simplifying the tax and regulatory obligations of your
TRANSCRIPT
Simplifying the Tax and Regulatory Obligations of Your Communications Service
SureTax®
Chief Product Strategist
A pioneer in the field of tax calculation with over twenty years of experience in the indirect tax space. Leads the product vision for SureTax®.
Marashlian & Donahue, LLC
Managing Partner
Heads nationally recognized boutique telecom, VoIP and advanced communications law firm and founder of regulatory compliance consultancy, The Commpliance Group. 2013 Winner of Lexology / ILO Client Choice Award.
TaxConnex, LLC
Principal and Founder
Mike Sanders Jonathan Marashlian
The Cloud Commpliance Solution Experts
Robert Dumas
Nationally recognized expert on telecommunications taxation and a frequent speaker on the subjects of transaction tax, business process outsourcing and sales tax compliance.
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AGENDA 45 minutes
• Introduction and Overview • Myths & Misperceptions
– “Over the Internet” doesn’t equal “Tax Free” – Regulatory fees and communications taxes, like “Apples &
Oranges” • Complex “nexus” issues • Confounding “regulatory” issues • Risk Management • Tax & Fee Calculation • Reporting, remittance and remediation
15 minutes • Questions
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MYTH: It’s over the Internet, so it must be “tax free”
Myths & Misperceptions
Found on blog last week: “VoIP services, however, dodge these high levies because communication occurs almost entirely over the Internet rather than the PSTN line when you make a VoIP call. Currently, the government has taken a hand’s off approach when it comes to taxing VoIP services because of their means of transferring information over an IP network. The only tax imposed on VoIP providers right now is the Federal Excise Tax. …While paying taxes can be, well, taxing, on our bank accounts, why not choose a phone service that will charge fewer taxes and ultimately save you money?”
Source: Voxilla Blog, Posted December 5, 2012 http://voxilla.com/2012/12/05/the-taxing-truth-about-voip-phone-service-taxes/
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Myths & Misperceptions
Taxes • States often use differing definitions • Administered by state Departments of Revenue (“DORs”) or local jurisdictions • Includes sales tax, telecommunications excise tax, utility users tax, business and
occupation tax, gross receipt tax, and 911 fees
Regulatory Fees • Federal Regime
• Universal Service Fund (USF) • Telecommunications Relay Service (“TRS”) , North American Numbering Plan
Administration (“NANPA”), Local Number Portability Administration (“LNPA”) • FCC Regulatory Fee
• State • State USF and TRS • PUC Fees
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FACT: Taxes and Fees do Apply
You say po-TA-to, I say po-ta-to... You say taxes, I say fees? WRONG!
Myths & Misperceptions
There are Differences and the Differences Matter!
Taxes Regulatory Fees
Consumer owes taxes to government, Service Providers are tax collectors
Service Providers owe fees to government, Consumers may pay pass-throughs
“Nexus” matters “Nexus” is irrelevant
Technology, configuration generally irrelevant
Technology, configuration matters
Bundling = More Taxes Bundling ≠ More Fees
Supply chain enforcement? Yes, but upstream exposure limited and manageable
Supply chain enforcement? Yes, but upstream exposure magnified and uncertain
Remediation options exist Remediation options limited
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Nexus Nexus refers to the amount or degree of business activity that must be reached before a state can impose taxes on a business’s revenue
• Income tax nexus and sales tax nexus are not the same
• Nexus determination for sales tax purposes is extremely fact intensive and fluid
• Supreme Court’s decision in National Bellas Hess established physical presence requirement for sales and use tax purposes
Supreme Court clarified nexus requirements in Quill v. North Dakota • Due Process and “minimal contacts”
• Dormant Commerce Clause and “substantial nexus”
• Determinations grounded on whether there is physical presence – but little uniformity
Evolving concepts of “affiliate nexus” and “economic nexus” • Amazon laws
• Conflict and court decisions
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Nexus cont. Communications Taxes and Attributional Nexus
• Conservative View: Even in the absence of physical presence and minimal contacts, “attributional nexus” may be found where a customer is (a) billed for service provided in jurisdiction, (b) provider derives economic benefits thru ability to establish and maintain market for sales, even when using 3rd party facilities • Annox, Inc. v. Kentucky Revenue Cabinet, 2003 Ky. Tax LEXIS 246
• City of Baltimore v. Vonage America, Civil No. JFM 07-320
• Popular View: Some physicality, some minimal contacts or unambiguous statute/regulation • e.g., Los Angeles Communications Users Tax
Regulatory Fees and Jurisdiction • Nexus irrelevant; FCC expressly authorizes State Utility
Commission to impose state USF, TRS and other fees • Kansas/Nebraska State USF Declaratory Ruling WC Docket No. 06-112
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Regulatory Issues
Universal Service Fund, Universal Service Fund, Universal Service Fund, Universal Service Fund…
Shall I continue?
Combine a USF Contribution Factor in the high teens with the increased likelihood of USAC audits, the practice of highly leveraged & unyielding enforcement, and the threat of ending up in the never-ending spin cycle of the FCC audit appeals process create strong incentives to ensure defensible Form 499 revenue reporting positions, without sacrificing competitive positioning.
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Tax & Fee Calculation • Complexity increases exponentially as your business adds
customers in more state and local jurisdictions
• Nationwide, over 7,000 unique taxes & fees apply to communications services
• Proper tax applicability - VoIP, UCaaS, SIP, MVNO and even one-way and Machine-to-Machine are not tax exempt!
• Solutions?
• Technology Solutions / Calculation software
• As footprint expands, technology and tax database access becomes essential
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Taxing Issues Simplified Through Technology
Tax & Fee Calculation
Proper Tax Situs (jurisdiction / tax authority) determination
• Zip+4 is critical
• Consider address validation when customers subscribe
• Capture the Point of Primary Use [PPU]
• Customer creates the nexus in telecom (billing address / PPU)
Varying Taxability by Service
• Postpaid is taxed more than prepaid
• PSTN is more heavily taxed than non-PSTN
• Retail transactions will give larger universe of taxes than wholesale
• If you do not unbundle where allowed, taxability is more stringent
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Taxing Issues Simplified Through Technology – cont.
Tax & Fee Calculation
Other Considerations
• In come cases, you must process the transaction twice to determine the correct unit based fees (i.e. E911s)
• Tax on tax impacts overall effective rate and creates significant tax exposure in many states (NY example).
• Prepare for customer-specific tax exemptions
• Tax information for products and services can be relevant in sales process
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Tax & Fee Calculation
Post calculation reporting information is critical
• Revenue and tax information for monthly reconciliation
• Effective rates by state for proper accruals (prepaid services)
• Transparency of details for future audits
• Reporting data for taxes, fees, surcharges and regulatory filings
Taxing Issues Simplified Through Technology – cont.
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Registration, Reporting & Remittance Tax Registration
• Each state where you need to collect and remit tax will require a sales tax ID
• Some states require a separate communications tax ID • DOR registration is separate from SOS and PUCs; all should be
coordinated
Tax Filing • The DOR will assign a filing frequency • Certain states will require additional local level reporting
– California cities assess Utility Users Tax that require monthly reporting
• Manual options • Software can automate some of the returns but not all • Outsourcing the filings
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Prior Period Exposure - Taxes
Quantify how much additional tax is due
• This can be an estimate
Based on the risk profile of the business, make a decision on how to remediate:
• Register and file prospectively
• Voluntary disclosure
• Amnesty
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Voluntary Disclosure
Voluntary Disclosure Agreement (“VDA”) • Limit the look-back period • Waiver of penalty and interest • Audit protection
VDA Procedure • Typically a third party is involved • Anonymous negotiation to obtain a favorable position • Prior period returns are prepared or spreadsheet submitted with
tax liabilities • Registration and prospective collection and filing responsibilities • Often not available to current tax payers
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Amnesty
• Specific program requirements are described by the state
• Prior period returns are prepared or spreadsheets in adherence to the program
• Registration and prospective collection and filing responsibilities
• May be open to current tax payers
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Recap and Questions Step 1: Determine where nexus exists (tax)
Identify where customers are served (regulatory)
Step 2: Determine the taxability and assessability of services
Step 3: Optimize tax and regulatory compliance profile (Optional)
Step 4: Map services to tax calculation engine / billing system, engage in validation testing, and prepare to “go live”
Step 5: Obtain necessary registrations
Step 6: Comply with the myriad of reporting and remittance requirements
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Speaker Bios
Mike Sanders, Chief Product Strategist, SureTax®, LLC
With over twenty years of experience in the indirect tax space, Mike is a pioneer in the field of tax calculation. As a founding partner of Tax
Partners® LLC, Mike developed technology that enabled the business to become the largest tax compliance outsourcing firm in the
country before being sold to Thomson Reuters in 2005.
Jonathan S. Marashlian, Managing Partner, The CommLaw Group and principal of The Commpliance Group
Mr. Marashlian is responsible for leading the firm's telecommunications, VoIP, broadband and advanced communications services
clientele through the maze of state and federal regulatory and communications tax requirements. Mr. Marashlian has comprehensively
advised several Fortune 500 companies on regulatory and tax matters associated with entering the VoIP services marketplace, thereafter
managing compliance through The Commpliance Group and its partners. 2013 Lexology/International Law Office Client Choice
Award overall winner in the category – Telecommunications Law – USA and Virginia.
Robert Dumas, Principal and Founder, TaxConnex, LLC
Mr. Dumas began his public accounting career on the tax staff at Arthur Young & Co., followed by a brief stint at Grant Thornton. In the
late 1980s, Robert joined BellSouth’s tax department. In 1996, he left BellSouth to pursue a career as an independent consultant. Three
years later, Robert founded Tax Partners, which became the largest sales tax compliance service bureau in the country. Robert served as
president of Tax Partners and helped grow the business to $16 million in seven years. The company was sold to Thomson Corporation in
March 2005, and Robert served as vice president of operations in Thomson’s transaction tax business unit until founding TaxConnex in
2006. Robert is a nationally recognized expert on telecommunications taxation and a frequent speaker on the subjects of transaction tax,
business process outsourcing and sales tax compliance.
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Contact Us for More Information Visit: www.CloudCommpliance.com
Speakers Websites
Mike Sanders [email protected] (888) 910-3466
www.SureTax.com
Jonathan S. Marashlian [email protected] 703-714-1313
www.CommLawGroup.com www.CommplianceGroup.com
Robert Dumas [email protected] 877-893-5304
www.TaxConnex.com
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