Electricity Used to Power Telecommunications Equipment Taxable in New York

The New York Commissioner of Finance has upheld the Tax Appeals Tribunal’s denial of a telecommunications service provider’s claim for a refund of sales tax paid on purchases of electricity used to power telecommunications equipment. The taxpayer based its claim on a number of statutes that did not apply to its situation, most notably one that exempted electricity “for use or consumption directly and exclusively in the production of tangible personal property.” The Commissioner determined that telecommunications, as digital signals which travel over wires and are received by separate equipment such as a telephone, are not physical, corporeal objects perceptible to the senses, and are therefore not tangible personal property. In this proceeding, the taxpayer also argued that the electricity it purchased became a component part of the finished product sold to customers, and therefore qualifies for the resale exemption. However, since the taxpayer did not raise this argument in prior hearings, it was not allowed to be raised in this proceeding. Finally, the taxpayer’s assertion that denial of an exemption would result in multiple taxation was rejected because there is nothing inherently improper in imposing a tax on both the taxpayer’s purchase of electricity to create the product and the customer’s purchase of the product itself. (XO New York, Inc. v. Commissioner of Taxation and Finance, New York Supreme Court, Appellate Division, Third Judicial Department, No. 502095, May 8, 2008)

Posted on April 9, 2009