Rev. Rul. 57-205

The Internal Revenue Service has been asked, for purposes of the exemption afforded common carriers by section 4253(f) of the Internal Revenue Code of 1954, whether mobile radio telephone service furnished to subscribers by radio and telephone companies is `local telephone service' or `talking circuit special service.'

A communications company leases to its subscribers, including common carriers, certain mobile radio transmitting and receiving units which are installed in the lessees' vehicles and by means of which two-way radio communication is carried on between the drivers of such vehicles and the terminal dispatchers. These mobile radio telephone services fit into two main categories described in the examples below.

Example 1 . The subscriber has exclusive use of all lines, channels, land station installations, mobile units, and terminal equipment.

Example 2 . The subscribers share a common exchange, dispatching on relay service.

Section 4251 of the Code imposes a tax on amounts paid for communications facilities and services, including among others, local telephone service and leased wire, teletypewriter or talking circuit special service. Section 4252(a) of the Code defines `local telephone service' as meaning any telephone service not taxable as long distance telephone service; leased wire, teletypewriter or talking circuit special service; or 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 Internal Revenue Code of 1954 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 to enable users to communicate between specified locations continuously or for specified periods. Section 4253(f) of the Code provides, in part, that no tax shall be imposed on the amount paid for so much of the leased wire, teletypewriter or talking circuit special service as is utilized by a common carrier in the conduct of its business as such.

In example 1, the subscriber has exclusive use of all lines, channels, land station installations, mobile units, and terminal equipment. Accordingly, it is held that a service of this type, generally referred to as a `private use' system, constitutes `leased wire, teletypewriter or talking circuit special service' as contemplated by section 4252(d) of the Code. Therefore, when a mobile radio telephone service of this type is utilized by a common carrier in the conduct of its business as such, the amount paid for the service is exempt from the communications tax by section 4253(f) of the Code. See Rev. Rul. 57-137, page 393 of this Bulletin.

In example 2, the subscribers share a common exchange, dispatching or relay service. Accordingly, it is held that a service of this type does not constitute `leased wire, teletypewriter or talking circuit special service' as defined in section 130.38 of the regulations, but does constitute `local telephone service' as contemplated by section 4252(a) of the Code. Therefore, the exemption provided by section 4253(f) of the Code does not apply to a service of this type.