SECTION 3.313. Cable Television Service and Bundle Cable Service

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Bundled cable service--The provision of cable television service and at least one other taxable service by a cable service provider through a cable system for a single price. Other taxable services may include, but are not limited to, telecommunications services, as defined in §3.344 of this title (relating to Telecommunications Services); Internet access services, as defined in §3.366 of this title (relating to Internet Access Services); data processing services, as defined in §3.330 of this title (relating to Data Processing Services); information services, as defined in §3.342 of this title (relating to Information Services); and security services, as defined in §3.333 of this title (relating to Security Services). Services sold to a purchaser by a third party, rather than the cable service provider, are not bundled cable services even if they are provided by means of a cable system.

(2) Cable service provider--A person who provides cable television service or bundled cable service through a cable system.

(3) Cable system--The system through which a cable service provider delivers cable television or bundled cable service. A cable system may comprise any or all of the following: tangible personal property; real property; and other media, such as radio waves, microwaves, or any other means of conveyance now in existence or that may be developed.

(4) Cable television service--The digital distribution of video programming to purchasers by any means now in existence or that may be developed. The term includes, but is not limited to, direct broadcast satellite service (DBS); subscription television service (STV); satellite master antenna television service (SMATV); master antenna television service (MATV); multipoint distribution service (MDS); multichannel multipoint distribution service (MMDS); fixed programming; any audio portion of a video program; streaming video programming provided via the Internet or other technology, regardless of the type of device used by the purchaser to receive the service; video on demand services or subscription services that allow purchasers to choose from a library of available content; and any other video programming provided in exchange for consideration. The term does not include the provision of tangible personal property, such as video content that has been downloaded by the purchaser or is stored on a compact disc or other physical media, or the provision of telecommunications services, as defined in §3.344 of this title.

(5) Fixed physical connection--The place at a purchaser's residence or business where the cable service provider or its agent, or the purchaser, by agreement with the cable service provider, has installed any materials or equipment that connect the purchaser to the provider's cable system. For example, a coaxial cable connection at a distribution box or an outdoor antenna or dish that connects to a satellite receiver is a fixed physical connection. The connection of equipment, such as a personal computer, Internet-ready television, or other device that allows the purchaser to view content that is not provided directly by the cable service provider, does not create a fixed physical connection.

(6) Nomadic access--The ability to access cable television service or bundled cable service from multiple locations with or without the use of a fixed physical connection.

(7) Point of delivery--The physical address of the purchaser's fixed physical connection or, in the absence of such connection, the physical address of the purchaser at which the cable television or bundled cable service is considered to be received, as determined in subsection (g)(3) of this section.

(b) Imposition of tax. The sale of cable television or bundled cable service, and any services or expenses connected to the provision of the service, are subject to sales and use tax.

(1) Taxable charges include:

(A) service connection fees. The term "service connection fee" includes terms such as "installation," "connect," or "reconnect;"

(B) charges for video programming services;

(C) charges for tangible personal property, such as converters, descramblers, and digital video recorders, transferred to the care, custody, and control of purchasers as an integral part of the services provided;

(D) amounts billed to purchasers for repairs or maintenance;

(E) municipal franchise fees; and

(F) any licensing fees for the right to receive or distribute a satellite signal.

(2) Unrelated services.

(A) A service will be considered as unrelated if:

(i) it is not a cable television service or bundled cable service, nor a service taxed under other provisions of Tax Code, Chapter 151;

(ii) it is of a type which is commonly provided on a stand-alone basis; and

(iii) the performance of the service is distinct and identifiable.

(B) Where nontaxable unrelated services and taxable services are sold or purchased for a single charge and the portion relating to taxable services represents more than 5.0% of the total charge, the total charge is presumed to be taxable. The presumption may be overcome by the taxable service provider at the time the transaction occurs by separately stating to the purchaser a reasonable charge for the taxable services. If the charge for the taxable portion of the services is not separately stated at the time of the transaction, the service provider or the purchaser may later establish for the comptroller, through documentary evidence, the percentage of the total charge that relates to nontaxable unrelated services. The service provider's books must support the apportionment between exempt and nonexempt activities based on the cost of providing the service or on a comparison to the normal charge for each service if provided alone. If the charge for exempt services is unreasonable when the overall transaction is reviewed considering the cost of providing the service or a comparable charge made in the industry for each service, the comptroller will adjust the charges and assess additional tax, penalty, and interest on the taxable services.

(c) Deposits. A deposit that represents future payment for cable television or bundled cable service is part of the sales price of the service and is taxable when the deposit is used to pay for the service. A deposit paid to receive equipment that is transferred to the care, custody, and control of the purchaser as an integral part of the service, such as a converter that is returned to the cable service provider when the service is terminated, is not taxable.

(d) Sales for resale.

(1) Taxable services. A cable service provider may issue a resale certificate to purchase a taxable service tax-free in the following circumstances:

(A) if the service will be transferred as an integral part of the cable television or bundled cable service. For example, if a cable service provider sells a bundled cable service that includes data storage, and the provider purchases data storage capacity from a third party, then the provider may issue a resale certificate to the provider of the data storage capacity; or

(B) if the service is performed on tangible personal property that the cable service provider will transfer to the care, custody, and control of the purchaser as an integral part of the cable television or bundled cable service. For example, if a cable service provider that provides digital video recorders or converters to purchasers hires a third party to repair a digital video recorder or converter, then the provider may issue a resale certificate to the repair service provider in lieu of paying tax on the repair service. See §3.285 of this title (relating to Resale Certificate; Sales for Resale).

(2) Tangible personal property. A resale certificate may be used to purchase tangible personal property tax free if care, custody, and control of the property are transferred to the purchaser of the cable television or bundled cable service as an integral part of the service. For example, a cable service provider may issue a resale certificate to the seller of remote controls that are provided to purchasers of the cable television service as part of the sale of the service. See §3.285 of this title.

(e) Taxable purchases.

(1) Taxable services. A cable service provider owes tax on its purchases of taxable services that are not transferred to purchasers as an integral part of a cable television or bundled cable service, but are instead used by the cable service provider in providing that service.

(2) Tangible personal property. A cable service provider owes tax on its purchases of equipment, supplies, and other items that are not transferred to the care, custody, and control of purchasers as an integral part of the cable television or bundled cable service, but are instead used by the cable service provider to provide that service. For example, a cable service provider owes tax on the satellite receiving and transmitting equipment, cables, and wiring that it uses to provide cable television service and that are not located on the purchaser's premises. Taxable items that a cable service provider purchases out of state and brings into Texas for use in providing a cable television or bundled cable service are subject to Texas use tax. See §3.346 of this title (relating to Use Tax). Credit will be allowed against the use tax for any sales or use tax legally imposed and paid to another state. See §3.338 of this title (relating to Multistate Tax Credits and Allowance of Credit for Tax Paid to Suppliers).

(3) A cable television service provider may seek an annual refund of Texas sales and use taxes paid on certain tangible personal property directly used or consumed in providing cable television services. See §3.345 of this title (relating to Annual Refund Program for Providers of Cable Television, Internet Access, and Telecommunications Services).

(f) Real property rental. An owner of real property, such as an apartment complex or hotel, that provides cable television or bundled cable service to its residents or guests must collect sales tax on any charge it imposes on residents or guests that is attributable to the cable television or bundled cable service. If the owner does not charge the residents or guests for the cable television or bundled cable service, the owner is the consumer of the service and must pay tax on that service and all services or expenses connected to the provision of that service, in accordance with subsection (b) of this section.

(g) Local tax.

(1) Cable service providers are required to collect all local tax due on the sale of cable television or bundled cable service, and on all services or expenses connected with the provision of that service, in accordance with subsection (b) of this section, based upon the point of delivery to the purchaser. For more information regarding the calculation of local tax, see Tax Code, Title 3, Subtitle C.

(2) Direct-to-home satellite. The sale of cable television or bundled cable service by means of direct-to-home satellite is exempt from local tax under the Telecommunications Act of 1996, §602. For purposes of this section, direct-to-home satellite refers to cable television or bundled cable service that is transmitted directly to a purchaser's premises, including a residence, hotel, or motel, without use of ground receiving or distribution equipment, except at the purchaser's premises or in the uplink process to the satellite. Tangible personal property transferred to the care, custody, and control of the purchaser as an integral part of the cable television or bundled cable service is considered to be part of the service and is also exempt from local tax. Equipment used by a cable service provider to provide direct-to-home satellite cable television or bundled cable service is subject to local sales and use taxes, unless otherwise exempt.

(3) Point of delivery.

(A) Service delivered through a fixed physical connection.

(i) If a cable service provider delivers, or under its contract with the purchaser is able to deliver, cable television or bundled cable service, or any portion or element thereof, to the purchaser by means of a fixed physical connection, then the address of that fixed physical connection is the point of delivery, even if the purchaser can access the service both through a fixed physical connection and by means of nomadic access.

(ii) Two or more fixed physical connections. If fixed physical connections at two or more locations are associated with a single account, then the service provider must collect local taxes for each separately stated charge for cable television or bundled cable service based upon the location of the fixed physical connection to which the charge is allocable. For example, if a purchaser's account is associated with coaxial cable connections in City A and in City B, and the purchaser incurs a separately stated charge for a pay-per-view movie that is provided through the coaxial cable connection in City B, then the service provider should collect local taxes on the pay-per-view charge using the City B location as the point of delivery. If the service provider cannot determine the location of the fixed physical connection to which a charge is allocable, then the point of delivery is the location of the fixed physical connection designated by the purchaser prior to or at the time of purchase. Information about a purchaser's designated point of delivery must be maintained in the seller's books and records. For example, if a purchaser's account is associated with fixed physical connections at two or more locations, and the purchaser incurs a separately stated charge for video programming that is provided by means of nomadic access, then the point of delivery is the location of the fixed physical connection designated by the purchaser prior to or at the time of purchase.

(B) Service delivered by mobile telecommunications service provider. If the purchaser's account does not have a fixed physical connection, and if the cable service provider is also a mobile telecommunications service provider, then the point of delivery to the purchaser is the purchaser's place of primary use of the mobile telecommunications service, as that term is defined in §3.344 of this title.

(C) Service delivered without a fixed physical connection. If the purchaser does not have a fixed physical connection, and the cable service provider is not a mobile telecommunications service provider, then the point of delivery shall be:

(i) the purchaser's mailing address in this state. For example, if there is no fixed physical connection, but the cable service provider sends invoices to the purchaser at a mailing address in this state, or has on file in its books and records for the purchaser a mailing address in this state, then the purchaser's Texas mailing address is the point of delivery. A cable service provider acting in good faith may rely upon a statement from a purchaser regarding the purchaser's mailing address as provided in paragraph (4) of this subsection, in which case the provider will not be held liable for any additional tax, penalty, or interest if the comptroller subsequently determines that the statement is invalid; or

(ii) the address in this state that is associated with the payment instrument used by the purchaser to pay for the service, but only if the cable service provider cannot determine, or the purchaser has not provided, a mailing address in this state under clause (i) of this subparagraph.

(4) Purchaser's rights and remedies.

(A) Mailing address. If the point of delivery to the purchaser is not a fixed physical connection under paragraph (3)(A) of this subsection or the place of primary use under paragraph (3)(B) of this subsection, then the purchaser may contact the cable service provider to provide an accurate mailing address or to update the mailing address already in the provider's books and records. The cable service provider must then collect local tax on the sale of cable television and bundled cable service to the purchaser based upon the point of delivery determined in accordance with paragraph (3)(C)(i) of this subsection using the information provided by the purchaser.

(B) Refund. If a cable service provider collects local sales tax from a purchaser in error, then the purchaser may request a refund of that local sales tax from the comptroller in accordance with the procedures set forth in §3.325 of this title (relating to Refunds and Payments Under Protest).

(5) Nomadic access. If a purchaser has an account with nomadic access, the point of delivery is determined in accordance with paragraph (3) of this subsection.

(6) Tangible personal property. Tangible personal property that is transferred to the care, custody, and control of the purchaser as an integral part of a cable television or bundled cable service is regarded as a component of that service and is subject to local tax based upon the point of delivery to the purchaser in accordance with paragraph (3) of this subsection. A cable service provider is responsible for collecting local tax in accordance with Tax Code, Title 3, Subtitle C on any other sale, lease, or rental of tangible personal property. When a cable service provider charges a single price for the provision of both cable television or bundled cable service and tangible personal property that is not an integral part of that service, such as the rental of compact discs containing video programming, then the cable service provider must identify in its contracts, invoices, or books and records that portion of each charge that is attributable to the provision of tangible personal property and must collect local sales tax upon that amount in accordance with the provisions of the Tax Code governing the application of local tax to the sale of tangible personal property.

(7) Other taxable services.

(A) A cable service provider providing a service other than cable television or bundled cable service through a cable system is responsible for collecting local tax on the separately stated charges for that service in accordance with Tax Code, Title 3, Subtitle C, or, if applicable, the specific provisions of the section of the title that address the services provided. For example, a cable service provider who provides an information service for a separate charge must collect the local tax due on that charge in accordance with the provisions of Tax Code, §321.203 and §323.203.

(B) A service provider, other than a cable service provider, who provides services through a cable system is responsible for collecting local tax on those services in accordance with Tax Code, Title 3, Subtitle C, or, if applicable, the specific provisions of the section of the title that address the services provided.

Source Note: The provisions of this §3.313 adopted to be effective December 12, 1984, 9 TexReg 6089; amended to be effective June 25, 1991, 16 TexReg 3195; amended to be effective August 12, 2007, 32 TexReg 4765; amended to be effective February 16, 2014, 39 TexReg 770