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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.

Doug Starr

Written by Doug Starr