Communications Taxes 101
Managing complexity and change
What are communications taxes?
Communications taxes were previously known as just “telecommunications taxes.” However, the industry scope has expanded to encompass much more than just a phone call. It now includes any way voice and data information can be transferred – wireline, cellular, cable, satellite, VoIP and any other consumer or business methodologies.
The definition continues to expand with the explosion of the internet of things (IoT). As our homes, businesses and cars become “connected” to further automate our lives, they are transmitting data, too.
From a basic telephone call to IoT, all of these extremely diverse use cases are taxed – and all in very different and exceptionally complex ways.
What makes them so difficult to calculate?
It’s a fact that calculating and remitting any tax is an extremely tough job that someone has to do. But in the case of communications taxes, fees and surcharges, it’s a job that only automation can adequately handle. Otherwise you risk overpayment, or even worse, non-compliance and underpayment. Here are the top reasons why:
- Pinpointing jurisdiction: Locating the correct jurisdiction at the national, state and local level – all the way to special tax districts – is a job that requires geo-location with latitude and longitude verification for true accuracy.
- Managing tax law changes: Tracking the constantly expanding list of laws as well as changing nuances of every tax in every jurisdiction you serve is beyond cumbersome, if not impossible, for most communications companies.
- Calculating complex calculations: Communications taxes include some of the most complex calculations in the tax industry – fees and surcharges that may also be taxed, bundled services with myriad tax types, and tax on tax calculated to the diminishing penny that may be passed on as surcharges are at the top of the list.
But why are they different than other taxes?
Of course all taxes are hard and all rates change regularly. The communications industry has always been among the most difficult, but right now it is in a state of dramatic change. New technologies are being rapidly developed, then creatively packaged and sold in a highly competitive environment. Meanwhile, legislation consistently lags behind at every jurisdictional level.
This unfortunately leaves interpretation on which tax to calculate up to communications companies, exposing them to potential audit and payment mistakes. Mitigating risk by outsourcing and automating communications tax calculation and compliance to experts like Avalara is a best first line of defense.
You can visit the Avalara Communications Resource Center for whitepapers, webinars and more on Avalara for Communications or any of these hot industry topics.