The intersection of property tax and telecommunications tax

Over the past several decades, the telecommunications industry has pretty much changed the way the world communicates, several times over. For example, when I was a kid, my dad deployed with the Navy. Widespread email didn’t exist and international calls to the ship cost a fortune, so we sent him letters and cassette tapes with recorded messages (before you ask, I’m a millennial). A mere 25 years later and my niece was enjoying no-cost video calls with her dad while he was at sea.

Going from infrequent communication on a weekslong delay to instant video and voice in real time is a mind-blowing expansion of technology. Telecommunications is a varied and complex industry, rivaled perhaps only by the varied and complex ways governments tax telecoms.

To get an idea of the tax complexity telecommunications product and service providers face, we’ll look at:

• The types of taxes telecommunications companies manage
• The challenges of communications tax
• The challenges of property tax
• Optimizing communications tax and property tax compliance

Most businesses deal with sales or use tax in some way, shape, or form. As complicated as it can be to keep up with rates in more than 13,000 tax jurisdictions (and that’s just in the United States), telecommunications companies don’t even have it that easy.

In addition to sales and use tax, these companies are also responsible for communications tax. And by the very nature of the industry, many companies are also on the hook for property tax.

Communications tax is a real doozy. There are a lot of peculiarities unique to comms taxes. A few key differences are:

Most taxes are pretty straightforward: Sales tax is applied to items for sale, fuel tax on fuel, beverage alcohol tax on beer, wine, cider, and spirits, and so on. Unfortunately, there are a lot of companies out there that don’t even realize they’re at least partly a communications business.

In a nutshell, communications taxes likely apply if your business provides products or services with some kind of communication device, connection, or sensor that transmits information. If you’re thinking that’s a pretty broad, vague definition, I agree.

Generally speaking, taxes are exempt from taxes. Which is why if you pay a state income tax, you deduct it from your taxable income when filing your federal forms. Sounds fair enough. But with communications taxes, that isn’t always the case. Some taxes apply to pretax totals, others apply to post-tax totals. As a result, it can be tricky to determine if you’re applying tax on the right amount.

It’s tax, therefore states have a big say in how it’s applied. Even states that eschew sales tax (Alaska, Delaware, Montana, New Hampshire, and Oregon) are fine with levying communications taxes.

And naturally, each state sets its own rates, rules, and definitions for who gets taxed what.

Property is taxed at the state level and generally breaks down into two segments: real property and a business’s personal property (what a fun oxymoron). Because communications companies typically have one or both, there’s often a property tax component to a telecom company’s overall tax bill.

Much like communications tax, property tax is hard, especially if you have property and equipment in multiple states. Things to consider when managing property tax compliance include:

Before you receive your property tax bill, you’ll get a tax assessment. Each jurisdiction can conduct its own tax assessment to determine the value of your real and personal property. The assessment is usually based on a series of equations, algorithms, and assessor expertise.

If the assessed value seems too high, you can appeal it. You’ll need to follow the proper steps and submit your request by the deadline in order to have your assessment reviewed.

Each state has its own rules about property tax — including whether to apply it at all. While every state taxes real property, only 43 states tax personal property. In each case, the process itself is fairly similar:

1. You get an assessment
2. You get a tax bill
3. You pay your tax bill

However, the method for assessing tax varies, as do the deadlines for appeals, the tax payment due dates, discounts, penalties, payment schedules, and payment methods.

Because communications tax and property tax are so complex, the potential for error is high. It’s important to hire staff experienced with complex taxes or work with a trusted tax professional to guide you through these murky waters.

Using an automated software solution like Avalara is also a good way to create efficient compliance processes while improving accuracy. It takes a lot of the tedious tasks like rules research, deadline alerts, and information verification off your plate, so your team can focus on more strategic tasks.

Avalara has a communications tax solution designed to help with end-to-end compliance management. We also offer Avalara Property Tax to simplify both real and personal property tax compliance.

Ready to make tax compliance easier for your communications company? Contact us to schedule a call.