Telecom services have unexpected surprises for organizations in the form of federal, state and local taxes—and carrier surcharges. Carrier surcharges recover the costs of collecting and divvying up the funds for the required agencies. Carriers can charge over 75 different “fees”. Here are eight types of fees hiding, in plain sight, on your phone bills. Understanding the impact of billing errors in relation to these fees and having the ability to verify these types charges may be the difference between your telecom program’s success and failure.
The Universal Service Fund (USF) Fee
Approximately $5 billion is raised each year in USF fees to pay for the Connect America Fund, Lifeline and E-rate. All providers must contribute to USF. The FCC regulates this charge and adjusts the fee quarterly based on the fund’s current balance. While AT&T, Sprint, T-Mobile, and Verizon pass its USF contribution expense to customers, Cricket and MetroPCS absorb the costs. A number of enterprises negotiate exemptions with providers to avoid these charges.
State taxes are billed to the primary “usage site,” or business address. If an enterprise has moved out of state or its devices are shipped to one location and distributed to other sites, the tax calculations could be wrong. Partnering with internal tax specialists from your finance department and your TEM provider can help research this issue and identify cost savings.
State Telecommunications Excise Surcharge
New York and other states levy sales and excise taxes on telecom services. Customers in New York pay an average of 24.36% in federal, state and local taxes on their wireless bills.
Enhanced 911 (E911) Response Fees
The FCC’s E911 rules seek to provide dispatchers with an enhancement enabling the location of the user to be known to the call receiver for wireless and VoIP 911 services. Fees are generally billed as either an amount per telephone access line or a percentage of revenue. The National Emergency Number Association has a state-by-state guide.
Regulatory surcharges help carriers defray the costs of federal, state and local regulations. At T-Mobile, this is billed as the “Regulatory Programs & Telco Recovery Fee;” it covers local number portability, government programs, and other charges imposed by other carriers for call delivery. Since the fees are not mandated by the government, some enterprises have negotiated exemptions from the charges.
Administrative charges are similar to regulatory charges, but more nebulous. They are often billed as fees used to cover the costs paid to other carriers when talking to someone on a different network. AT&T’s $0.61 fee, rolled out in 2013, also goes toward “charges associated with cell site rents and maintenance.” These fees can (and do) change from time to time.
City Taxes & Fees
Approximately 12 states have city and county taxes. Many of these are legacy taxes established for landline services extended to wireless services. For example, New York City charges the MTA Telecom Surcharge, which is a 0.375% tax for New York metropolitan area residents.
Gross Receipts Surcharge
Some states, counties and cities levy a “gross receipt surcharge” on carriers’ total revenue. Pennsylvania and Rhode Island charge a 5% state gross receipts tax, while New Mexico charges a 5.13% state tax and an additional 2.62% in certain cities and counties. Many carriers pass the charges to customers.
The lower the bill, the lower the taxes are going to be, because many taxes are based off a percentage of the service charges. High tax rates on telecom services, compound the impact of each billing error. As indicated in our previous blog post, High Telecom Taxes Multiply Cost Savings, this makes it critical for organizations to verify the accuracy of the charges on bills.