As any business owner knows, taxes and regulatory compliance can be a complex task to understand and follow. While understanding tax compliance may make your head spin, there are certain things you should know, and we’re here to help! In this guide, we will go over some Federal, State, and Local tax compliance requirements. We will also discuss reporting and documentation requirements as well as billing information.
Federal Level Tax Compliance Requirements
As a result of varying degrees in regulation, telecom carriers are required to pay different fees. The most common fee is the Universal Service Fund (USF), which is managed by Universal Service Administrative Company (USAC) and calculated based on assessable revenue. This amount changes quarterly. Several other federal programs are funded through charges assessed against certain revenues, and an experienced telecommunications consultant can help identify which of your resources are subject to the Federal USF fund and fees from FCC funds.
When you’re registering for USAC they’ll give a Form 499 filer id. There are two types: direct contributors or not. If you pay fees directly to your regulatory body as a direct contributor, then that will increase what’s called “USF fee payment.”
State and Local Tax Compliance Requirements
There are state-level regulations in addition to federal ones. Each state has an agency that regulates telecommunications services, like a Public Utility Commission or a Public Service Commission. If your service is regulated at the Federal level but not by states, you may still have to pay additional fees for those states where it’s required if you’re providing service there.
If you provide service in states that have Public Utility or Service Commissions, then registering with them will be required. Most of the time this requires either getting a license from these commissions or being registered by them directly. Some states also require local exchange providers to get licenses and others even make it necessary for long-distance companies to register as well.
State and Local Sales Tax
When it comes to tax compliance for sales tax registration, companies will generally register proactively in states where they anticipate significant revenue. This might include their home state and other cities/counties that expect a lot of business from them as well. They monitor the collection of taxes by staying up to date on laws and policies that may affect or change what is required for taxation within each individual city/state combination so they can make educated decisions about how much work needs to be done when filing registrations with both localities.
State and Local Transaction Tax
Telecommunications services are taxed in almost every state. These taxes could include sales tax, communications service tax (CST), gross receipts tax, the business and occupation tax (B&O) as well as utility user’s taxes. Each of these different types of taxation differs from one another because each type has its own setup rules for how to apply them correctly on a product or service. Assuming that it is taxable in all states would be incorrect, which puts you at a competitive disadvantage if your competitor does not have their prices tagged with such taxation fees.
Related Blog: Section 179 Tax Deduction for Resellers
Tax Compliance Reporting and Documentation
Once you have registered with the appropriate taxing and regulatory authorities, determined applicable taxes and fees, created invoices for your customers, collected payments from them based on these invoices (and any other agreed-upon terms), you must remit all those funds to their respective authorities in order to remain tax compliant.
Exemptions
Tax and fee exemptions are a complicated process for resellers. In order to achieve tax-exempt status, each state has its own form that needs to be filled out correctly in accordance with what carriers require. Some larger companies have created customized processes so that their individual requirements can hopefully make it easier on both themselves and resellers alike. Tax exemptions are a relatively difficult task, which is typically only possible by large corporations that operate across multiple states. Smaller businesses may not see much success at all due to operating within one state alone.
Collecting From Customers
In order to avoid complacency, it is important that you periodically review your tax and regulatory compliance footprint. For example, as you expand into new regions or states, there will be additional rules and regulations involved with telecommunications business practices in these places.
Taxes and fees must be applied to an invoice when you’re aware of the applicability rules, current rates in jurisdictions where service will take place, as well as how they should be calculated.
Staying Compliant With NUSO
It’s vital to your business’s longevity to keep up to date on all tax-related compliance regulations as this is the best way to protect your business. If you still have questions about taxes and regulations, NUSO is here for you!
We have your company in mind and have products that are designed with tax compliance in mind. We want you to be successful and will support you in any way we can. Contact us today to get started with a company that cares about helping you and your business!
