3 Steps for Reducing Your Telecom Tax Rates

TAXES ARE SO COMPLEX THAT PROVIDERS MAY OVERBILL BY HUNDREDS OR THOUSANDS OF DOLLARS. HERE’S WHAT YOU NEED TO KNOW TO REIN IN YOUR SALES TAX BILL

When it comes to telecommunications, technology and innovation are moving so quickly that tax laws have not kept up. That poses a significant risk, both for telecom providers and the thousands of companies that pay their bills every month. Is that smartphone a voice service, a data service or a communication service?

The right sales tax classification depends on how the service is categorized. Matters become even more complex when you consider telecom-specific charges such as excise taxes, 911 fees or public utility commission surcharges.

Because of this confusion, different telecom providers may tax the identical service at different rates — or simply guess wrong. “Some vendors who provide VoIP service may treat it as an Internet service, when it should be treated as a telephone service,” says Mike Sanders, President of SureTax LLC, a CCH strategic alliance partner now offeringCorpSystem® SureTax™ Telecom, a real-time, web-based tax calculation solution specific to the telecom industry.

“Often service providers do not have the internal resources to do the research necessary to charge the correct tax,” Sanders says. “They may take a conservative stance and charge higher taxes to protect themselves in the event of an audit.”

Convergence adds another level of complexity. “If a service that is nontaxable is combined with a taxable service, the entire bundle may be taxable,” Sanders says. “It may be to your benefit to unbundle services, so that you pay a lower overall tax.”

What this means for a business consumer is that you may well be paying more than you should. Since taxes typically amount to 10 to 12 percent of the average telecommunications bill, overbilling can quickly add up to hundreds or thousands of dollars.

While every situation is different, it makes sense to take a closer look at the tax side of the phone bill — especially for a Fortune 1000 company. Steps you can take:

1. Contact your providers and examine both bundled services and high-tech services such as VoIP or digital services. “Ask for a breakdown of the taxes that have been applied and why they have been applied,” Sanders says. “You need clarity about how they are computed.”

2. If the provider is overtaxing, ask for unbundling or negotiate a credit to offset the higher tax rate. “Because telecom taxes vary from state to state, it may make sense to unbundle in one state but no sense at all in another,” Sanders says.

3. Review the next telecom contract before it’s signed, and examine the taxes the provider plans to charge. If you question the rates, do so within the tight time frames that carriers typically apply.

Start a discussion of telecom tax rates on CCH Community.

 

AUTHOR

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency. Wolters Kluwer Tax and Accounting is part of Wolters Kluwer N.V. (AEX: WKL), a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services. Wolters Kluwer reported 2016 annual revenues of €4.3 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

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