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.