Upcoming Taxation/Regulatory Fee Changes

[VOIPoTim]

As many of you know, the tax and regulatory environment for VoIP keeps growing more and more complex. We’re going to be making changes to the method we use for collecting the various taxes and fees that we have to deal with.

Background

VoIP providers are required to remit various taxes and fees for each active line to various federal, state, and local agencies. The scope of what we need to collect and the amounts varies depending on the service address. In some areas, we only need to contribute to the Federal USF and in others we may need to also collect taxes and fees for the local and county levels as well.

Right now, some states have made official determinations regarding how VoIP should be classified for tax purposes and some haven’t. This adds another level of complexity to things since different rules apply to different areas.

We work with a third-party firm that specializes in telecom taxation and regulatory compliance to advise us and make sure we’re in compliance with everything including changes. They also “rate” our service addresses to determine what is applicable and handle our filings/remittance.

Some providers choose a very conservative approach and handle things just as if they were a traditional telco. Some choose to ignore this completely. Others take a more aggressive, yet compliant approach (which is what we’re doing). Essentially, we collect/remit only what we have to. Anything that’s still being challenged or things in states where it’s a gray area will generally not be collected. This is kind of the lesser of two evils. It leaves a small amount of liability since some of the “gray area” items could come up later, but it takes care of everything already in place.

Current Method

Right now, we collect a flat $3 monthly “Recovery Fee” from all customers. For some customers, less than $3 in these remittances are required, but increasingly, we’re seeing a lot of situations where the actual total is far far greater than $3. In the past, the overall remittances per customer would average out for the most part so that we’re pretty close to $3 when looking at the big picture.
Unfortunately, these taxes and fees are on the rise and the areas requesting that we remit them are increasing drastically as various local governments are looking for ways to generate more tax revenue. Since these are increasing so rapidly, we’ve determined that it’s on our best interest to start itemizing them instead of continuing to “average” them into a flat fee for all customers.

Upcoming Changes

We will soon begin itemizing all taxes and fees based on service addresses and collecting these taxes and fees based on location.

There are some that we can’t really collect on a prepaid basis and this is why some providers bill them monthly even on prepaid plans. Personally, I think that defeats the purpose of prepayment and customers that prepay should not be billed again until their service renews. We’ve been working on determining a method to handle this. Basically, if we itemize things as a “recovery fee” that covers the taxes and fees (and list them), we can collect them for the year. If we are “collecting” the taxes and fees directly, we run into issues there with collecting prepayments. So we’ll be collecting a “Federal, State, and Local Tax Recovery Fee” and providing additional breakdowns in notes so you can see how we came up with that figure. Another popular provider is itemizing in this same way and it seems to be working well for them.

Essentially, customers will see a single additional fee which is itemized out based on their service address. The amounts will be based on the service address. Customers will get a breakdown of the items included in the total.

Current Customers

We will honor our agreement with existing customers. All customers who currently have service or order service prior to this being fully implemented will be able to maintain the $3 flat rate “bundled” fee.

Rollout

We’re working on integrating this into our frontend billing systems and expect to roll this out over the next few weeks. Again, all orders prior to this will be able to stick to the flat rate method. All orders after this goes live will have the taxes and fees passed through and itemized. Users will be able to check their service address prior to ordering for real-time figures.