In a unanimous decision issued on December 13, 2018, the New York State Court of Appeals held that most cellular data transmission equipment is taxable as real property in New York State. In re T-Mobile Northeast, LLC v. DeBellis, No. 140, 2018 WL 6533281 (Dec. 13, 2018). Prior to this decision, intermediate appellate courts in different parts of the state had reached opposite conclusions on the issue of whether cellular data and/or fiber optic transmission equipment and cables were taxable real property within the meaning of RPTL § 102(12)(i). Cf. In re T-Mobile Northeast, LLC v. DeBellis, 143 A.D.3d 992, 996 (2d Dep’t 2016) (holding that cellular data transmission equipment, including fiber optic cables, was taxable), aff’d, 2018 WL 6533281 (Dec. 13, 2018); with In re RCN N.Y. Commc’ns, LLC v. Tax Comm’n of City of N.Y., 95 A.D.3d 456, 457 (1st Dep’t 2012) (holding that fiber optic cables were not); see also In re Level 3 Commc’ns, LLC v. Chautauqua Cty., 148 A.D.3d 1702 (4th Dep’t 2017) (holding that fiber optic cables were not taxable real property under RPTL §102(12)(f)), lv denied, 30 N.Y. 3d 913 (2018).
As a result of the Court of Appeals’ decision, municipalities throughout New York State may now impose real property taxes on cellular data transmission equipment that is located on either private or public property other than public right-of-way property. (Such equipment will remain subject to special franchise assessments if it is located on public right-of-way property.) This will create an additional tax burden on cellular providers operating in the State. Cellular providers faced with this burden will need to pay increased attention to attempts to impose such taxes, as well as the particular valuations assigned to their equipment for this purpose. Cellular providers should also be certain that inventories of their equipment are updated promptly to reflect removals and retirements.
Background on Taxation of Telephone Equipment
The decision by the Court of Appeals begins with a lengthy history of the telecommunications industry and New York State’s decades-long efforts to delineate precisely what portions of landline telephone systems are subject to real property taxation (and which are not). The current statutory definition of “taxable real property,” insofar as it pertains to telecommunications equipment, is a product of those efforts in the 1970s and 1980s.
Specifically, “taxable real property” is defined by statute to include “all lines, wires, poles, supports and inclosures for electrical conductors upon, above and underground used in connection with the transmission or switching of electromagnetic voice, video and data signals between different entities separated by air, street or other public domain[.]” N.Y. Real Prop. Tax Law § 102(12)(i)(Westlaw through L. 2018, ch. 1 to 461). Excepted from the definition are: “(A) station connections; (B) fire and surveillance alarm system property; (C) such property used in the transmission of news wire services; and (D) such property used in the transmission of news or entertainment radio, television or cable television signals for immediate, delayed or ultimate exhibition to the public, whether or not a fee is charged therefor.” Id.
Application to Cellular Data Transmission Equipment
Although the Court of Appeals recognized that the statutory definition of “taxable real property” predated the widespread availability and use of cellular data transmission, it nonetheless found that the “plain language” of that definition encompassed each component of T-Mobile’s cellular data transmission equipment because:
- Base transceiver stations qualified as “inclosures for electrical conductors”;
- Rectangular antennas were part of the base transceiver stations and thus, qualified as “inclosures for electrical conductors”; and
- Various cables involved in the installations were “lines” and/or “wires.”
And, the Court concluded, the primary function of all of these items of equipment was to transmit cellular data, such that the components were “used in connection with the transmission or switching of electromagnetic voice, video and data signals.”
In so holding, the Court rejected T-Mobile’s argument that certain equipment was not being used “for electrical conductors,” as that term is used in RPTL §102(12)(i). The Court concluded that the phrase “for electrical conductors” applied only to “inclosures,” and that T-Mobile’s equipment, including specifically its fiber optic cables, are taxable as “lines” under the statute “despite the fact that they do not conduct electricity.” In re T-Mobile Northeast, LLC, 2018 WL 6533281, at *6.
T-Mobile had also argued that its equipment was not taxable because it fell within a statutory exception specifying that “station connections” are not taxable real property. The Court of Appeals rejected that argument, holding that the exception related only to certain landline telephone system equipment, such as wiring physically connecting customer telephones to telephone poles (i.e., drop wires from the telephone pole to the block, and the wires from the block to the house wire).
In reaching its decision in the T-Mobile case, the Court of Appeals recognized that “ambiguities in tax statutes are generally resolved in favor of the taxpayer,” but rejected application of that rule to T-Mobile’s equipment because, in the words of the Court, both the “plain language” of the statutory definition and the legislative history behind it supported the conclusion that T-Mobile’s equipment is taxable real property. In re T-Mobile Northeast, LLC, 2018 WL 6533281, at *6.
By reaching that conclusion, the Court has effectively given permission to municipalities throughout the State to impose an additional tax burden on cellular providers – and has judicially updated the definition of “taxable real property” without allowing cellular data providers the benefit of legislative consideration of whether extending a definition fashioned to address the taxation of landline telephone systems should be applied to cellular data transmission systems.
Absent a legislative response, cellular providers in New York State should expect additional tax burdens, as municipalities seek to impose taxes on equipment that was previously considered non-taxable in many parts of the State. Cellular providers operating in New York State should, therefore, be vigilant in monitoring attempts to impose such taxes on their equipment and, in response to such attempts, consider whether other exceptions to the definition of “taxable real property,” or other legal defenses, might apply to their particular equipment or situation. Cellular providers should also be vigilant as to the valuations assigned to their equipment for purposes of real property taxation and consider proactively challenging those valuations as and when appropriate. Finally, cellular providers should vigilantly update their equipment inventories to reflect removals and retirements, and work to ensure that the inventories used by municipalities to assess taxes upon their equipment are promptly updated to reflect the same.