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Texas to Reap Telecom Tax On Farmers' GPS Service

author photo of Marc Palmer Kram

Note: The opinions expressed herein are those of the author and do not necessarily reflect the views of Wolters Kluwer or Wolters Kluwer takes pride in having informed, passionate and thoughtful staff, whose engagement and insight helps drive the products and services tax professionals rely upon, and we encourage open discourse.

In a first-of-its-kind determination regarding the taxability of a product that didn’t exist five minutes ago, the Texas Comptroller of Public Accounts (“CPA”), the state’s revenue authority, has opined that sales of satellite-to-ground geo-positioning information services (used to guide farmers laboring in their chosen fields) are sales-taxable telecommunications in the Lone Star State.

To keep pace with advances in technology, taxation departments sometimes have to break new ground (Look, Ma! a farming metaphor!) in order to accommodate unforeseen real-life situations to existing statutory frameworks. CPA Letter Ruling No. 201302744L (dated February 27, 2013, but not published until September 6, 2013) is just such an infrequent case of first impression, where the Comptroller addresses the tax implications of a transaction not explicitly covered, nor even anticipated, by the letter of the law. (We note that neither the name of the taxpayer nor the amount of tax in dispute are identified in the document released to the public.)

Enabling commercial growers to manage their crops with a precision and efficiency never possible before, the service sold by “Taxpayer” provides global positioning data that allows exact repetition of the movements of machines like planters and harvesters to within one inch (!), significantly optimizing a farmer’s ability to manage the precious (and oh-so finite) resources of land, fuel, seed, fertilizer, and time. Numerous aspects of this evolving transactional landscape are addressed in the CPA’s written decision:

In creating the new communications system, the Taxpayer constructed a network of 100-foot-tall towers and supporting concrete slabs – 96 of them situated across the plains of south Texas – which were deemed improvements to real property for sales tax purposes. However, the radio-receiving and re-transmitting equipment attached to each tower, which can be removed without harm to the structures, is considered tangible personal property – also sales-taxable, but calculated under a wholly different formula.

Taxpayer’s customers install tractor-mounted receivers to capture the positioning signals beamed from geo-stationary satellites above; users are then obliged to acquire the information service itself, which is offered on a yearly subscription basis or by “lifetime membership.” As you’d expect, Texas tax law features many widely-utilized exemptions concerning agricultural activities, which apply very specifically: purchases of radio-receiving equipment to affix to the tractor-cabs come sales-tax free, since this is property that directly “assists the farmer in cultivating, harvesting, applying chemicals, and planting” pursuant to CPA guidelines. The subscription to the stream of GPS information service, on the other hand, is not entitled to the benefit of the agricultural exemption, which is strictly limited to sales of TPP and does not, unfortunately for Farmer Jones, extend to any sales of services – a fine but crucial distinction in the law.

For its part, the Taxpayer/GPS supplier cannot claim agricultural exemption from sales tax on any of its purchases of receiving and retransmitting hardware, nor of the materials used in constructing the towers, because it is not itself “engaged in the production of agricultural or timber products for sale in the regular course of business” under CPA rules, but is merely a contractor selling to those who are thus directly engaged. “‘The agricultural exemption is available only when the purchase of qualifying equipment is made by a farmer or rancher who is engaged in the production of agricultural products for sale. Contractors may not claim the agricultural exemption when purchasing farm/ranch machinery and equipment, even if such equipment will be installed on a farm or ranch.’ The GPS service provider uses the towers, repeaters and base units, and electronics equipment to perform a taxable service rather than using them directly in production. Therefore, the GPS service provider may not purchase these items tax free based on the agricultural exemption.”

The tax rules examined here can be complicated, true, but they’re essentially logical in their application. General Information Letters and specific Private Letter Rulings like this show the CPA being responsive and flexible, adapting to advances in the technologies it administers for tax purposes and in the guidance it provides the public. It strives, quite successfully, not to confront taxpayers with too tough a row to hoe. (Look, Ma!)

Questions, comments (or other farming metaphors) are invited!

About the Author: Marc Palmer Kram is a Senior Tax Analyst at Wolters Kluwer Tax & Accounting US, where he performs quality control and troubleshooting on the vast taxability database supporting its best-in-class CCH tax-compliance software, and then sometimes writes about what he finds. Learn more about him by visiting his author bio page. Learn more about Wolters Kluwer at and

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