With around 60,000 state and federal tax revenue jurisdictions across North America, over 300 unique tax types, and 685-plus tax bases (many overlapping and conflicting), figuring out communications tax can be daunting.
Businesses that bundle services have it particularly rough. Not only do they need to make complex tax calculations depending on which services are included in a package, in some jurisdictions including just one taxable service in a bundle makes the entire bundle subject to communications tax.
Including hardware or devices in a bundle can complicate matters further because states such as California are implementing electronic waste (e-waste) recovery fees. That means providers may need to account for environmental surcharges along with traditional telecom taxes. See this Avalara guide for additional info on these fees and other anticipated communications tax changes for 2026.
Many businesses don’t realize they have these obligations. But even if they do understand their compliance requirements, they need to try to keep up with hundreds or even thousands of different rates and rules.
Ever-evolving rules and interpretations
Just like sales tax, communications tax rates and rules can change frequently; a business could be 100% compliant in one jurisdiction and completely exposed in another, even for the same service. And just in the past couple of years, we’ve seen significant new interpretations from courts and regulators.
For instance, the Federal Universal Service Fund (USF), paid by communications companies based on revenue (and typically passed through to consumers as a line item on bills), was long considered a fee, not a tax. In 2024, a federal court threw everything into question by ruling that it is a tax — and unconstitutional to boot. But then in July 2025, the U.S. Supreme Court upheld the constitutionality of FUSF. Got whiplash yet?
Another case in Washington state showed that some courts are taking a broad view of taxing authority over utilities such as phone service. One company that resells airtime from third-party cellular networks argued that it isn’t a “telephone business” as defined by state law, but the court ruled the business is subject to municipal utility taxes. According to the Sales Tax Institute, this decision could have significant implications on a wider scale.
The takeaway? Even when you think you’ve got communications tax figured out, there’s likely some new wrinkle just around the corner.
