4 min read

Taxes in the Telecom World: Misconceptions and Advice

By TaxConnex on Tue, Sep 22, 2020 @ 11:00 AM

This article was written for the Atlanta Business Chronicle Leadership Trust. To see the original post, click here

Taxes are an integral part of the telecom world. Taxes, fees and government surcharges on telecommunications services increased from 19.1% to 21.7% in 2019 (even as average monthly bills for consumers actually dropped).

In talking with countless telecommunications service providers about their various tax and regulatory requirements, there are some recurring themes I hear that can be troubling. These recurring issues tend to pop up with new VoIP service providers. Perhaps they’ve been in business for years previously — and they may have even had various sales tax obligations historically — but they are now offering VoIP services that expose them to a completely different set of tax and regulatory obligations.

The misconceptions I hear include:

1. VoIP is delivered over the internet and is, therefore, tax-free.

This is not true. The confusion lies with the sometimes controversial Internet Tax Freedom Act (ITFA), passed in 1998. ITFA does prohibit federal, state and local governments from taxing internet access and from imposing discriminatory internet-only taxes. There were a few states that were “grandfathered” and were allowed to charge tax on internet access; these grandfathered rules have been revoked as of July 1, 2020.

ITFA has no application to the taxability of telecommunications services. Understanding that VoIP is not tax-free, each state (and in some situations, each local jurisdiction) is able to decide whether VoIP is taxable or not. For example, California at the state level does not tax VoIP, but various cities in California apply a local utility users tax to VoIP.

2. I’m not a telecommunications service provider; I’m a reseller.

When I hear this, I believe the prospect is considering the major carriers as the service provider. If you are sending an invoice to your customer for telecommunications service, however, and the customer believes and recognizes that you are providing the service, then you may be considered a telecommunications service provider. As a telecommunications service provider, you are responsible for collecting and remitting the applicable taxes and regulatory fees.

3. I don’t have nexus, so I don’t need to collect and remit any taxes.

This comment often comes from someone experienced in the standard world of sales tax. Generally, as related to sales tax, nexus needs to be established before a company is obligated to adhere to the jurisdiction’s sales tax rules. Nexus has historically been thought of as a physical presence, but within the last two years (ever since the Supreme Court’s now-famous Wayfair decision), it has been expanded to include the idea of economic presence. If you are providing a telecom service, you could easily look to a customer in another state and conclude that you don’t have nexus in that other state and therefore are not responsible for collecting and remitting the taxes.

As a telecom service provider, however, you are using infrastructure within a state to deliver your service. This infrastructure includes cell towers, fiber, switches and so on. You may not own this infrastructure, but if it were not present, you could not deliver your service. States have concluded that the use of this infrastructure creates attributional nexus and therefore gives you the responsibility to collect the applicable taxes. Wherever you have customers, you must collect the taxes.

4. My service provider handles all of my taxes for me.

While there is an element of truth to this, it is not an effective strategy. The main factor to consider is that by providing VoIP service, you are now considered a telecom service provider. And as a service provider, you have direct responsibilities related to taxes and regulatory fees. Your upstream carrier may be charging you these various taxes and fees, but that does not relieve your responsibility.

Topics: telecom tax taxability
3 min read

Taxability of Digital Products and Services

By TaxConnex on Thu, Apr 30, 2020 @ 11:00 AM

The internet can be a great way to sell your products. For tangible products it’s easy - the order comes in, you process the payment (including sales tax, which you collect and remit to the state) and ship out the package. But what if what you’re selling isn’t a physical product that you ship?

Topics: sales tax compliance taxability
5 min read

5 Steps to Avoid Sales Tax Risk with M&A

By TaxConnex on Thu, Mar 05, 2020 @ 11:14 AM

As part of the financial terms of any potential transaction, you’re likely looking at the ratio of current assets to current liabilities, revenue and net income growth, operating cash flow, market opportunity, etc.  But what about sales tax? 

Topics: sales tax nexus sales tax compliance taxability
1 min read

Heart of Dixie Announces Amnesty

By Noelle Ard on Thu, Apr 21, 2016 @ 02:00 PM

Doing business in the Yellowhammer state?  If so, pay close attention! 

The State of Alabama has announced the launch of their 2016 Tax Amnesty Program running June 30, 2016 – August 30, 2016. 

The amnesty program will apply to most taxes administered by the Department of Revenue, however, to confirm visit the new Alabama Amnesty website at http://alabamataxamnesty.com.

Topics: taxability sales tax news
2 min read

Massachusetts Announces Wicked Relief!

By Noelle Ard on Thu, Mar 24, 2016 @ 09:43 AM

Just before the end of 1st quarter, Massachusetts Department of Revenue announced their Tax Amnesty program for 2016, which will be open to all businesses needing to catch up on back taxes, save on typically assessed penalties, and benefit from a limited lookback period on unfiled returns (3 yrs.).

Topics: sales tax taxability
2 min read

Amnesty Anyone?

By Carol McIlvaine on Thu, Sep 03, 2015 @ 03:47 PM

 

Topics: sales tax compliance taxability

Texas Sales Tax Amnesty

By Brian Greer on Mon, Jun 11, 2012 @ 01:37 PM

Texas' amnestry program begins tomorrow, June 12, 2012.  The amnestry program covers sales tax, franchise tax, and other state and local taxes or fees administered by the Comptroller's office, except Public Utility Commission gross receipts assessments.  The program looks to waive both penalties and interest.

Topics: sales tax compliance sales tax taxability
2 min read

Stepping Through Sales Tax Nexus

By Brian Greer on Tue, Nov 08, 2011 @ 07:26 AM

It seems as if everyone is looking for a simple answer or an easy fix these days.  Determining sales tax nexus is no different.  Understanding the general concept is quite simple but applying it to your unique situation is where the difficulty arises.  The reality is that there’s rarely a clear-cut answer.  Sales tax nexus always works in shades of gray.  Sure, having an office in a state will give you sales tax nexus in the state.  But what about a sales rep that travels into the state?  What about having a subcontractor install or repair a piece of equipment for one of your customers.  These are all variables that should be factored in when reviewing sales tax nexus.

Topics: sales tax nexus sales tax taxability VDA
1 min read

Washington Sales Tax Amnesty - A Carrot This Time

By Jeff Meigs on Wed, Feb 09, 2011 @ 08:13 AM

Topics: sales tax compliance taxability sales tax audits
1 min read

What's the Best Way to Resolve Sales Tax Risk?

By Brian Greer on Mon, Dec 13, 2010 @ 10:24 AM

Topics: sales tax compliance sales tax taxability sales tax audits VDA
1 min read

Sales Tax Rate Increase vs. Sales Tax Amnesty

By Brian Greer on Fri, Nov 05, 2010 @ 09:24 AM

Topics: sales tax compliance sales tax taxability sales tax calculation
1 min read

Sales Tax Amnesty - A Carrot or a Stick?

By Brian Greer on Fri, Oct 15, 2010 @ 03:17 PM

Throughout 2010, I’ve noticed an abundance of sales tax amnesty programs being offered to businesses.  Before a business considers an amnesty program, there is work to be done.

Topics: taxability sales tax audits