Is Safe Harbor Right for You? This is a question CSPs should revisit on a regular basis. Although FCC safe harbor ratios are designed to simplify tax calculation and remittance, they may not always work to your benefit. Here are three key considerations to factor in when making a determination:
Anyone who works in the realm of 3Gs, 4Gs and Internet protocols knows this: Rapid adoption of new technologies has forever changed how we communicate. Cellular networks, cable, satellite, VoIP and a multitude of emerging innovations have expanded the scope of the communications industry to include so much more than traditional telephone calls. Today, when customers want to initiate voice calls, they can opt for flat-rate monthly plans to do so while crossing state lines or use VoIP to speak with people on the other side of the world without incurring long-distance fees.
The lightning-fast pace of advancements has governing bodies in a bind: How do states and the federal government effectively regulate an industry that’s in a continuous state of change? Which taxes and fees should be applied, and when? As technology evolves faster than the law, the answers to these questions and others like them change frequently. As a result, communications service providers (CSPs) face some of the most complex calculations in the entire tax industry. Different areas of communications are all taxed in very different and exceptionally complex ways. In an effort to help simplify one of the more complicated aspects of communications taxes for cellular and VoIP providers, the Federal Communications Commission offers safe harbor ratios to gauge tax payments on interstate and international voice calls. On the surface, it seems like a straightforward solution. But this safe harbor option brings about yet another challenge for CSPs: determining if, and when, using the FCC’s predetermined ratios will benefit your business.
Communications Tax Filing Options
To remain tax compliant, CSPs need to report on the portion of their revenue that comes from interstate and international calls. This is still true today, even though traditional long distance phone calls have been largely replaced by nomadic cell phones, VoIP and bundled services that often complicate the process of tracking which calls are made from and to where. The ease with which customers can make voice calls while crossing state lines or sitting in front of computers has turned a once simple system into an incredibly complex measurement for calculating and filing communications taxes. The FCC recognizes these difficulties and offers three options for wireless and VoIP providers which, by extension, are also available to states:
1. Call Detail Records
A CDR contains all the details of a voice call between two parties: where it originated, how long it lasted, total allowance usage and more. The comprehensive nature of these traditional records can help lessen financial impacts of communications taxes. However, they often present compliance challenges for CSPs that don’t use unbundled, transaction-based billing.
2. Traffic Studies
In-depth traffic analysis can help CSPs gain an understanding of how voice calls are distributed. Put simply, these studies enable providers to accurately determine which portion of calls fall into the realm of interstate communications. When filed quarterly with the FCC and the Universal Service Administrative Company, they can be used as the basis for calculating taxes and fees.
3. Safe Harbor Ratios
With safe harbor, the FCC defines the portion of services it’s willing to assume are interstate and international versus intrastate and local. Wireless telecommunications and VoIP providers that choose to apply these ratios can assume that the FCC will not find it necessary to review or question the data underlying their reported percentages.
Is Safe Harbor Right for You?
This is a question CSPs should revisit on a regular basis. Although FCC safe harbor ratios are designed to simplify tax calculation and remittance, they may not always work to your benefit. Download this whitepaper by Avalara to learn about the three considerations CSPs take into account when evaluating safe harbor ratios.