In the past communications taxes were known as just “telecommunications taxes.” The definition has expanded to include much more than just phone calls. Communications is now considered to be any way voice and data information can be transferred – wireline, cellular, cable, satellite, VoIP and any other method.
As states constantly look for new revenue streams due to the impact of technology changing the way we do business, (landline use is falling) the definition of communications continues to expand. The explosion of the internet of things (IoT) is connecting our homes, businesses and machines. These new models are redefining data communications.
This creates a very complex billing situation that many solution providers are not aware of.
What makes them so difficult to calculate?
Calculating and remitting any tax is a tough job but someone has to do it. In the case of communications taxes, fees and surcharges, it’s a job that only automation can adequately handle. Failure to automate can result in overpayment, or even worse, non-compliance and underpayment. Some of the biggest challenges are:
- Determining jurisdiction: With over 43,000 local jurisdictions ensuring that the correct one is being used is critical to success.
- Managing tax law changes: State laws are constantly expanding and changing. The nuances of different taxes in every jurisdiction and how they impact the solution that you deliver is very cumbersome, if not impossible, for most companies.
- Complex tax calculations: Determining the proper sales tax is not enough. Bundled service offerings can include communications taxes that are some of the most complex in the industry. Fees and surcharges might also be taxed, bundled services with different tax types, and tax on tax may need to be calculated.
But why are taxes for IoT solutions different than other taxes?
All taxes are constantly changing but the communications industry has always been among the most difficult. With the explosion of IoT/M2M solutions being developed and creatively bundled and sold across multiple states things are more complicated than ever.
This unfortunately leaves the decision on which taxes to calculate up to solution providers, exposing them to potential audit and payment mistakes. Mitigating risk by outsourcing and automating communications tax calculation and compliance to experts like Modas is a best first line of defense.
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