The Federal Communications Commission (FCC) will vote at the end of March on whether to expand a Reagan-era phone subsidy to include provision of internet access for low-income Americans. The debate is running hot. On one side, vocal proponents believe it is as essential as landline phone service was when the plan was enacted in 1985. Others say it produces waste, fraud, and abuse, and will result in everyone paying higher communications expenses.
The program is funded by the Universal Service Fund (USF) tax. All telephone , cellular, paging and pay phone provider companies, that deliver service between states contribute a percentage of the total amount they bill to the fund. It varies based on the total dollar amount of long distance (1+ Direct Dial state-to-state), recurring fees, International, Calling Cards and Toll Free state-to-state, Directory Assistance (state-to-state and in-state) and Operator Services on the customer’s long distance bill. The FCC sets the percentage amount, and it can change that amount once each quarter. The contribution factor for the second quarter of 2016 will be 0.179 or 17.9 percent.
Regardless of which side you take on internet access, it is worth noting that mistakes and errors on taxes for phone bills represent an opportunity for significant refunds and cost savings. It is not just the savings from refunds, but there are also benefits from avoidance of expenses on future bills.
Telecom taxes are complex, constantly changing, and prone to errors. Here are some tips:
- Determine if taxes are being applied on a taxable item
- Compare the taxes from different carriers
- Verify that taxes are calculated properly
- Check to ensure there are no cases of double taxation
One way to validate a charge is to ask the service provider about the tax. Managers should find out why the item is being taxed and how the tax is being calculated. Once the formula is explained, it should be verified to ensure the calculations are accurate. Next, the enterprise should check to determine if it is being double taxed. For example, some services may cross into another state or jurisdiction (i.e. wireless) during a billing period. As a result, it is possible to be taxed for the same service in two different jurisdictions without apportionment.
The bottom line is that taxes are complex and subject to interpretation. In many cases, validation falls outside the scope of a standard TEM program. When it comes to telecom taxes, enterprises often shoulder a large burden since they average 18 percent nationally, and can be as high as 35 percent of the bill. It is useful to remember that the oft-quoted Judge Learned Hand of the US Court of Appeals for the Second Circuit wrote, “Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes….” Partnering with the right TEM can help avoid overpaying for taxes.Tags: telecommunications taxes