Telecom Tax Blog

    US Suppliers of Digital Services being Targeted by UK for VAT Tax

    Posted on Fri, Sep 14, 2012 @ 11:08 AM

    Are you selling digital goods and services in the EU?

    We've heard that the UK is targeting US digital services sellers to ensure VAT compliance.  All companies outside of the European Union (like the United States) are required to register, collect and remit VAT tax.

    By digital services, we mean:

    • Software downloads
    • Content like digital music, games and video
    • Online images, databases and information
    • Webhosting
    • Cloud computing
    • eBooks
    • Website subscriptions
    SureTax® provides tax calculation solutions for digital services in the EU.  We can help with your EU tax calculation and compliance needs.

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    Tags: telecom tax, telecom taxes, VAT tax, cloud computing, digital goods, digital services

    Smartphones for Everyone

    Posted on Mon, Sep 10, 2012 @ 09:42 AM

    As we at SureTax® focus on telecom tax and VoIP tax, we can’t help but a little distracted by the new hardware.  The new Kindles have just been released (not a smartphone, but 3G and 4G enabled) and the new iPhone 5 debuts tomorrow.

    So, how is the handset market?  Handset shipments had grown at a compounded annual growth rate of over 15% between 2009-2011.  Over 2 billion handsets will be shipped in 2015.  The primary driver of demand has been new smartphones, like the iPhone and Droid phones.  Even in the most remote corners of the planet, it’s not enough just to talk any more.

    Worldwide, global mobile penetration is 91%.  The implications of bringing mobile communications and data access to everyone on the planet are astounding.  

    Smartphones have driven that penetration, taking Western Europe and North America to OVER 100% in some markets.  Asia Pacific and Africa are still growing at over 9% per year.

    What does that mean in terms of opportunity?  As subscriber growth mirrors population growth, the opportunity is in the replacement handset market and providing services to the users on the platform.  Give some thought as to what services could be provided if everyone in the world had a smartphone.  By “if”, we mean “when” because that day is coming.

    While you do that, we’ll think about who’s going to impose the telecom taxes and how we’ll provide the tax calculation piece of the equation.

     

     

     

     

     

     

     

     

     

    Tags: voip tax, telecom taxes, telecommunications taxes, telecommunications tax, voip taxes

    Today's Telecom Tax Could be Tomorrow's Internet Tax

    Posted on Mon, Aug 27, 2012 @ 01:42 PM

    As followers of all things telecom tax and internet tax, we remain interested in how changes in the American telecom infrastructure become changes in our taxes, which in turn becomes changes in the types of tax that SureTax® calculates.  So, it seems logical that today's USF becomes tomorrows Universal Internet Fund.  After all, taxing communications is as American as apple pie.  But, an Internet USF Tax is not a sure thing.

    USF goes back to communications being a fundamental enabler of democracy and commerce.  From the beginning, the founders of this country envisioned a nation that was connected with communications infrastructure. The postal service connected Americans with each other (and their bill collectors!). It was subsidized using a flat fee system, so the inexpensive letters carried across town helped pay for the letters sent across the country.  The Communications Act of 1934 continued in that spirit, envisioning a system for "a rapid, efficient, nationwide, and worldwide wire and radio communication...for ALL of the people of the United States."  That notion led to the Universal Services Fund (USF).

    As telecom continues to go digital, the FCC wants to implement a new fee similar to USF, to enable broadband access to all across the country.  It makes sense that a community without broadband today would be as disadvantaged as a community without dial tone before the days of the internet.

    So, here comes the Internet USF Tax.  Seems like a done deal.  Some customers pay a little every month so that the people with difficult economics can also benefit from service.  Simple.

    No, not simple!

    In 1998, Congress passed the Internet Fairness Act, prohibiting taxation of internet access!  So, no tax.  But, wait.... is USF a tax?  The FCC says it isn't.  They say it's a fee collected by carriers.  So, if USF is simply a fee, then an Internet USF would be legal.

    Who knows what will happen?  I do know that whenever they sort this out, we'll be ready to make the calculations that keep everyone in compliance.

    You can read more here....

    http://thehill.com/blogs/hillicon-valley/technology/245479-fcc-eyes-tax-on-internet-service.

     

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    http://thehill.com/blogs/hillicon-valley/technology/245479-fcc-eyes-tax-on-internet-service

    Tags: telecom tax, voip tax, i-voip tax, i-voip taxes, telecom taxes, telecommunications tax, voip taxes

    15 Amazing Worldwide Mobile Facts

    Posted on Fri, Aug 3, 2012 @ 05:33 PM

    As professionals committed to VoIP tax and telecom tax solutions, we are often amazed at how large the market for telecom truly is.  It is the one product that everyone, and I mean EVERYONE, seems to need.

     We recently received an industry report with 15 facts that quantify exactly how large this market is.  Here are three that are just amazing…

    • The global population is currently estimated at 7 billion.
    • There will be 6.5 billion mobile subscribers worldwide by end-2012
    • The worldwide mobile subscriber base will now grow at a CAGR of 7.3 percent between 2011 and 2016, to near 8.5 billion by end-2016

    It’s no wonder that worldwide; telecom is the service that jurisdictions love to tax.  With 6.5 billion units in service, just one dollar per subscriber per month would yield almost $80B in revenue worldwide.

    The other 12 facts are almost as amazing.  Plus, you can use them to impress your friends at work.

    Click here to download the 15 Worldwide Mobile Facts.

     

    Tags: voip tax, i-voip tax, i-voip taxes, telecom taxes, voip taxes

    3 Taxation Mistakes that VoIP Providers Make - Part 2

    Posted on Tue, Jul 17, 2012 @ 01:05 PM

    Last post, we covered Mistake #1 - Not understanding what regulatory variation of VoIP you were providing.

    Mistake #2 is to not understand the concept of telecom tax-on-tax.

    Tax-on-tax is a difficult topic.  Tax-on-tax represents a process by which telecommunications providers must factor the additional dollar amount attributable to either the same tax or a different tax invoiced to consumers into their adjusted tax remittance calculations.

    Historically, tax literature has traditionally been silent regarding the rules & system of application to calculate tax-on-tax.  Nevertheless, as a matter of practice, tax authorities require vendors to include tax amounts collected from subscribers within the tax base of a given tax.  Consequently, tax managers need to develop an effective methodology to determine (A) when tax-on-tax applies and (B) how to calculate the amount of tax actually owed to the government.  If a company doesn’t understand all of the nuances associated with factoring tax on tax correctly, the company will wind up paying tax on the amount of the tax passed-through to the consumer - even if this extra increment of tax is NOT collected from the consumer!

    For example, the pass-through amount appearing on a consumer's invoice must be included in the amount of Total Taxable Revenue reported to the taxing authority on the company's tax return.  If a company charges the consumer only the initial sum resulting from the 1st calculation of tax on the service, it will fail to collect the entire amount of tax owed to the taxing authority. In some states, such as New York, this could cost a provider as much as 1% in lost revenue. 

    The company must calculate a “grossed-up” tax rate in order to assure that the amount of tax collected and the amount of tax owed are the same.

    So, what factors do tax managers need to consider in order to determine whether tax-on-tax applies and what taxes may/must be included in the base? 

    The first step is to determine the following:

    1. Does any statutory exclusion exist for tax-on-tax?

    2. Incidence of the tax. Is the tax (A) Consumer-Based or (B) Provider-Based?  As a general rule, consumer-based taxes will be excluded from the tax base of other gross receipts-based taxes, while as a general rule provider-based taxes featuring an optional pass-through rule will be included within their own tax base as well as in the tax base of other gross receipts-based taxes.  However, these are just general and not always the case such as in Pennsylvania where they ruled that disputed taxes and surcharges are a “cost of doing business” that a telco is only allowed to recover from customers pursuant to state PUC regulations and tariffs.

    3. Tax Base Measurement – Is the tax levied as: (A) a Flat Fee or (B) a Percentage of Gross Receipts?  Assessments imposed in the form of “flat fees” will exclude other taxes from their own tax base

    4. Pass-Through Rules – Is the pass-through of the tax:

    5. (A) Prohibited, (B) Optional, or (C) Required? Taxes with a prohibited pass-through rule will generally be excluded from the tax base of other gross receipts-based taxes.

    Next determine if the states in which you operate are part of the Streamlined Sales Tax Project (SSTP).

    The Streamlined Sales Tax Project (SSTP) adopted official policies regarding tax-on-tax.  In both the Agreement itself (SSUTA) and the accompanying “Rules & Procedures” (which interpret the actual text of the Agreement), specific provisions have been adopted informing:

    1. Taxpayers when tax-on-tax needs to be collected 

    2. Taxing authorities as to the situations where laws or regulations may be enacted to replace the default guidelines with a customized set of rules, as well as the conditions that must be satisfied in order to implement such state-specific policy “overrides”.

    To know what these host of conditions are and what states apply them, download our presentation on our website entitled “Tax-On-Tax: Hall of Mirrors”.

    What about Federal Taxes?  Do I include those in the base?

    The general rules concerning federal Taxes are:

    1. Any federal tax that is directly imposed upon a consumer (based upon the same set of rules governing state or local taxes) are excluded from “sales price” when separately stated on the invoice given to the consumer.       Example:  Federal Excise Tax on Communications (FET)

    2. Federal taxes/surcharges that are imposed upon the seller or treated as a “cost of doing business” to the seller are included within the sales price, regardless of whether such taxes are separately stated on the consumer invoice.  Example:  Federal Universal Service Fund (FUSF) Surcharge

    [Streamlined Sales Tax Rules and Procedures – Rule 327.9]

    Again, these are just general rules and are not necessarily the rules that every state applies.  In order to properly calculate tax-on-tax you must know how each state you do business in treats things like franchise fees, FET, Right of Way fees, and e911 fees as they relate to gross receipts for the purpose of taxation.

    If you feel confused or overwhelmed, don’t feel bad.  This certainly isn’t “the flat tax”.  The topic is confusing and overwhelming.  But, if you are a VoIP provider, you have a duty to collect and remit taxes no matter how difficult the process. 

    Coming soon...  Mistake #3.

    Tags: telecom tax, voip tax, telecom taxes, telecommunications taxes, telecommunications tax, voip taxes

    3 Taxation Mistakes that VoIP Providers Make - Part 1

    Posted on Thu, Jun 28, 2012 @ 12:53 PM

    So, you’re a VoIP operator trying to figure out your VoIP taxes.  Confusing, isn’t it?

    It’s so confusing that many new operators decide that calculating telecom tax is just too complex (our VoIP whitepaper can help).  Some implement the “Ostrich Strategy” and stick their head in the sand - figuring that they will pay their tax once they get “big enough”.  Other operators rely on best guesses or tax advice from their general accountants and attorneys.  Either choice can be disastrous, leading to audits from any number of federal and state agencies that can put their VoIP start-up on the road to destruction before it even gains traction.

    Let me help you sort through the VoIP tax confusion.  Let’s start with the beginning.

    VoIP tax was born in 2004.  As the FCC attempted to shore up the Universal Service Fund,  it created the “IP-in–the-Middle” Order.  In that order, the Commission ruled that VoIP is a telecommunications service and thus subject to USF obligations if it is “an interexchange service that: (1) uses ordinary customer premises equipment with no enhanced functionality; (2) originates and terminates on the public switched telephone network (PSTN); and (3) undergoes no net protocol conversion and provides no enhanced functionality to end users due to the provider’s use of IP technology”. 

    Next, regulated VoIP was defined in 2005.  The FCC created a new category of regulated communications service called I-VoIP (Interconnected Voice over Internet Protocol.  I-VoIP is the standard that the legal community uses to decide which VoIP services are regulated).  The FCC defines I-VoIP with four major characteristics, and a provider must possess all four of these characteristics or it is not I-VOIP, but perhaps a VoIP Toll.  (For a detailed understanding of these characteristics, please download our VoIP whitepaper).

    Suppose you checked your VoIP offering versus the FCC’s  four characteristics and you’ve determined that you are regulated.  Now you need to figure out what "flavor" of VoIP you are offering.  

    While the FCC has defined two categories of VoIP (I-VoIP and VoIP Toll), there are still different flavors of VoIP within these categories - such as Fixed and Nomadic VoIP (details are included in the VoIP whitepaper) - and each flavor carries with it even more nuances. 

    These flavors are important.  Each VoIP nuance carries significance not only at the federal level, but also at the state level because taxation and regulation vary so much from state to state.  Some states limit their regulatory powers to E-911 and Public Safety, while others regulate through their Department of Revenue and other state taxing authorities.  The taxes that they may assess include:

    • State and Local Sales and Use Tax
    • Excise Tax
    • Gross receipts tax
    • Utility Users Tax
    • E-911 (both State and Local)
    • Local Telecommunications taxes

    If you are an I-VoIP; you must also file a Form 499-A (at a minimum), which reports your revenue data for the calculation of obligations to:

    • Federal USF
    • Federal TRS (Relay) Fund
    • North American Numbering Plan Administration
    • Shared costs of local number portability
    • FCC Regulatory Fees

    Still confused?  It’s understandable.  It’s a complex subject.

    What next?  The first step is to download our VoIP whitepaper.  Then, watch for our next two installments of this blog.  The whitepaper and blog articles will help you sort this out.   Until then, figure out what flavor of VoIP you offer. Here are some questions you should answer:

    1. Is the service fixed or nomadic?
    2. Is the service associated with static IP address or is it “over the top”?
    3. How do I source the fees, by jurisdiction of the calls or billing address?
    4. How do I represent these taxes properly to comply with Truth-in Billing?  (Hint: see blog post #3 in this series).

    If you need more immediate help, contact me.  I’m glad to talk you through issues and share my expert contacts with you.  

    Until then...stay tuned for Part Two – Tax-on-Tax..

    Click me

     

    Tags: telecom tax, voip tax, i-voip tax, i-voip taxes, telecom taxes, telecommunications taxes, telecommunications tax, voip taxes

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