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.
