Audit your bills; taxes are so complex that service providers often overbill by hundreds or thousands of dollars
By David Rubenstein, CPA, CCH Managing Editor, Telecommunications and Utilities Tax
Identifying whether that BlackBerry or iPhone you’re carrying is a voice service, a data service or a communication service can be difficult. But the right categorization is necessary to determine its sales tax. Making it more complicated are the telecomm-specific charges, like excise taxes, the 911 surcharge or public utility commission fees.
Lightning-fast advances in technology, such as smart phones with Internet access, are making taxability a challenge for telecomm providers. Thanks to deregulation and increased competition, a large wireless provider might have 18,000 product offerings.
A best guess is that 20 percent of those offerings are never properly understood by the provider’s tax department. As a result, the tax applied is simply guesswork. Is this offering a data service or a voice service? Is it a communication service or an ancillary service?
Each of those services should be taxed differently. But as a result of this blurring, different providers tax the identical service at different rates. Large telecomm providers, which often face more scrutiny from regulators, may take a conservative stance and charge higher taxes to ensure compliance. Smaller companies with fewer offerings may take a more aggressive stance on taxability, perhaps to gain a competitive edge.
What does this mean for the business consumer? You may very well be paying more tax than you should. Taxes typically amount to about 10 to 12 percent of a telecommunications bill, and it’s a safe bet that 25 percent of the total tax is incorrect. With large numbers of people using smart phones, and a large plan for the landline, overbilling can quickly add up to hundreds or thousands of dollars in extra costs for your business.
Every situation is different, of course, but the dollars involved for a typical Fortune 1000 company certainly make it worth taking a close look. Here are specific steps you can take:
1. Manage your phone bill monthly. Many companies look at personal use or long-distance charges and eliminate unused lines, but they neglect the tax side of the bill.
2. Have someone with telecomm knowledge review the bills. There could be random charges or surcharges the telecomm provider is improperly passing through to the consumer. A professional will know what to look for.
3. Negotiate discounts where possible. For example, if your state allows unbundling, and your carrier is not giving you that tax break, negotiate a discount to offset that higher tax rate.
4. Look at the next contract before you sign it, and the taxes the provider plans to charge. If you question the rates, do so within the tight time limits most carriers apply.
This story is from the CCH e-newsletter Figures, written specifically for corporate tax professionals. Figures offers tips, tricks and ideas about how to increase your organization’s productivity and efficiency. Every issue also features insights with a corporate tax professional