The 4 Most Difficult Communications Tax Returns
Remember our recommendation for successfully filing FCC Form 499-A? Well, that's not the only reporting challenge communications service providers (CSPs) face—far from it, in fact.
At Avalara, our Returns for Communications team has experienced its fair share of challenging communications tax returns. In handling thousands of returns for hundreds of companies, some have stood out more than others. If you're still relatively new to federal and state reporting requirements—or if your company is preparing to expand services to more jurisdictions—now is the time to become comfortable with complex tax returns.
How complex, you ask? Take a look at our top four picks for the most complicated communications tax returns.
1. New York's Telecommunications and Utility Services Tax Return
What spans seven single-spaced pages and includes 136 form fields? The New YorkCT-186-E.
Of all the state forms a growing CSP may find to be a challenge, this is by far one of the most complex—and not just because of the length. New York's telecommunications tax return requires companies to break out services into dozens of different "buckets," some of which change periodically. Just this year, for instance, the return was adjusted to require wireless and wired revenues to be categorized separately.
If you don't categorize revenue at the outset, this one return alone can become a huge headache (at best) or major audit liability (at worst).
2. Pennsylvania's Gross Receipts Tax
Different state, same level of complexity. Only this time it's the RCT-111 for filing communications gross receipts tax. In Pennsylvania, the Department of Revenue wants to see revenue broken out by service type and how it's provided to end users—all of which gets reported on a seven-page, three-column return. Any CSP that hasn't placed a high priority on maintaining detailed logs and exhaustive records will definitely have a change of heart after filing a gross receipts tax return in Pennsylvania.
3. Maryland's Franchise Tax
In Maryland, some (but not all) communications services are assessed a public service franchise tax. For example, the state's franchise tax return must be filed for local and long distance, but not wireless or cable. Voice over Internet Protocol (VoIP) might need to be included on the return—or it might not. According to state documentation: "Whether a VoIP company incurs the public service company franchise tax...depends on the existence of a tariff agreement with the Public Service Commission."
Those shifting of priorities we mentioned when discussing Pennsylvania's gross receipts tax? Communications service providers faced with completing Maryland's franchise tax return will have the same experience. If you serve customers in Maryland, taking pains to categorize revenue today will save your company from major headaches tomorrow.
And then, last but definitely not least, there's one of the most confusing returns of all...
4. Florida's Communications Services Tax
The Florida communications services tax consists of two parts: the state communications services tax and the local communications services tax, both of which apply to a full array of communications services, from local and long distance calls to VoIP and video streaming.
But the taxes that apply to landline phone services differ based on the end user—and this is where communications companies can get into trouble.
Some communications services sold to residential households are exempt from a portion of both the state's communications tax and its gross receipts tax. However, the partial exemption does not apply "to the sale of mobile communications service, video service, direct-to-home satellite service, or any residence that constitutes all or part of a transient public lodging establishment as defined in Chapter 509, Florida Statutes."
For example: State, local and gross receipts tax would apply to a bundled package of local, long distance and VoIP services. But if the sale was made to a residential household, then some of those services would be exempt from the state tax and gross receipts tax. If the bundle also involved mobile communications, that portion would not be exempt.
If that weren't confusing enough, Florida also varies collection amounts and allowances based on the method CSPs use to identify local jurisdictions for billing purposes. The specifications for geospatial tools and other methods that qualify for these collection allowances can be confusing, and as a result some companies will mistakenly apply the higher discount even if they don't use a qualifying tool.
What This Means For You
Needless to say, manually mapping out the correct rates for every jurisdiction and customer can become incredibly confusing. The right software can help. (In fact, we've discovered that companies relying on AvaTax for Communications rarely have to file extensions when preparing these and other returns.)
More importantly, the more detailed and categorized your records, the better your chances of properly filing even the most complex communications tax returns.
For more steps you can take to prepare, check out these posts:
The 2021 sales tax changes report: midyear update
Your guide to navigating the complicated world of tax compliance and preparing for the future
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