North American Customer Service Management Association

Support for Contact Center Professionals

Phase 8 Strategy - Step 4 Telecom Taxes

VOIP Regulation

Telecommunications taxes have complex rules and many times are difficult to understand and apply. This is not a do-it-yourself kind of topic.

It is highly recommended to seek professional advice and services to keep you in compliance. This is a full time job and you have a contact center to run; it is strongly advised that you find an expert to handle it.

With that said, you can’t escape taxes but you can delegate them! br/>
History of VOIP regulation
Believe it or not, VOIP regulation started way back in 1995 when the long-distance carriers were screaming “unfair competition” when IP Telephony providers were popping up. In 2004 with the Vonage Preemption Order, things changed the landscape. The Minnesota Public Utilities Commission tried to collect taxes and fees for telephone services but Vonage filed a petition with the FCC due to the impossibility of separating intrastate and interstate services. The Vonage “shield” prevented 50 states and countless counties from charging taxes and fees to IP providers. Hurray for Vonage!
The blur came in 2004 when the Bell System re-monopolized and the lines between traditional circuit-switched telephony and IP-based telephony co-existed. The “IP-in-the-Middle” Order applied to the entire VoIP supply chain of service providers. The FCC determined an “interexchange service” that meets the following three criteria is a telecommunication service: 1. Uses ordinary customer premises equipment; 2. Originates and terminates on the public switched telephone network (PSTN); 3. No net protocol conversion.
And, here we are in the 21st century where VoIP is a taxable event.
Federal Communications Commission (FCC)

FCC taxes are estimated every quarter and submitted on federal form 499Q.

You first send in an estimate of your anticipated quarterly taxes. After the quarter ends you send in the actual taxes. If the actual shows a shortage, you get a bill from the Universal Service Administrators Company (USAC) who manages the fund. If you over-paid it will be applied to the next quarter’s bill. The rate or “contribution factor” is found here https://www.fcc.gov/general/contribution-factor-quarterly-filings-universal-service-fund-usf-management-support.
The Universal Service Administrative Company (USAC) is responsible for the management of FCC tax billing, forms and filings of returns, online tax payments and audits. USAC requires a FCC Federal Registration Number (FRN) number first which is found here: https://apps.fcc.gov/coresWeb/publicHome.do
State Sales and Use Taxes and Public Utility Commissions

Every jurisdiction in America has its own process for rates, forms and remittance. This is what makes paying telecom taxes so complex.

Just finding the correct jurisdiction for example, where do you pay the E911 fees? Not every state handles it the same. Do you pay the local municipality? How about the county or state? In some states, it’s a separate organization all together. Then the challenge is finding the proper form and current rates; not all jurisdictions have current tax paying information on their websites so you begin calling around until your head spins! Taxes are big business. If you only have a couple of jurisdictions you can most likely figure it out.
VoIP Contact Center software that transmits calls is taxable.Telecom providers and BPO’s alike are liable for sales and use taxes, telecom taxes as defined by the jurisdiction, and E911 fees. Fortunately, we only have one federal government and that makes the FCC fees one-stop shopping. Telecom providers must register to do business in each state they conduct business in and remit the correct amount of tax liability by the due date. Sounds simple until you add more states, counties and cities. Then, you’ll begin to see how time-consuming and complex it becomes. Keep in mind, the rates, the forms, and the rules are constantly changing. How do you keep up with it? The more complex the more you want to outsource this function.
Every state has a Public Utility Commission (PUC) that regulates the rates and services of a public utility. Not all telecom providers need to register with the PUC; it depends on the state.
E911 Surcharges

In 2005, VoIP 911 Order created an entirely new category of regulation for communications services. Interconnected Voice over Internet Protocol (“I- VoIP”) was born and so were the fees.

First let’s define what VOIP is and is not. The FCC defines “I-VOIP” as a service that 1. Enables real-time, two-way communications; 2. Requires a broadband connection from the user’s location; 3. Requires IP-compatible customer premises equipment and finally, it must permit users to receive calls from and terminate calls to the PSTN. For taxation purposes VoIP must meet all four criteria. The VoIP 911 order mandates that VoIP providers must transmit E911 calls and of course pay the fees to do so. There are several kinds of I-VOIP and an IP Call Center is just one.
Compliance Process

Jurisdiction Registration Determining what jurisdiction you have tax liability in is time consuming and labor intensive. Of course the states are easy; complete the registration paperwork, pay the fee and wait for the license. In some states, like Arizona, the license expires the same year you get it! You need to stay on top of expiration dates.
Tax and Fee Calculations This is simple if you have tax liability in one or two jurisdictions. When you start adding more states, counties and cities then you need the service of a tax calculation engine. A comprehensive tax engine stores hundreds of thousands of taxability rules for jurisdictions across the U.S. These rules are constantly updated for accurate calculations.
Remit Returns and Regulatory Reporting Remitting tax returns for every jurisdiction you have tax liability is a lot of paperwork. The challenge with this is that many jurisdictions are due on the same day! The 20th of the month seems to be the favorite due date. If you are doing them yourself, you will have to start the process on the 21st to get them all submitted by the 20th of the next month. Tax automation companies can prepare and file multiple returns simultaneously giving you more time to run your contact center.
Reconciliation and Reporting Just like good analytics in the call center help drive business, good reconciliation reports help drive a clean tax operation. Organizations that choose to do it themselves, many times skip this step. The returns are filed and then they move onto the next thing. When this is outsourced, some tax providers are mediocre with reports and some will blow your socks off. Don’t underestimate this report.

Tips!

1. The best solution to managing the telecom tax process is to outsource it.
2. Have the best tax attorney you can afford when it comes to penalties, interest and fees.

Take the Next Step!

BPOs and telecom vendors that provide VoIP services are liable for telecom taxes and fees. Telecommunications taxes have complex rules and many times are difficult to understand and apply. Telecom taxes come in every jurisdiction; sales and use tax, telecommunications tax, E911 and of course Federal FCC taxes. It is a lot to be an expert in and you don’t want to get it wrong. Being out of compliance can be very costly in the fines and penalties; finding an expert tax partner can really allow you to focus on the contact center and your area of expertise. If you are only doing business in one or two jurisdictions, then the process of registering and submitting tax returns can be relatively simple. The challenge is the tax calculations, codes, due dates, forms and payment submission that take up time and resources. Save DIY projects for the weekends.

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