Acting On Taxes: The Telecom Provider’s Checklist for Tax Compliance

Telecom service providers are subject to continuously changing tax laws by various authorities and jurisdictions. Not staying compliant with these laws can easily create legal hassles. Matthew Robinson, senior VP of client success, Rev.io, and Jason Lovett, director of tax technology, FAStek, discuss how service providers can avoid the tax compliance pitfalls. 

Telecom tax regimes are complex and ever-changing, and providers of telecom services can find themselves caught between their customers and a myriad of tax authorities. With the growth of cloud telecom services and the companies that provide them, it may be easy to lose track of just how many jurisdictions a provider is doing business in. But every one of those jurisdictions comes with its own tax rates and regulations. 

Here is how telecom providers can avoid tax compliance pitfalls and free themselves to focus on serving customers. 

Taxes in Every Direction 

Telecommunications is the most taxed industry in the United States. Because of the enormous business volume, incremental taxes on telecom services add up to big revenues for every tax jurisdiction that levies them from the federal government on down. Since they can be folded in with the end customer’s bill — and that bill is coming from a private company — telecom taxes are also likely to attract less ire from taxpayers.  

Regardless of how small the company or how limited the geography in which it does business, every telecom provider must register with the federal government. Since calls can originate or connect to anywhere in the country, federal oversight is required. Federal taxes offset the cost of that regulatory oversight. These can average about 17% of a customer’s bill. 

States, counties, cities, and sometimes even districts inside cities have taxes of their own. These can be pegged to the number of lines (phone numbers) a provider handles, the total value of the services, and fees for universal service lines like 911. These tax rates, the tax basis, and the rest of the regulatory details are set by each jurisdiction’s the governing body.  

Action items: 

• Know all the jurisdictions in which you have customers (Remember: The same customer can be in multiple jurisdictions: federal, state, and probably more). 
• Identify any right-of-way jurisdictions where you may not have a physical presence or even a customer but for which there are charges for transiting.  

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The Long Arm of the Tax Law 

Telecommunications taxes may be revised annually, quarterly, or even monthly. Regardless of the changes, it is the telecom provider’s responsibility to know the law, file as required with each jurisdiction, and remit the tax monies. The line items that appear on an end customer’s bill are recovery charges. They probably match the taxes but are not the tax charges themselves. The taxes are the responsibility of the provider. 

Action items: 

• Confirm the current law for the current billing period, including tax rates and basis for each jurisdiction. This can be done by actively monitoring each jurisdiction’s governing body, subscribing to a tax change alert service, or integrating your billing system with an automatically updated tax database. 
• File tax returns as required for each jurisdiction in which you have nexus (a physical presence or a customer). This may roll up to thousands of filings.
• Remit the tax monies to each relevant jurisdiction by its due date.

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Turning the Law to Your Advantage 

If the action items above seem like a lot of work, you are right. But they are part of doing business in the telecommunications industry, meaning they apply to everyone as part of the competitive landscape. 

Smaller providers have found ways to maintain their business while still using manual processes to deal with all the complexity. Some larger and more established providers have developed their own billing software to support those manual processes. Others have leveraged the automated tax data services mentioned above to work with their home-grown software. 

The most technically advanced approach is to use a cloud-based billing platform designed to integrate with the tax data services. This can give providers a competitive advantage. By reducing time demands on highly skilled IT and tax compliance personnel, providers can minimize the attendant costs. This also frees company resources to focus on customer service and sales to grow the business.  

Some telecom providers, including some of the very biggest, outsource their tax compliance operations altogether. Others rely on a compliance consultancy to help set up their in-house system or configure their cloud platform. The right option depends on the size of your operation, the expertise of your staff, and your growth plans. 

Action items: 

• Configure your billing system for zero-defect tax compliance. Alternatively, deploy a telecom-specific cloud billing platform with an integrated tax data subscription.
• Utilize tax experts to review the configurations routinely and assure they are accurate. Alternatively, engage with a telecom-specific tax consultancy to oversee initial configuration. 
• Consider outsourcing the tax compliance filing and remittance functions. 

By addressing tax compliance in a way that can keep up with changes and avoid costly mistakes, telecom providers can stay ahead of the tax collectors. And the providers that remain proactive in this area the most cost-effectively can also get ahead of their competitors.

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