Rev. Rul. 57-206

Advice has been requested whether the excise tax on communications facilities and services applies to amounts paid for leased radio channel service.

A communications company leases to its subscribers a radio channel service which provides two-way radio-telegraphic communications between lessor-owned radio terminals at different points or between lessor-owned radio terminals and radio terminals owned and operated by the subscribers. The service is furnished under a minimum-period contract which provides for continuous use of the channel or for use during specified daily periods only. The channel is for the exclusive and private use of the subscriber. The service is used by subscribers in conjunction with teleprinter equipment, such equipment and connecting the lines between the equipment and the lessor-owned radio terminals being supplied by either the subscribers or the lessor. However, subscribers must supply, at their own expense, electric power to operate the printer equipment.

Section 4251 of the Internal Revenue Code of 1954 imposes a tax on amounts paid for communications facilities and services, including local telephone service; long distance telephone service; telegraph service; leased wire, teletypewriter, or talking circuit special service; and wire and equipment service. Section 4252(d) of the Code, which defines the term `leased wire, teletypewriter, or talking circuit special service,' provides that the tax imposed on such service shall apply whether or not the wires or services are within a local exchange area.

Section 130.38 of Regulations 42, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, provides that, in general, leased wire, teletypewriter, or talking circuit special service relates to 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, as distinguished from the sending of single dispatches, messages and conversations by telephone, radio telephone, telegraph, cable, radio for which tolls are charged by the carrier. The communications may be telephonic, in Morse or similar code, or may be reproduced at the terminating end in the form of a typewritten page or tape, or picture or facsimile. This section of the regulations also cites, as examples of such services, `channels and equipment for teletypewriter or teleprinter service' and `channels and equipment for teletypewriter or teleprinter exchange service.' It is significant that this section of the regulations uses the term `channels' in reference to services and facilities subject to the tax on communications. `Channels' may relate either to a wire line or to a `radio path.'

Accordingly, it is held that leased radio channel service incorporates the essential features of, and falls within the scope of, `leased wire, teletypewriter or talking circuit special service' as contemplated by section 4252(d) of the Code. Therefore, any amounts paid by subscribers for leased radio channel service, including amounts paid for tie-lines and rental of teleprinter equipment, are subject to the excise tax on communications imposed by section 4251 of the Code.