Rev. Rul. 57-409

Advice has been requested whether payments for the communication services and facilities described below are, for purpose of the exemption from the tax on communications, considered to be payments for communication services and facilities utilized in the collection or dissemination of news for the `public press,' and, if not exempt, whether payments for such services and facilities are taxable as `leased wire, teletypewriter or talking circuit special service,' or as `wire and equipment service.'

A brokerage and underwriting firm with numerous branch offices located throughout the United States leases from a telephone company several types of wire facilities to meet its various needs. Among the facilities leased is a wire network consisting of a transmitter located in the main office and teletypewriter circuits connecting the transmitter to receiving-only teletypewriters, located in each of the branch offices. The circuit is designed and used for one-way transmission of information from the main office to the branch offices. The information transmitted includes market quotations, excerpts from various financial services, Weather Bureau forecasts and reports affecting commodity areas, excerpts from official statements of government agencies, and excerpts from the firm's own research and statistical reports on market predictions and selected securities. This information is compiled and edited in the main office and is transmitted to the branch offices solely for the benefit of the personnel in the branch offices and for the firm's customers.

Section 4251 of the Internal Revenue Code of 1954 imposes a tax on amounts paid for certain communication services and facilities. Included in the services and facilities taxable under that section are `leased wire, teletypewriter or talking circuit special service,' with respect to which the tax is equal to ten percent of the amount so paid, and `wire and equipment service,' with respect to which the tax is equal to eight percent of the amount so paid.

Under the provisions of section 4253(b) of the Code, the tax imposed under section 4251 of the Code does not apply to payments received from any person for `leased wire, teletypewriter or talking circuit special service' or for `wire and equipment service' where such services are utilized in the collection of news items for or the dissemination of news items through the public press, or a news ticker service furnishing a general news service similar to that of the public press, or radio broadcasting.

It is held that since the firm utilizes its private circuit solely to communicate information within its own establishment for its own private business purposes, such services and facilities are not utilized in the collection of news items for, or the dissemination of news items through, the public press or by any of the other means of communication specified in the statute. Accordingly, the exemption specified in section 4253(b) of the Code from the tax on communications does not apply to payments made by the firm to the telephone company for the lines and terminal equipment described.

Section 4252(d) of the Code provides that the term `leased wire, teletypewriter or talking circuit special service' does not include any service used exclusively in rendering a service taxable as wire and equipment service. Section 4252(e) of the Code defines the term `wire and equipment service' to include stock quotation and information services, burglar alarm or fire alarm service, and all other similar services, but not including service taxable as `leased wire, teletypewriter or talking circuit special service.'

Section 130.38(a)(2) of Regulations 42, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, describes `leased wire, teletypewriter, or talking circuit special service,' in general, as private line service where 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. Thus, private use is one of the basic features of such service. Section 130.38(b) of the regulations specifies numerous services which come within the category of `wire and equipment service.' All of the services specified in that section are subscriber services, that is, the subscribers receive such services as information, statistical data, warning signals, music, protective services, etc.

The private line service furnished by the telephone company to the brokerage firm does not fall within the scope of the term `wire and equipment service.' The information service furnished by the brokerage firm to its branch offices is of the type which if furnished to subscribers would constitute `wire and equipment service' as defined by the Code. However, since the brokerage firm has no subscribers to its information service, the lines and equipment leased from the telephone company are not considered to be `used exclusively in rendering a service taxable as wire and equipment service.' Therefore, it is held that the lines and equipment furnished by the telephone company comprise a `teletypewriter service' within the scope of section 4252(d) of the Code. Accordingly, the amounts paid to the telephone company for the lease of such lines and equipment are subject to tax equal to ten percent of the amount so paid.