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Telecom taxes – The Cloud is now a Tax Accountant ?!

By September 8, 2012 General

First, let’s start here. We don’t offer tax advice , we also don’t provide investment advice. But, we do offer common sense advice.

One of the most frustrating and difficult aspects of telecom audit and review is making sure client telecom taxes and surcharges are accurate and correct. It seems that the skill you need to possess are that of a investigator, attorney and tax expert to be successful. It is extremely difficult to sort out reality from fiction.

One thing you should keep in mind is that many of the telecom carriers use telecom taxes and surcharges to build profits into corporate phone bills and increase their revenues.

Examples of this are most items listed in phone bills as “surcharges” but surprisingly also are listed as “taxes” although as you’ll see, they are often not real taxes that are mandated. The carriers have the right to charge just about anything they want in the area of taxes and surcharges because they cover themselves contractually. Many of those taxes and surcharges can be negotiated away with the proper selection of different technologies.
Many telecom surcharges are hidden administrative fees that going to the bottom lines of the telecommunications carriers. Note the examples below of actual customer bills.

Invoice Summary 1
Regulated Service Taxes and Surcharges
Federal Excise Tax $ 4.24
TX City Sales Tax $ 1.45
TX State Sales Tax $ 9.44
TX Transit Authority Sales Tax $ 1.45
Cost of Service Surcharge $ 0.20
Texas Universal Service $ 5.14
Municipal Right of Way Fee $ 8.24
911 Fee $ 2.13
Federal Universal Service Fee $ 6.24
Invoice Summary 2
Regulated Service Taxes and Surcharges
Federal Excise Fax $ 3.38
911 Tax $ 1.00
CA High Cost Fund – B $ 0.59
CA Relay Service Surcharge $ 0.39
CA Teleconnect Fund (CTF) $ 0.15
CA Universal Lifeline Surcharge $ 2.25
California CASF $ 0.27
PUC Reimbursement Fee $ 0.35
Property Tax Recovery Charge $ 1.18

What does Frontier do that is so different?

VOIP is a borderless technology; unlike the circuit-switched network, the IP network is connectionless. Traffic is global and no longer defined within the limited jurisdiction of a state, city or province.

With Frontier VoiceCloud, we can dramatically simplify billing and TAX implications for our clients by leveraging the traditional two-out-of-three rule that applies.

What is the 2 out of 3 rule?

A collection of tax types that each Tax jurisdiction is allowed to charge is based on the two-out-of-three rule (This of course is not to be confused with the Meatloaf, Two out of Three Ain’t Bad rule). The two-out-of-three rule is: where it originates, where it terminates, where it is being billed to – if two match, that jurisdiction can charge the tax.

Note the exhibit below.

DIDs – Inbound Traffic (Location based)

Small

Outbound Call (Location based on termination)

Variable Charge – Taxed in Jurisdiction

SIP Channels / Total Utilized Trunks (Shared Resource in the Cloud)

Larger Fixed Charge – Taxed in Jurisdiction of convenience to customer

In the exhibit above, you will note that a customer or billing location would be geographically taxed on the DID and usage component only. Whereas the actual ‘channel’ charge would be taxed in the customer’s jurisdiction of convenience.

Frontier is still obligated in all cases to contribute our taxes in local or international markets and will always be governed by our CRTC, Contribution and USAF taxes, but in this case, they will be a single rated charge, not charged by province or state or coun

Suffice it to say that billing and tax implications will be reduced. Your US and International sites will be pleased, and your entire accounting team will enjoy this billing model.

1-866-833-2323 sales@frontiernetworks.ca