Rev. Rul. 60-318

Advice has been requested whether the excise tax on communication services applies to amounts paid for background music and spot advertisements under the circumstances described below.

A music company is engaged in the business of furnishing background music to supermarkets. The music is transmitted to some supermarkets from a central studio by means of wires leased from a telegraph company and is furnished to other supermarkets by means of tape players and remote speakers which are installed on the premises of the supermarkets. The tape players, tapes, and all equipment installed in the supermarkets are furnished, owned, and serviced by the music company. Spot advertising announcements to be transmitted over the wires, or placed on tapes to be replayed in the supermarkets, are sold by the music company to manufacturers whose products are displayed and sold in the supermarkets subscribing to the music service. The supermarkets pay the music company a standard fee for the service, and the manufacturers pay the music company a charge proportionate to the amount of advertising to which they subscribe.

Section 4251 of the Internal Revenue Code of 1954, as amended by the Excise Tax Technical Changes Act of 1958, Public Law 85-859, C.B. 1958-3, 92, imposes a tax on amounts paid for certain enumerated communication services, including `wire mileage service' and `wire and equipment service.'

Section 4252(e) of the Code, as amended by the Excise Tax Technical Changes Act of 1958, defines the term `wire mileage service' as any telephone or radio telephone service, and any other wire or radio circuit service, not included in any other subsection of this section; except that such term does not include service used exclusively in furnishing wire and equipment service. Section 4252(f) of the Code (section 4252(e) prior to its redesignation and amendment by the Excise Tax Technical Changes Act of 1958) provides that the term `wire and equipment service' includes stock quotations and information services, burglar alarm or fire alarm service, and all other similar services (whether or not oral transmission is involved).

Section 42.4252-6(a) of the Facilities and Services Excise Tax Regulations, Treasury Decision 6356, C.B. 1959-1, 368, provides that, in general, the term `wire and equipment service' relates to lines or channels and equipment by means of which information or services are furnished to the subscriber. Tax is imposed on the amounts paid for such lines or channels, equipment, and information or services. Section 42.4252-6(b)(3) of the regulations provides that wire and equipment services include channels furnished between a point of origin and the subscriber's premises over which are given stock and bond market quotations and reports, racing results, baseball scores, and other sporting results, news items, musical programs, weather reports, the time, etc.

Revenue Ruling 55-710, C.B. 1955-2, 658, holds that amounts paid to a company for a music program service transmitted over leased telephone wires running from the company's central studio to the places of business of its subscribers are subject to the tax on wire and equipment service.

Accordingly, in the instant case, it is held that amounts paid to the company by its subscribers for background music furnished by means of wires leased from a telegraph company are subject to the tax on `wire and equipment service' imposed by section 4251 of the Code. However, under the facts presented, the manufacturers who purchase spot announcements are not subscribers to the `wire and equipment service.' Therfore, the amounts paid to the company by such manufacturers are not subject to the communications tax.

It is significant that section 42.4252-6(b)(3) of the regulations uses the phrase `channels furnished between a point of origin and the subscriber's premises over which are given' musical programs, etc. Accordingly, in the instant case, since there are no channels furnished between a point of origin and the subscriber's premises with respect to the background music furnished to some subscribers by means of tape players which are installed on the subscribers' premises, that service does not constitute a `wire and equipment service' within the meaning of section 4252(f) of the Code and does not come within the scope of any other communication service enumerated in section 4251 of the Code. Therefore, amounts paid to the music company for background music furnished to subscribers by means of tape players which are installed on the subscriber's premises are not subject to the excise tax on communication services.