When a VoIP service provider offers hosted PBX, business and residential VoIP, mobile and other services, there may be taxes imposed by federal, state and local regulators.
VoIP providers are faced with the complex challenge of calculating taxes as part of their billing process and then to pass on the numbers to the appropriate local or federal tax authorities.
While the spread 0f VoIP is making it ubiquitous, the taxation of VoIP as a telecommunication service can be complicated, both for service providers and for governments. The nature of communications tax that applies can vary greatly depending on the way the service is provided.
For example, a service may be taxed differently if it’s a static VoIP (calls made from a fixed address with an easily identifiable point of origin) or a nomadic VoIP (calls originating and terminating at any location). In this case, it can be difficult to separate out and assess which portion of a call is liable to interstate versus intrastate taxation and regulation.
Taxation will also differ if a VOIP service is defined as interconnected – VoIP that allows calls to be placed to telephone networks – or non-interconnected. The latter may be subject to less state and local tax as the latter are not required to contribute to the USF (Universal Service Fund). In addition, non-interconnected VoIP does not require payment of 911 fees.
VoIP service providers need to be crystal clear about their interstate versus intrastate revenues. There’s a regulatory obligation to do so under federal USF – but even that can be a considerable challenge, especially when selling bundled calling.
International tax experts Wolters Kluwer are tackling this aspect of VoIP operations using a platform called CCH SureTax. It is an element of their portfolio of tax solutions which has been successfully integrated with Telinta’s cloud-based switching and billing services, widely used in the US and international VoIP market.
CCH SureTax is designed to provide a higher level of automation and accuracy to the VoIP billing process.
Most VoIP service providers are moving to automated solutions to stay on top of their tax obligations. This is less about automating the calculations themselves and more about ensuring that the correct tax calculations are applied.
State and local taxes are starting to catch up with the VoIP market. As they do, tax engines will be able to keep companies up to date on their billing requirements.
- The rapid spread of VoIP technology in the US has meant tax regulations that apply to telecommunications have struggled to keep up. But VoIP service providers still have to report and bill accordingly.
- This can be a major challenge due to the complexity of the service offering and the US tax landscape (e.g. liability for 911 fees), particularly for firms offering their clients bundled services (e.g. both interconnected and non-interconnected services).
- Use of tax engines seems to be the way forward, as they can effectively automate the calculation of liability across a multitude of services and accounts.