Benjamin Franklin said “nothing can be said to be certain, except death and taxes.” Telecom bills are subject to more than 75 different types of taxes on an invoice. Taxes contribute to 20% or more of the total cost for telecom bills, with 15% to 45% for mobile services and 30% for local and PBX trunks. Carrier Service Guides have provisions that allow service providers to “pass through” taxes and fees to collect and remit the funds to the required tax authorities.
Listed below are some questions and information that provide unconventional thinking on ways to save money on telecom taxes.
Telecom taxation is complex, constantly changing and prone to errors. First, it is important to determine if the tax is valid. In some states, telecommunications equipment, including services, scheduled maintenance and repairs are tax-exempt. It is not uncommon for our members to find enterprises taxed on tax-exempt telecommunications services.
Two other common errors concern the rate at which the services are taxed and how the taxes are calculated. Some states limit the percentage of a service, which can be taxed. Potential refunds opportunities include services taxed at incorrect rates and services billed for expired fees and taxes. Some services may cross into another state or jurisdiction (i.e. wireless) during a billing period. As a result, you can be taxed for the service in both jurisdictions without apportionment.
Universal Service Fund (USF)
The Universal Service Fund (USF) is a system of telecommunications subsidies and fees managed by the United States Federal Communications Commission (FCC) intended to promote universal access to telecommunications services in the United States. The FCC established the fund in 1997 in compliance with the Telecommunications Act of 1996. Universal Service charges should not be confused with what are sometimes referred to in telephone company bills as “Federal Subscriber Line” charges, which are access fees charged by telecommunications companies, not the local or federal government.
Universal Service charges should not be confused with what are sometimes referred to in telephone company bills as “Federal Subscriber Line” charges, which are access fees charged by telecommunications companies, not the local or federal government.
Usually, service providers pass the Universal Service Fund (USF) expense to customers, but some other mobile service providers absorb the USF charges. It is also important to note that a number of enterprises negotiate exemptions with the major providers to avoid these charges.
Do the percentages or tax rates vary on the same services?
Carriers have complex billing systems. Sometimes these systems don’t always apply the same surcharges. In some cases it is a billing error, which can provide a refund or credit. In other cases, the provider may have made a mistake in failing to collect a surcharge or tax.
Are the calculations computed from the same line items on the invoice?
The property tax surcharge can range from 2.5% to 3% of a customer’s total interstate and international charges on top of its USF. Should the USF apply to property taxes imposed by states and local jurisdictions? The USF is levied on telecom services subject to direct regulation by the Federal Communications Commission (FCC). In effect, carriers must interpret the FCC’s tax and add it to state and local property taxes for real estate and equipment.
Ask for documentation and justification for why the tax applies.
Some vendor services are also information services that are specifically not telecom services (IP / internet access is a primary one) and therefore it is NOT subject to telecom taxes and surcharge. Ask them to explain their taxes and surcharges and to work from the tax code not their internal documents.
It pays to question validity of taxes and how they are calculated. Some taxes may seem small, but the volume and frequency means that mistakes can quickly add up. Each billing error will provide a refund or credit. It will also provide future savings through cost avoidance. If this is confusing, consult an ETMA member. They can help reduce costs.