SHARE



ABOUT THE AUTHOR


Marty Parker
Marty Parker brings over three decades of experience in both computing solutions and communications technology. Marty has been a...
Read Full Bio >>
SHARE



Marty Parker | July 11, 2017 |

 
   

Beware! Important Tax, Fee Considerations for UCaaS, CPaaS

Beware! Important Tax, Fee Considerations for UCaaS, CPaaS Cloud architecture brings a new day to communications, but our tax laws are living in the past... and that could mean an unexpected tax burden for your enterprise.

Cloud architecture brings a new day to communications, but our tax laws are living in the past... and that could mean an unexpected tax burden for your enterprise.

Here's the top and bottom lines: You could be very surprised by the taxes you'll incur for cloud-based telephony services like unified communications as a service (UCaaS) and communications platform as a service (CPaaS).

The on-premises PBX provides a large amount of communication functions that do not touch the public switched telephone network (PSTN). Even those functions that do require the PSTN connection, or offer PSTN bypass, are concentrated on central office lines or trunks. Thus, the taxes and fees applied at local, state, and federal levels have been negotiated and legislated based on that architecture.

But with UCaaS and CPaaS, station lines and functions traverse the network, too, making them subject to those same tax structures and rates. An enterprise that has a typical 20:1 ratio of stations to trunks could easily see a significant jump in the tax burden if its UCaaS or CPaaS provider just passes the taxes along to customers. In such a scenario you could perhaps expect to see an increase from as low a rate as 0% of your PBX operational costs to as high a rate as 30% of your monthly UCaaS bill.

This is important to understand in advance since, in the end, your enterprise is obliged to pay the taxes. Underpayment could result in significant back-payments and even penalties, if audited.

Of course, the laws may evolve as communications moves to the cloud, but for now we're dealing with tax laws designed around on-premises devices, PBXs, and trunks. (Brings to mind lyrics the Beatles song "Taxman": "If you try to sit, I'll tax your seat... If you take a walk, I'll tax your feet." You get the idea.)

There are some things that can be done, and there are some things that can't be done. Here are a few tips. (Please note, I'm neither a CPA nor a tax attorney, so do consult the in-house or external professionals your enterprise relies on for such matters rather than taking my word exclusively.)

1) Understand the underlying mechanisms. Broadly, communication taxes fall in one of three categories:

  • Local and state taxes that are, essentially, special sales taxes -- these vary widely by jurisdiction. In some cases, you'll encounter normal sales taxes plus a communications sales tax or surcharge. If your company has many locations, this can get complex.

  • Federal Universal Service Fund (USF) charges -- applied as a percentage of all services that use (or bypass) the PSTN. The big factor here is to be sure the UCaaS or CPaaS provider properly identifies the PSTN-related services so the USF fees are only applied to that portion of the bill. Without such segmentation of the PSTN-related portion, the entire bill may, and likely will, be subject to USF charges. It is also possible to affect the USF charges based on the network design, to the extent that is even possible to change based on the UCaaS or CPaaS offering you are considering or using.

  • E-911 fees -- like local and state taxes, these vary widely by jurisdiction. Also, for UCaaS, this usually becomes a per-station charge rather than a per-trunk charge as it is with most PBXs.

2) Get help. In recent experience on this topic, I found a variety of firms offering comprehensive services. Here are some examples:

  • CCH SureTax, part of global information services firm Wolters Kluwer, is a leading provider of tax calculation software for assuring optimization and compliance with telecommunications tax regulations and other tax laws. Wolters Kluwer delivers SureTax via a network of value-added resellers, such Global Strategic Accountants (GSA) and ECBWireless, as mentioned below.

  • GSA offers communication tax reviews of an enterprise's telecommunications invoices. If you already are using UCaaS or CPaaS services and have been surprised by the taxes on your invoices, these folks can help you analyze those costs and assist in re-negotiating with the UCaaS or CPaaS provider.

  • ECBWireless offers invoice review and negotiation assistance.

  • Avalara, provides tax calculation software to the communications service provider industry. You'll find some excellent information on its site, including a free (with registration and, of course, a follow-up call) communications tax calculator.

  • Tax Foundation, a tax (or non-tax) advocacy group, publishes tax information and seeks to influence legislation. In 2004, the group published this informative tax table to show average communications tax structures by state. It has not updated the data in this table, but you can download detailed tax rate information at Avalara.com (see above).

3) Require tax examples and commitments in your RFP.

By now, it should be obvious that you will want to make tax obligations a factor in any UCaaS or CPaaS procurement and the related financial analysis. Even though the tax laws are essentially fixed in each jurisdiction, the UCaaS and CPaaS providers are inconsistent in how they manage the tax calculations and allocations. One approach is to require the UCaaS or CPaaS bidders to submit sample invoices for some or each of the locations they will serve in your enterprise, showing the tax calculations and explaining the basis for those calculations. These calculations can be reviewed and possibly even negotiated in advance of your procurement decision.

So, beware! Take the necessary steps to understand, get help, and require commitments regarding the taxes that your organization may be obliged to pay on UCaaS or CPaaS services. With solid advanced planning, you can make a well-informed financial decision and avoid unpleasant surprises when the invoices start arriving.

We certainly don't want your communications to be too taxing!





COMMENTS



Enterprise Connect Orlando 2018
March 12-15 | Orlando, FL

Connect with the Entire Enterprise Communications & Collaboration Ecosystem


Stay Up-to-Date: Hear industry visionaries in Keynotes and General Sessions delivering the latest insight on UC, mobility, collaboration and cloud

Grow Your Network: Connect with the largest gathering of enterprise IT and business leaders and influencers

Learn From Industry Leaders: Attend a full range of Conference Sessions, Free Programs and Special Events

Evaluate All Your Options: Engage with 190+ of the leading equipment, software and service providers

Have Fun! Mingle with sponsors, exhibitors, attendees, guest speakers and industry players during evening receptions

Register now with code NOJITTEREB to save $200 Off Advance Rates or get a FREE Expo Pass!

September 20, 2017

Customer experience can make or break your business. But how do you achieve outstanding customer service when you're dealing with outdated organizational structure, lagging technology, dated proces

August 16, 2017

Contact centers have long been at the leading edge of innovation in communications technology, given their promise of measurable ROI and the continual need to optimize customer interactions and sta

July 12, 2017

Enterprises have been migrating Unified Communications & Collaboration applications to datacenters - private clouds - for the past few years. With this move comes the opportunity to leverage da

September 8, 2017
Greg Collins, a technology analyst and strategist with Exact Ventures, delivers a status report on 5G implementation plans and tells enterprises why they shouldn't wait to move ahead on potential use ....
August 25, 2017
Find out what business considerations are driving the SIP trunking market today, and learn a bit about how satisfied enterprises are with their providers. We talk with John Malone, president of The Ea....
August 16, 2017
World Vision U.S. is finding lots of goodness in RingCentral's cloud communications service, but as Randy Boyd, infrastructure architect at the global humanitarian nonprofit, tells us, he and his team....
August 11, 2017
Alicia Gee, director of unified communications at Sutter Physician Services, oversees the technical team supporting a 1,000-agent contact center running on Genesys PureConnect. She catches us up on th....
August 4, 2017
Andrew Prokop, communications evangelist with Arrow Systems Integration, has lately been working on integrating enterprise communications into Internet of Things ecosystems. He shares examples and off....
July 27, 2017
Industry watcher Elka Popova, a Frost & Sullivan program director, shares her perspective on this acquisition, discussing Mitel's market positioning, why the move makes sense, and more.
July 14, 2017
Lantre Barr, founder and CEO of Blacc Spot Media, urges any enterprise that's been on the fence about integrating real-time communications into business workflows to jump off and get started. Tune and....
June 28, 2017
Communications expert Tsahi Levent-Levi, author of the popular BlogGeek.me blog, keeps a running tally and comprehensive overview of communications platform-as-a-service offerings in his "Choosing a W....
June 9, 2017
If you think telecom expense management applies to nothing more than business phone lines, think again. Hyoun Park, founder and principal investigator with technology advisory Amalgam Insights, tells ....
June 2, 2017
Enterprises strategizing on mobility today, including for internal collaboration, don't have the luxury of learning as they go. Tony Rizzo, enterprise mobility specialist with Blue Hill Research, expl....
May 24, 2017
Mark Winther, head of IDC's global telecom consulting practice, gives us his take on how CPaaS providers evolve beyond the basic building blocks and address maturing enterprise needs.
May 18, 2017
Diane Myers, senior research director at IHS Markit, walks us through her 2017 UC-as-a-service report... and shares what might be to come in 2018.
April 28, 2017
Change isn't easy, but it is necessary. Tune in for advice and perspective from Zeus Kerravala, co-author of a "Digital Transformation for Dummies" special edition.
April 20, 2017
Robin Gareiss, president of Nemertes Research, shares insight gleaned from the firm's 12th annual UCC Total Cost of Operations study.
March 23, 2017
Tim Banting, of Current Analysis, gives us a peek into what the next three years will bring in advance of his Enterprise Connect session exploring the question: Will there be a new model for enterpris....
March 15, 2017
Andrew Prokop, communications evangelist with Arrow Systems Integration, discusses the evolving role of the all-important session border controller.
March 9, 2017
Organizer Alan Quayle gives us the lowdown on programmable communications and all you need to know about participating in this pre-Enterprise Connect hackathon.
March 3, 2017
From protecting against new vulnerabilities to keeping security assessments up to date, security consultant Mark Collier shares tips on how best to protect your UC systems.
February 24, 2017
UC analyst Blair Pleasant sorts through the myriad cloud architectural models underlying UCaaS and CCaaS offerings, and explains why knowing the differences matter.
February 17, 2017
From the most basics of basics to the hidden gotchas, UC consultant Melissa Swartz helps demystify the complex world of SIP trunking.
February 7, 2017
UC&C consultant Kevin Kieller, a partner at enableUC, shares pointers for making the right architectural choices for your Skype for Business deployment.
February 1, 2017
Elka Popova, a Frost & Sullivan program director, shares a status report on the UCaaS market today and offers her perspective on what large enterprises need before committing to UC in the cloud.
January 26, 2017
Andrew Davis, co-founder of Wainhouse Research and chair of the Video track at Enterprise Connect 2017, sorts through the myriad cloud video service options and shares how to tell if your choice is en....
January 23, 2017
Sheila McGee-Smith, Contact Center/Customer Experience track chair for Enterprise Connect 2017, tells us what we need to know about the role cloud software is playing in contact centers today.