Calculating tax for your telecommunications business can be a complicated process. AvaTax for Communications allows you to handle these complex calculations with ease, but you may see tax calculations that are difficult to understand. This guide explains some of the more complex tax scenarios you may see when using AvaTax for Communications.
The Taxable Measure is the amount of a sale that is subject to taxes or fees. This is generally the taxable invoice amount, but can also include taxes that are subject to additional taxes. See the Tax on Tax section below to learn more about taxes which can incur additional taxes.
There are situations where a line item amount is not fully taxable, resulting in a Taxable Measure amount that is lower than the Charge Amount. An example of this is the Federal Universal Service Fund (FUSF). This is a fee imposed on the interstate portion of a telecommunications service. The Federal Communications Commission (FCC) allows business to use a safe harbor percentage of 64.9% for interconnected VoIP and non-interconnected VoIP telecommunications, where 64.9% is the interstate portion of the service.
In the image below, note that the line charge amount is $100.00, but the taxable measure is $64.90. This is because the safe harbor percentage has been applied, resulting in the the FUSF fee being calculated on 64.9% of the line item charge amount.
If you've done a traffic study to find an interstate percentage that is more accurate for your business, you can set up a Safe Harbor Override to modify the safe harbor percentages.
Some taxes are Non-Billable, meaning that a business cannot bill their customers for the tax amount. These are typically taxes or fees that are imposed on the product or service provider, which the taxing jurisdiction prohibits from being passed on to the end user.
Tax on Tax
Some taxes and fees are subject to additional taxes or fees, meaning that the tax amounts from one tax are included as part of the Taxable Measure of a separate tax. This is referred to as 'tax on tax'.
For example, the Federal Universal Service Fund (FUSF) amount returned by AvaTax for Communications will typically be subject to sales tax based on state statutes that define 'sales price' or 'taxable amount' to include, "any fees or charges on the service provider that are passed on to the end user." Tax on tax also refers to taxes in certain jurisdictions that are self-taxing. In the example image below, note that the line item charge amount is $100.00, but the taxable measure used for Sales Tax is $112.926133. This is because the FCC Regulatory Fee (VoIP) and FUSF (VoIP) fees are included in the taxable measure used for Sales Tax.
- $100.00 (line item charge amount)
- + $0.205733 (FCC Regulatory Fee)
- + $12.7204 (FUSF Fee)
- = $112.926133 (Taxable Measure used to calculate sales tax).
This is just one example of a 'tax on tax' scenario, but there are other taxes and fees that are calculated in a similar way.
Line count-based taxes
Some services are taxed based on the number of service lines provided. This means that the tax is calculated by multiplying the number of services lines by a rate or fixed amount, instead of multiplying the rate by a dollar amount charge.
In the example below, the line item includes 100 service lines. The E911 (Wireless) tax is calculated as a fixed amount of $0.25 per line:
- 100 (service lines)
- x $0.25 per line
- = $25.00 (E911 Wireless tax amount)