Tax Offerings for the Telecommunications Industry
Telecommunications and related services are among the more heavily taxed services in the United States. Federal transaction taxes and fees, coupled with state and local taxes and fees, can add up to an average effective transaction tax rate of over 18 percent. In most cases, these rates are at least twice as high as the effective tax rate for general business sales. And that’s before the impact of income taxes on the providers themselves.
- The Deloitte difference
- Services for traditional providers
- Emerging businesses
- Integrated approach
- Related topics
These taxes and fees are a significant burden for the provider that must collect and remit them. Then there’s the explosive growth of information technology, e-business, and Internet-related activities. No wonder telecommunications taxation continues to be such a volatile area. Yet tax authorities are often hard-pressed to keep up with the technological changes blurring the lines between information services, enhanced services, and telecommunications. In many cases, the response is to classify new services as telecommunications, subject to a plethora of taxes and fees. These include sales and use taxes, excise taxes, gross receipt taxes, emergency “911” fees, access and utility fees, mass transit taxes and surcharges, and many others.
The Deloitte difference
Within this dynamic environment, simply identifying and fulfilling your tax obligations is no small feat. But how do you work within the legal and regulatory framework to pursue available benefits?
This is where our insight into telecommunications taxation can assist you. We can help you assess what services are subject to which taxes, and help explore ways to potentially reduce your burden – whether it’s a matter of streamlining compliance processes, implementing the right software to ease the burden, restructuring business operations, or assessing favorable tax opportunities. Additionally, we can advise you on the spectrum of income and franchise tax issues facing the telecommunications industry.
Services for traditional providers
Deloitte recognizes the fine line telecom providers walk: On one hand, if you’re overly aggressive in your stance on a particular tax issue, your customers and sales teams may applaud you, but you may face heightened compliance risks. On the other hand, if you take a more conservative stance, you may risk customer and competitor challenges while reducing compliance risk. Long-time telecommunications providers and new providers to the marketplace can benefit from our experience. We can help them assess their collection and remittance of transaction taxes on their products and services in the appropriate locations, and whether billing systems are operating efficiently and effectively. Our extensive experience with systems and software will help you explore the latest automation to bill, collect, remit and reconcile on a timely basis; address filing requirements in appropriate jurisdictions; and defend them as necessary.
As you prepare to enter new markets or introduce new products and services, we’ll help you assess the impact on your business from a transaction tax perspective. For example, what happens to taxes when you add new Internet-based delivery models or new applications? Or when you combine taxable and non-taxable items in a bundled package? What is the impact of offering your services in a new geographical area? Our breadth of industry knowledge can help you focus on the necessary projections and business decisions.
If you are planning purchases of new equipment or investments in new facilities, look to us for insight into how to address taxes. Minor restructuring, capitalizing on available credits and incentives, and other tax planning may make an improvement to your bottom line.
As new providers enter the telecommunications arena, the issues and offerings become more varied and complex. Tangential providers range from ISPs, utilities, and application service providers to interactive entertainment companies, prepaid providers, voice over IP companies, and wireless and other communications providers. In general, one way to avoid tax collection problems is to be other than a telecommunications provider offering something other than a telecommunications service.
Many entrants pioneering new businesses do not have an infrastructure already in place. That’s why we offer tax consulting services that help you build your infrastructure from the ground up and determine how to collect the taxes on the various services. We’ll help you find tax software that can work with your billing system to appropriately collect transaction taxes from your customers. And we’ll assist you with reporting these taxes to the jurisdictions. We’ll review the products you plan to sell and help you assess their taxability based on where you plan to offer them.
Deloitte’s integrated approach brings added value to our clients
Deloitte telecommunications specialists understand the industry and your business. We’re equally at ease working with your tax department as we are with your IT and operations executives. We also collaborate effectively with other Deloitte Tax and Deloitte Consulting LLP specialties to help you capitalize on planning that pursue broad and impactful results.
Our strengths include:
- Extensive knowledge of the telecommunications industry
- Broad services for well-established companies
- Committed, detailed assistance to startups and new ventures
- Deep knowledge of the income tax issues facing telecommunications companies
- A deep understanding of the telecommunications tax landscape
- Proficiency in diagnostics and tax planning
- A fully integrated professional service organization, Deloitte has the ability to leverage resources from its U.S.affiliates.
- Systems and software applications knowledge
With a solid tax foundation and innovative ideas, we can help you address your tax challenges so that you can focus on building a stronger business.