Unified Communications and communications tax: what UC providers need to know now
Remember the days when desk phones were the primary source of communication for businesses? Though landlines were still an integral part of daily office life less than a decade ago, today's business collaboration tools can sometimes make them seem like ancient relics from the pre-digital era. In stark contrast, it's now exceedingly common for companies to rely on a mix of messaging, conferencing, cloud storage, document sharing, and other tech tools to communicate.
As the communications industry continues to innovate, and as companies have more options than ever for communicating and collaborating, one issue looms large: communications taxes.
Although the concept of Unified Communications (UC) has been around for a long time — some reports date it back to the 1980s — it's only in recent years that many providers have realized the reality of a complex array of communications tax liabilities.
Technology is evolving, and taxing authorities are keeping a close eye on the widespread adoption of UC solutions to determine when a service falls within the purview of state laws and federal obligations. As a result, rule and rate changes can occur at any time.
Knowing what to watch for can be the difference between a business that's both competitive and compliant, and one that suddenly finds itself facing costly audits, underpayments, overpayments, or filing challenges — not to mention time lost to tax-related tasks that could otherwise be devoted to growing the business.
Since this is an area we're watching closely here at Avalara for Communications, there are few tax-related insights we'd like to make providers aware of.
What we mean by "Unified Communications"
Before we go deeper into the tax implications of Unified Communications, it's important to have a clear understanding of these solutions from a tax perspective.
While few UC solutions are exactly the same, they usually have the common capability of streamlining a wide range of communication needs within one convenient interface across multiple devices and media types. Most serve as peer-to-peer collaboration tools that bring messaging, voice, data storage, file shares, web, audio, and video conferencing under one unified, usually cloud-based, umbrella.
UC's defining feature is its ability to allow an individual to send a message on one medium (such as a text message) and have the same communication received on another medium (such as through translation to voicemail).
Many of these solutions started as communications services, typically translating voicemail messages to email (and vice versa). Over the years, they expanded to incorporate more and more collaboration tools — many of which leverage internet protocols instead of traditional telephone networks.
From a business perspective, these tools streamline and simplify collaboration. But where tax auditors are concerned, they can usher in a complex array of communications laws and regulations.
The question is: When do these tax complexities come into play, and how can tax teams be prepared?
When UC is exposed to the complexities of communications tax
In jurisdictions across the United States, taxing authorities are working to determine when a UC service is a telecommunications service and how to apply taxes accordingly. As the UC user base grows almost daily, states want to ensure they're receiving their fair share of revenues.
The underlying issue is that those determinations can get very complex, very quickly. For example, consider the following common elements of many UC solutions:
- Voice: Anytime a bundled solution includes voice, there's the potential that a company will be liable for a wide range of communications tax regulations and requirements. (And because each state has its own definition of "telecom," those calculations can be very different from one bill to another.)
- Text: When a text message is translated to voicemail, as is often the case within a UC solution, it may become subject to highly complex communications tax calculations and regulatory fees.
- Conferencing: Audio and video conferencing tools are often accessed through interconnected VoIP, which allows users to make and receive calls from a regular telephone network. In these instances, several Federal Communications Commission contribution requirements can come into play.
What this means for UC providers
As technology and tools innovation continues at a rapid pace, it's critical to keep a close watch on communications tax rates and regulatory rules as they evolve. A company, consultant, or internal expert specializing in the taxation of Unified Communications can help reduce the risk of missing important updates and changes.
If you don't have someone in this position at your organization, we highly recommend taking the time to find someone well versed in the calculation and filing of these specialized taxes. States are becoming more attuned and attentive to what's happening in the UC space, and shifts in compliance requirements can occur at any time.
At Avalara, our communications specialists are constantly researching the latest tax implications of emerging technologies and services. Watch our blog to stay updated or, for specific questions about the complexities of UC taxation, give us a call at 844-722-5747.
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