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Geospatial Data: Minimize Your CSP's Audit Liability With This Overlooked Method

  • Aug 18, 2016 | Sandra Thomas

communications tax

I'm about to share one of the most overlooked, and also most effective, tools for fixing a common taxation headache faced by communications service providers. Compliance directors often overlook it. Tax managers forget about it. Even many IT departments aren't fully aware of how powerful this integration can be.

What is this solution? Geospatial data.

Many CSPs are familiar with the various aspects of this type of technology—such as geographic information systems (GIS), spatial data and location analytics—but don't realize it can be used to reduce tax liabilities and audit risk.

In fact, the ability of geospatial technology to accurately identify customer locations is so powerful that many tax jurisdictions consider it the gold standard. In Florida, for example, CSPs are held harmless from monitoring and manually identifying customer locations as long as they use one of a few certified solutions like Avalara Geo for Communications.

When geospatial data is used to identify VoIP, wireless and wireline customer locations, taxing jurisdictions are accurately identified. By pinpointing precisely which state and local entities a customer's billing location touches, you can ensure communications taxes are properly applied and correctly calculated for every invoice.

To understand the difference geospatial data can make, let's first take a look at the methods your company may already be using.

Common Location ID Methods
Under the federal Mobile Telecommunications Sourcing Act (MTSA), non-wireline voice calls are taxed based on the customer's Place of Primary Use (PPU). Traditional methods used for sourcing, or situsing, these locations tend to fall into one of four categories:

  • #1 Addresses
    Physical addresses provide the most straightforward approach for identifying a customer's taxing jurisdiction. However, addresses don't provide the information needed to determine when a customer lives in a special purpose tax district or unincorporated area. When a city spans multiple counties, billing addresses also will not make it clear which one your customer is located in.
  • #2 Zip Codes
    Zip codes offer greater precision than addresses, but still will not tell you what counties your customers are located in, whether they live outside city limits or if they're in special tax districts. In addition, the zip code database changes monthly.
  • #3 Phone Numbers
    Like zip codes, this location identification method relies on a database (the North American Numbering Plan, or NANP) that changes regularly. Virtual phone numbers and "follow me" services further complicate matters and make it difficult to determine where a customer is truly physically located.
  • #4 FIPS Codes
    Some CSPs choose to use Federal Information Processing Series, or FIPS, codes. Most customers are unaware of their codes in the FIPS database, which means providers have to look for other ways to identify them.

Learn more about these common location ID methods by downloading our free whitepaper focused specifically on this tough issue for CSPs:The Tax Challenges of Accurately Identifying Customer Locations.

Geospatial Data: The Overlooked Location ID Method
When applied to communications taxation, geospatial technology provides a highly sophisticated system for identifying jurisdictional boundaries and customer locations. This solution relies on spatial data. Put simply, spatial data turns physical locations into precise geographic coordinates. These "raw" longitude and latitude pairs not only show which city your customers are in, but also makes it possible to identify when they are located in special purpose tax districts and which city and county reserve the right to collect taxes on their payments. These geographic coordinates do not change the way zip codes and other databases do, so they are highly reliable from month to month.

In Conclusion
Geospatial technology provides the assurance that you're taxing customers in the correct jurisdictions. It can be the difference between accurate tax determinations and unanticipated tax liabilities. If you would like to learn more about the difference between geospatial solutions and other location identification methods, I highly recommend downloading our whitepaper. It goes into greater detail on:

  • Why accurate location identification is so critical
  • The biggest challenges associated with sourcing PPUs
  • How geocoding removes these roadblocks
  • Where you can go to get started with geocoding

Click here to download the whitepaper.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Sandra Thomas
Avalara Author Sandra Thomas
Sandra is a senior tax consultant with Avalara Communications. As a CPA and former government auditor she provides invaluable guidance to communications customers dealing with complex transactional tax issues.