Product/Service Taxability for Telecommunications Firms
Expansion into new states, changing tax laws, new product launches, and acquisitions make taxability decisions challenging. How are VoIP services taxed? Should I collect sales tax AND telecommunications tax if I’m providing Internet access? There are over 11,000 taxing jurisdictions and many have their own unique set of rules and interpretations. Not taxing a product or service appropriately could lead to significant exposure over time. Take the following example:
Product / Service A is not taxed, but in reality should have been taxed. Year 1 sales total $100,000 and grows 20% per-year over a three year period. That’s $364,000 of sales over a three year period. With an average tax rate of 8%, that’s over $29,000 of uncollected tax. An additional penalty and interest assessment would take the total exposure to close to $40,000. That’s a tough number for almost any business to cough up.
The best way to mitigate this type of risk is a proactive approach to taxability determination. TaxConnex specializes in the complex telecommunications industry and has conducted numerous taxability studies over the years for our clients.