that state the taxpayer is subject to a net income tax, a franchise tax measured by net income, or a franchise tax for the privilege of doing business; or (2) that state has jurisdiction to subject the taxpayer to a net income tax, regardless of whether, in fact, that state does subject the taxpayer to the tax.
830 CMR 63.38.11: M.G.L. c. 14, § 16(l); M.G.L. c. 62C, § 3; M.G.L. c. 63, § 38(j)
Date of Promulgation: 3/20/09