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Montana Administrative Register Notice 42-2-845 No. 17   09/09/2010    
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Editor Notes:

 

BEFORE THE DEPARTMENT OF REVENUE

OF THE STATE OF MONTANA

 

In the matter of the adoption of New Rules I through IV relating to telecommunication services for corporation license taxes

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NOTICE OF PUBLIC HEARING ON PROPOSED ADOPTION

 

TO:  All Concerned Persons

 

1.  On October 6, 2010, at 1:00 p.m., a public hearing will be held in the Third Floor Reception Area Conference Room of the Sam W. Mitchell Building, at Helena, Montana, to consider the adoption of the above-stated rules.

Individuals planning to attend the hearing shall enter the building through the east doors of the Sam W. Mitchell Building, 125 North Roberts, Helena, Montana.

 

2.  The Department of Revenue will make reasonable accommodations for persons with disabilities who wish to participate in this public hearing or need an alternative accessible format of this notice.  If you require an accommodation, contact the Department of Revenue no later than 5:00 p.m., October 1, 2010, to advise us of the nature of the accommodation that you need.  Please contact Cleo Anderson, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-5828; fax (406) 444-4375; or e-mail canderson@mt.gov.

 

3.  The proposed new rules do not replace or modify any section currently found in the Administrative Rules of Montana.  The proposed new rules provide as follows:

 

NEW RULE I  DEFINITIONS  The following definitions apply to this chapter:

            (1)  "800 service" means a telecommunications service that allows a caller to dial a toll-free number without incurring a charge for the call.  The service, typically marketed as toll-free calling, may utilize a prefix such as "800", "855", "866", "877", and "888" toll-free calling, or any subsequent numbers designated by the Federal Communications Commission.

(2)  "900 service" means 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.

(3)  "Air-to-ground radio telephone service" means a radio service in which common carriers are authorized to offer and provide radio telecommunications service for hire to subscribers in aircraft.

(4)  "Ancillary service" is a type of telecommunications service that includes but is not limited to the following subcategories: "related services" as defined in 15-53-129, MCA and ARM 42.31.501; "detailed telecommunications billing"; "directory assistance"; "vertical service"; "conference bridging service"; "digital downloads"; "ringtones"; 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.

(5)  "Bundled transaction" means the retail sale of two or more products.

(a)  Bundled transaction includes retail sales in which the products are:

(i)  otherwise distinct and identifiable; and

(ii)  sold for one nonitemized price.

(b)  For purposes of this rule, 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.

(c)  A transaction that otherwise meets the definition of a bundled transaction is not a bundled transaction if it is:

(i)  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;

(ii)  the retail sale of more than one product, but the products are sourced the same under this rule; or

(iii)  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 rule is de minimis.

(6)  "Call-by-call basis" means any method of charging for telecommunications services where the price is measured by individual calls.

(7)  "Coin-operated telephone service" means a telecommunications service paid for by inserting money into a telephone accepting direct deposits of money to operate.

(8)  "Communications channel" means a physical or virtual path of communications over which signals are transmitted between or among customer channel termination points.

(9)  "Conference bridging service" means 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.

(10)  "Customer" means the person or entity which 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 telecommunications 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 licensed service area.

(11)  "Customer channel termination point" means the location where the customer either inputs or receives the communications.

(12)  "Detailed telecommunications billing service" means an ancillary service of separately stating information pertaining to individual calls on a customer's billing statement.

(13)  "Directory assistance" means an ancillary service of providing telephone number information, and/or address information.

(14)  "End user" means the person who utilizes telecommunications service.  In the case of an entity, end user means the individual who utilizes the service on behalf of the entity.

(15)  "Fixed wireless service" means a telecommunications service that provides radio communication between fixed points.

(16)  "Home service provider" has the same meaning as provided for in Section 124(5) of Public Law 106-252 (Mobile Telecommunications Sourcing Act).

(17)  "International" means 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.

(18)  "Interstate" means a telecommunications service that originates in one state of the United States, the District of Columbia, or a United States territory or possession, and terminates in a different state of the United States, the District of Colombia, or a United States territory or possession.

(19)  "Intrastate" means a telecommunications service that originates in one state of the United States, the District of Colombia, or a United States territory or possession, and terminates in the same state of the United States, the District of Colombia, or a United States territory or possession.

(20)  "Mobile telecommunications service" has the same meaning as provided for in Section 124(7) of Public Law 106-252 (Mobile Telecommunications Sourcing Act).

(21)  "Mobile wireless service" means 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.  By way of example only, telecommunications services that are provided by a commercial mobile radio service provider would represent a mobile wireless service.

(22)  "Network access service" means the provision by a local exchange telecommunications service provider of the use of its local exchange network by an inter-exchange telecommunications service provider to originate or terminate the inter-exchange telecommunications service provider's traffic carried to or from a distant exchange.

(23)  "Outer jurisdictional property" means 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 service business, but that are not physically located in any particular state.

(24)  "Paging service" means 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.

(25)  "Pay telephone service" means a telecommunications service provided through any pay telephone.

(26)  "Place of primary use" means 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.

(27)  "Postpaid calling service" means 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.  

(28)  "Prepaid calling service" means 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.

(29)  "Prepaid wireless calling service" means the sale of a telecommunications service that provides the right to utilize mobile wireless service that is sold in predetermined units of dollars of which the number declines with use in a known amount.

(30)  "Private communications service" means 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.

(31)  "Product" means tangible personal property, digital good, or service.

(32)  "Service address" means:

(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 (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 (a) and (b) are not known, the service address means the location of the customer's place of primary use.

(33)  "Telecommunications service" means the two-way transmission of voice, image, data, or other information over wire, cable, fiber optics, microwave, radio, satellite, or similar facilities, that originates or terminates in this state.

(a)  The term telecommunications service is defined as a broad range of services.  The term includes, but is broader than the sum of, the following subcategories: ancillary services as defined in this chapter, related services as defined in 15-53-129(10)(c), MCA and ARM 42.31.501, 800 service, 900 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:

(i)  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;

(ii)  installation or maintenance of wiring or equipment on a customer's premises;

(iii)  tangible personal property;

(iv)  advertising, including but not limited to directory advertising; and

(v)  billing and collection services provided to third parties.

(c)  Examples of included and excluded services are:

(i)  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.

(ii)  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 providing of internet access service is not the providing of a telecommunications service.

(iii)  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 services.

(34)  "Value-added nonvoice data service" means 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.

(35)  "Vertical service" means 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.

(36)  "Voice mail service" means an ancillary service that enables the customer to store, send, or receive recorded messages.

 

AUTH:  15-1-201, 15-31-313, 15-31-201, MCA

IMP:  15-1-601, 15-31-301, 15-31-302, 15-31-303, 15-31-304, 15-31-305, 15-31-306, 15-31-307, 15-31-308, 15-31-309, 15-31-310, 15-31-311, 15-31-312, MCA

 

REASONABLE NECESSITY:  The department is proposing to adopt New Rule I to define terms used in the rules contained in this subchapter consistent with how those terms are defined by the Multistate Tax Commission.  Specifically the rule provides a standard definition of various telecommunication services.  The rule supplies definitions of terms that are key in allocating and apportioning income of telecommunication companies for corporate license tax in Montana. 

 

NEW RULE II  GENERAL RULE  (1)  Except as specifically modified by the rules in this subchapter, when a person providing telecommunications services generates business income from sources within and outside of Montana, the amount of such business income arising from sources within Montana shall be determined pursuant to Title 15, chapter 31, part 3, MCA, and the supporting administrative rules.

 

AUTH:  15-1-201, 15-31-313, 15-31-201, MCA

IMP:  15-1-601, 15-31-301, 15-31-302, 15-31-303, 15-31-304, 15-31-305, 15-31-306, 15-31-307, 15-31-308, 15-31-309, 15-31-310, 15-31-311, 15-31-312, MCA

 

REASONABLE NECESSITY:  The department is proposing to adopt New Rule II to conform to those rules adopted by the Multistate Tax Commission.  In addition New Rule II informs the reader that the department is electing to implement 15-31-312, MCA, which is the statute that allows for an alternative to the common apportionment formula for companies providing telecommunications services.  This election is due to the fact that the common formula does not fairly represent the extent of these business activities in the state.

 

NEW RULE III  PROPERTY FACTOR  (1)  Outer jurisdictional property that is used by a taxpayer when providing telecommunications services shall be excluded from both the numerator and the denominator of the property factor.

 

AUTH:  15-1-201, 15-31-313, 15-31-201, MCA

IMP:  15-1-601, 15-31-301, 15-31-302, 15-31-303, 15-31-304, 15-31-305, 15-31-306, 15-31-307, 15-31-308, 15-31-309, 15-31-310, 15-31-311, 15-31-312, MCA

 

REASONABLE NECESSITY:  The department is proposing to adopt New Rule III to conform to those rules adopted by the Multistate Tax Commission.  Specifically the rule establishes how to report outer jurisdictional property for Montana tax purposes.

 

NEW RULE IV  SALES FACTOR  (1)  Gross receipts from the sale of telecommunications services, other than those defined in (3) through (7), 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.

(2)  Gross receipts from the sale of telecommunications services, other than those defined in (3) through (7), 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.

(3)  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.

(4)  Gross receipts from the sale of prepaid calling service, prepaid wireless calling service and postpaid calling service are in this state when the origination point of the telecommunications signal is first identified in this state by either:

(a)  the seller's telecommunications system; or

(b)  information received by the seller from its service provider, where the system used to transport such signals is not that of the seller.

(5)  Gross receipts from the sale of a private communication service are in this state:

(a)  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;

(b)  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;

(c)  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 one of the customer channel termination points is in this state, provided however that only fifty percent of such gross receipts shall be sourced to this state; and

(d)  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.

(6)  A portion of the total gross receipts from sales of telecommunications services to other telecommunications 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.

(7)  Gross receipts attributable to the sale of telecommunications services sold as part of a bundled transaction are in this state when such gross receipts would be in this state in accordance with the provisions of (1) through (6).

(a)  The amount of gross receipts attributable to the sale of a telecommunications 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 the difference between:

(i)  the price charged by the taxpayer for the bundled transaction;

(ii)  the sum of the prices charged by the taxpayer for each of the included products when sold separately; and

(iii)  the number of products included in the bundled transaction.

(b)  If the amount of such gross receipts is not determinable under (a), then it 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, nontax purposes.

(8)  Gross receipts from the sale of telecommunications services which are not taxable in the state to which they would be apportioned pursuant to (1) through (6), shall be excluded from the denominator of the sales factor.

 

AUTH:  15-1-201, 15-31-201, 15-31-313, , MCA

IMP:  15-1-601, 15-31-301, 15-31-302, 15-31-303, 15-31-304, 15-31-305, 15-31-306, 15-31-307, 15-31-308, 15-31-309, 15-31-310, 15-31-311, 15-31-312, MCA

 

REASONABLE NECESSITY:  The department is proposing to adopt New Rule IV because the current greater cost of performance method for apportionment of business income does not fairly represent the extent of the telecommunication industry business in the state.  The cost of performance does not recognize the contribution of sales made to and paid by Montanans. Section 15-31-312(4), MCA states the tax administrator may require an alternative method to produce an equitable allocation and apportionment of the taxpayer's income.  These proposed rules would employ a method of apportionment of telecommunication industry income to fairly represent the extent of telecommunication business activity in Montana and equitably apportion that income to Montana for tax purposes.

The department has historically adopted industry-specific rules to implement 15-31-312, MCA, including rules for income earned by freight and passenger carriers, railroads, trucking companies, airlines, construction companies, publishing, and television and radio broadcasting.  This proposed rule is based primarily on a Multistate Tax Commission recommendation concerning the apportionment of income from the sale of telecommunications and ancillary services.  Differences with that recommendation are limited to changes necessary to conform to specific provisions in Montana law, including definitions of telecommunications services and related or ancillary services.

 

4.  Concerned persons may submit their data, views, or arguments, either orally or in writing, at the hearing.  Written data, views, or arguments may also be submitted to: Cleo Anderson, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-5828; fax (406) 444-4375; or e-mail canderson@mt.gov and must be received no later than October 15, 2010.

 

5.  Cleo Anderson, Department of Revenue, Director's Office, has been designated to preside over and conduct the hearing.

 

6.  An electronic copy of this Notice of Public Hearing is available through the department's site on the World Wide Web at www.mt.gov/revenue, under "for your reference"; "DOR administrative rules"; and "upcoming events and proposed rule changes."  The department strives to make the electronic copy of this Notice of Public Hearing conform to the official version of the notice, as printed in the Montana Administrative Register, but advises all concerned persons that in the event of a discrepancy between the official printed text of the notice and the electronic version of the notice, only the official printed text will be considered.  In addition, although the department strives to keep its web site accessible at all times, concerned persons should be aware that the web site may be unavailable during some periods, due to system maintenance or technical problems.

 

7.  The Department of Revenue maintains a list of interested persons who wish to receive notices of rulemaking actions proposed by this agency.  Persons who wish to have their name added to the list shall make a written request, which includes the name and e-mail or mailing address of the person to receive notices and specifies that the person wishes to receive notices regarding particular subject matter or matters.  Notices will be sent by e-mail unless a mailing preference is noted in the request.  Such written request may be mailed or delivered to the person in 4 above or faxed to the office at (406) 444-4375, or may be made by completing a request form at any rules hearing held by the Department of Revenue.

 

8.  The bill sponsor contact requirements of 2-4-302, MCA, do not apply.

 

 

 

/s/ Cleo Anderson                             /s/ Dan R. Bucks

CLEO ANDERSON                          DAN R. BUCKS

Rule Reviewer                                   Director of Revenue

 

Certified to Secretary of State August 30, 2010

 

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