A New York State Administrative Law Judge has held that Nextel Partners N.Y. (“Nextel”) is entitled to a refund of sales tax it paid on the purchase of “shelters” used to contain telecommunications equipment. Matter of Nextel Partners N.Y. (Nextel Partners of Upstate New York, Inc.), DTA No. 823195 (N.Y.S. Div. of Tax App., Apr. 28, 2011).

Nextel provides commercial mobile radio services to business and residential customers. The equipment contained in the shelters receives, initiates, transmits, switches or monitors the switching of telecommunications services for sale. The shelters themselves are precast steel reinforced enclosures, cost approximately $28,000 each, and are installed adjacent to cell towers containing antennae, where they are bolted to concrete pads. They contain racks or cabinets to hold the equipment; power panels; connecting wiring necessary for the equipment to operate; backup batteries; and heating, ventilation and air conditioning equipment necessary to maintain the interior temperature within the proper range. They protect the telecommunications equipment from the elements and from animals, dust, theft, and vandalism.

Nextel paid sales tax when it purchased the shelters, and then filed claims for refund on the grounds that the shelters were covered by the exemption from tax provided by Tax Law § 1115(a)(12-a) for tangible personal property “for use or consumption directly and predominantly in the receiving, initiating, amplifying, processing, transmitting, retransmitting, switching or monitoring of switching of telecommunications services for sale . . . .” Nextel claimed that the shelters are used directly and predominantly in the provision of telecommunications services for sale, while the Department argued that the shelters are not “‘inextricable components of mechanical equipment’ operating as ‘a single, integrated and synchronized system.’”

The ALJ held that the shelters were covered by the exemption. He noted that the Tribunal and the courts had taken a broad view of the category of property encompassed within the exemption. For example, in Matter of People’s Telephone Co., DTA No. 816253 (N.Y.S. Tax App. Trib., Jan. 16, 2001), the Tribunal held that pay phone pedestals and enclosures were exempt from tax under a predecessor statute, since the finished product was a telecommunications service on which tax was eventually imposed. The pedestals and enclosures were found to have an “‘active causal relationship’” in the production of telephone communication. Similarly, the ALJ held in Nextel that the shelters are “close, integral, dependent and necessary” for the telecommunications services, and that without them, Nextel would be unable to provide the services. Accordingly, they qualified for the exemption.

Additional Insights. While, as the ALJ noted, tax exemptions are generally strictly construed, and the burden of demonstrating entitlement rests with the party claiming the exemption, here the ALJ found a clear history of the Tribunal and the courts taking a broader view of what constitutes exempt telecommunications property, in light of the statutory purpose that the tax not be pyramided and only be imposed on the end sale to the customer.