I speak with several companies each week that are in the process of launching a new VoIP telecommunications service. Misinformation abounds including……”Since it’s delivered over the Internet I thought it was tax free.” I hear the following comment also…..”My carrier is collecting and paying all the taxes and fees for me.”
Let me dispel these rumors. First, VoIP is both taxed and regulated. It is not tax free. Furthermore, carriers are generally only collecting those taxes and fees that apply to the wholesale transaction when they sell the service to you. As a telecom reseller, you are exposed for the applicable taxes and fees on the mark-up at least and potentially for the taxes and fees that you have already paid to your carrier.
As a result of the various myths and multitude of confusion, I developed a quick reference guide for those who are entering the telecom service market. This guide is not meant to be all encompassing but is meant to provide baseline information and the framework for establishing a process to ensure tax and regulatory compliance for your telecommunications and certain types of VoIP services. The Top 10 list includes:
- Identify the Federal regulatory requirements
- Identify the State and Local regulatory requirements
- Determine the State and Local transactions tax applicability
- Determine how you will invoice your customers
- Apply for the applicable federal licenses
- Apply for the applicable State and Local regulatory license(s)
- Register with the applicable State and Local tax authorities
- Implement a compliance reporting solution
- Submit the appropriate exemption documentation to upstream carrier(s)
- Calculate, bill, collect, and remit your taxes and fees
Click here to download the complete guide, “Top Ten Guide for Managing Taxes and Regulatory Fees”.
At TaxConnex, we provide VoIP Tax outsourcing services to many of our clients. We follow the VoIP/Telecom space with interest as IP based services continue to replace the PSTN.
This news story made it onto our radar.
Recently, California Governor Jerry Brown signed California SB-1161, "Communications: Voice over Internet Protocol and Internet Protocol enabled communications service.(2011-2012)" into law. The law prohibits the California PUC from regulating VoIP services.
Traditionally, voice telecom services are viewed as public utilities and regulated by state PUCs. But, VoIP, an IP service that is a substitute for traditional wireline voice, has been in a gray area. This law makes a clear delineation.
The stated purpose of the SB-1161 is:
(1) Preserve the future of the Internet by encouraging continued investment and technological advances and supporting continued consumer choice and access to innovative services that benefit California.
(2) Ensure a vibrant and competitive open Internet that allows California’s technology businesses to continue to flourish and contribute to economic development throughout the state.
"Under existing law, the Public Utilities Commission has regulatory authority over public utilities, including telephone corporations, as defined.
This bill would, until January 1, 2020, prohibit the commission from regulating Voice over Internet Protocol (VoIP) and Internet Protocol enabled service (IP enabled service), as defined, except as required or delegated by federal law or expressly provided otherwise in statute. The bill would prohibit any department, agency, commission, or political subdivision of the state from enacting, adopting, or enforcing any law, rule, regulation, ordinance, standard, order, or other provision having the force or effect of law, that regulates VoIP or other IP enabled service, unless required or delegated by federal law or expressly authorized by statute. The bill would specify certain areas of law that are expressly applicable to VoIP and IP enabled service providers. The bill would provide that its limitations upon the commission’s regulation of VoIP and IP enabled services do not affect the commission’s existing authority over non-VoIP and other non-IP enabled wireline or wireless service and do not affect the enforcement of any state or federal criminal law or local ordinances of general applicability that apply to the conduct of business, the California Environmental Quality Act, or a local utility user tax, among other things."
At least two dozen other states are contemplating similar laws to allow VoIP to grow in a less regulated environment.
Have you been following the stories about the UN's desire to gain more control of the internet from the US? If you are a VoIP provider and are interested in VoIP tax (telecom tax), then maybe you should.
The UN has been asking the United States to give more control of the internet to the international community. When I first read this story, my first thought was "new taxes".
Why? Because every taxing jurisdiction seems to be looking to the internet as a source of new revenue. Look at the focus on Amazon Laws here in the US.
With Apple, Google, NetFlix and Facebook profiting from the internet, it wouldn't surprise me if the UN wanted to collect tax on their activities also.
Well, indeed that is the UN's plan. You can read about it here in Forbes.
The logic is that these large players consume lots of internet resources and that tax would be a way to fairly compensate infrastructure providers for supporting their businesses. I gave that some thought and I noticed that my head bobbed up and down in agreement. Yes, that could make sense.
But, isn't that how all new taxes start? Parking meters used to cost a nickel per hour. Fast forward to 2009 and Chicago receives $1.2 billion for a 75 year lease to city metered parking.
I wonder how telecom tax began? I bet it was simple and inexpensive also.
Although the UN is focused on companies with heavy internet usage, the underlying logic is that when a company uses internet resources, it should be taxed. The UN's sell-in is to focus on large companies. But, like the nickel parking meter, the UN will figure out this can become big business. What if every company in the world that used internet bandwidth had to pay a bandwidth tax?
Keep your eye on this story. We will too.
The communications industry continues to move away from traditional wired phone lines and toward new VoIP technology. I've noticed confusion in the Tax Departments of these communications businesses because of the nature of VoIP. I hear things like "but it's delivered via the web, I've got no salespeople in that state, my office is in state "A" so I can't have nexus in state "B", communications taxes don't apply to VoIP, if I charged or collected tax, I might not be competitive..." In many instances, I hear that the executives have mandated that VoIP is not a taxable service. "No tax due, so we're not gonna collect it."
Nothing could be further from the truth in many instances. Most states view VoIP providers to simply be hybrid telephone companies with the same regulatory, telecom tax, and sales tax responsibilities as their landline counterparts. Seems reasonable, given the service is essentially the same, but delivered via a slightly different medium. After all, if you're a VoIP provider, you're delivering telecommunications to your end users. More importantly, all states desperately need the tax revenue, so they are going to enforce the rules as strictly as they can.
So...if you are a start-up or new VoIP or have added VoIP services to your existing menu of telecom services, it would behoove you to know the rules for telecom tax, transaction taxes, and sales tax, along with your regulatory requirements. You can get some help at www.commlawgroup.com or a VoIP guidebook (along with some good tax advice) at www.taxconnex.com if you want to take a swing at it yourself. Hiring a communications expert will save you a lot of pain in the long run, and may even help you to understand how to incorporate the rules into a superior, long term strategy.