Sales tax is broadly defined to mean any tax that is charged to the end-user customer by the retailer of property or services. Though this definition is correct, it does not always provide a complete picture of a business’s transactions tax liabilities.
Sales taxes are a transactions based tax, but they are not the only transactions based taxes. There are numerous specialty transactions taxes applied to specific products, services and industries. For example, there are specialty transactions taxes for gas, lodging, food, beverage, telecommunications and other products/services.
Some of the most difficult industries to understand in the tax world are the telecom and VoIP industries. There are various telecom taxes and regulatory fees including communication services taxes, utility users’ tax, E911 fees, Federal Excise Tax, right of way fees, USF, and more. Oh, and don’t forget that each state has its own rules, definitions and interpretation of how each tax is applied. The total “tax” burden often exceeds 30%, making communications services one of the most heavily taxed industries as well.
Some states may appear to not apply sales tax to certain communications services; however, be aware these states could have a specialty telecom excise tax.
Florida, for example has a communications service tax inclusive of the state sales tax and a communications-specific tax that applies to telecom.
In California, sales tax doesn’t apply to telecommunications services but there are numerous cities and counties that apply a municipal utility tax.
Missouri has local license taxes in most cities.
Texas applies a Right of Way fee (ROW) to many communications services in almost 1,000 local jurisdictions.
An E911 fee is also imposed by many local jurisdictions and some states (and it could result in a telecom service provider having thousands of filings across the country.)
Pennsylvania, Maryland and New York impose a gross receipts tax specifically on communications services: These are annual corporate-type taxes, often requiring an estimated payment like a corporate income tax.
Many of these taxes are “trust fund taxes” which means that the telecom service provider is a collection agent for the state with responsibility to collect and remit these taxes.
Sales tax, particularly taxes related to telecom and VoIP are complex. Many providers are not equipped to manage the specificity required, and when you add the fact that you will also have to manage regulatory fees and calculation – it’s more than most businesses can handle on their own.
If you’re looking for help managing your telecom tax responsibilities – contact TaxConnex to see how we can help.
To learn more about the intricacies of telecom and VoIP taxes download our eBook – 10 Steps to Understanding Telecom & VoIP Tax Compliance.