Rev. Rul. 61-14

Advice has been requested concerning the applicability of the communications tax exemption provided by section 4253(b) of the Internal Revenue Code of 1954 under the circumstances described below.

X company, which comes within the scope of the terminology `a news ticker service furnishing a general news service similar to that of the public press' used in section 4253(b) of the Code, furnishes an information service to a large number of subscribers. A few of the subscribers are news service companies of the type referred to in section 4253(b) of the Code; that is, the public press, news ticker service companies, or radio broadcasting companies. However, most of the subscribers are not such news services companies.

To carry on this business, X leases from telephone and telegraph companies a network of wire communication lines. Some of these lines are used by X in collecting the news from which it selects and edits the information to be furnished to its subscribers. The other lines are used by X in the dissemination of the information which is furnished to its subscribers. X pays the telephone and telegraph companies for the use of all of these lines.

The various subscribers to X company's information service pay to X the amounts which X charges for the information service. This service comes within the scope of `wire and equipment service' as defined in section 4252(f) of the Code. The specific question presented here is whether the exemption provided by section 4253(b) of the Code applies to the amounts paid to X by its various subscribers.

Section 4251 of the Code imposes a tax on amounts paid for certain communication services, including `wire mileage service' and `wire and equipment service.' However, under the provisions of section 4253(b) of the Code, the tax imposed by section 4251, except with respect to general telephone service, does not apply to any payment received from any person for services used in the collection of news for the public press, or a news ticker service furnishing a general news service similar to that of the public press, or radio broadcasting or in the dissemination of news through the public press, or a news ticker service furnishing a general news service similar to that of the public press, or by means of radio broadcasting, if the charge for such services is billed in writing to such person.

Section 42.4253-2(a) of the Facilities and Services Excise Tax Regulations, Treasury Decision 6356, C.B. 1959-1, 368, states that the exemption provided by section 4253(b) of the Code applies only with respect to payments for services which are utilized exclusively (1) in the collection of news for the public press or radio or television broadcasting or in the dissemination of news through the public press or by means of radio or television broadcasting or (2) in the collection or dissemination of news by a news ticker service furnishing a general news service similar to that of the public press. For the exemption to apply, the charge for the services must be billed in writing to the person paying for the services and such person must certify in writing that the services are so utilized.

The applicability of the exemption relating to `news services' depends upon the manner in which the communication services are utilized by the person to whom those services are furnished, that is, whether that person utilizes the services exclusively in the collection or dissemination of news in the manner referred to in section 4253(b) of the Code.

It is recognized that the tax on wire mileage service does not apply to amounts paid by X to the telephone and telegraph companies for the services furnished to X . Whether the exemption provided by section 4253(b) of the Code applies to amounts paid by subscribers to X for the information service (wire and equipment service) furnished to them by X depends upon the manner in which the information service is utilized by each subscriber.

Accordingly, in the instant case, it is held that with respect to the amount paid to X company by its subscribers the exemption is limited to payments received from those subscribers who qualify as news service companies of the type referred to in section 4253(b) of the Code and who certify in writing that the information service is utilized by them exclusively in the collection or dissemination of news in the manner referred to in that section.