Avalara Tax Guides
Communication Service Providers
Are you losing money to FCC safe harbor ratios?
Anyone who works in the realm of 3Gs, 4Gs and Internet protocols knows this: Rapid adoption of new technologies has forever changed how we communicate. Cellular networks, cable, satellite, VoIP and a multitude of emerging innovations have expanded the scope of the communications industry to include so much more than traditional telephone calls.
Today, when customers want to initiate voice calls, they can opt for flat-rate monthly plans to do so while crossing state lines or use VoIP to speak with people on the other side of the world without incurring long-distance fees.
The lightning-fast pace of advancements has governing bodies in a bind: How do states and the federal government effectively regulate an industry that’s in a continuous state of change? Which taxes and fees should be applied, and when? As technology evolves faster than the law, the answers to these questions and others like them change frequently. As a result, communications service providers (CSPs) face some of the most complex calculations in the entire tax industry. Different areas of communications are all taxed in very different and exceptionally complex ways.
In an effort to help simplify one of the more complicated aspects of communications taxes for cellular and VoIP profiders, the Federal Communications Commission offers safe harbor ratios to gauge tax payments on interstate and international voice calls.
On the surface, it seems like a straightforward solution. But this safe harbor option brings about yet another challenge for CSPs: determining if, and when, using the FCC’s predetermined ratios will benefit your business.
Communications tax filing options
To remain tax compliant, CSPs need to report on the portion of their revenue that comes from interstate and international calls. This is still true today, even though traditional long distance phone calls have been largely replaced by nomadic cell phones, VoIP and bundled services that often complicate the process of tracking which calls are made from and to where.
The ease with which customers can make voice calls while crossing state lines or sitting in front of computers has turned a once simple system into an incredibly complex measurement for calculating and filing communications taxes.
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To remain compliant, it’s critically important to understand what types of service deliveries will make a provider liable for which specific communications taxes and regulatory fees.
With so many disparities in the way VoIP taxation and regulatory obligations take shape, providers must take proactive steps to remain compliant.
VoIP tax challenges are not limited to CSPs alone, but are increasingly faced by companies in a variety of industries as they grow and expand their business offerings.