The Complex Landscape of VoIP Taxes and Regulatory Fees; Click to Call Companies Beware!
As Voice-over-IP (VoIP) telephony grows more and more popular it encounters closer regulation from both the federal and state bodies. The landscape is changing rapidly and VoIP providers must be increasingly vigilant to comply with regulatory changes and avoid legal action.
A brief background of VoIP taxation
The call for taxation on VoIP providers came about in 1995 as a result of pressure from the America’s Carriers Telecommunication Association (ACTA), who felt it unfair that this new breed of IP telephony avoided the regulatory measures that traditional carriers faced. The regulatory and taxation measures proposed for VoIP providers faced global opposition due to the concern that it would stifle technological innovation in a promising new industry.
Congress and the Federal Communications Commission (FCC) stayed relatively quiet on the matter for about a decade to allow VoIP technology to develop in an environment that did not curb innovation, or entry into the marketplace. The FCC, the regulatory body on communications law, took its first formal action on VoIP by blocking the Minnesota Public Utilities Commission’s efforts to regulate Vonage, effectively setting a precedent that VoIP providers would be shielded from regulation. However, with a change in leadership at the FCC in 2004, the tides began to change regarding VoIP regulation and taxation. Essentially, any VoIP service that brought communication (origination or termination) to the public switched telephone network (PSTN) would be regulated and taxed.
VoIP regulation is increasingly challenging to navigate
Complying with federal regulation and state taxation as a VoIP provider is increasingly challenging in the current marketplace. Compared to traditional analog telephony, VoIP voice packets can pass through multiple “providers” before being routed to the final destination. There are simply more companies that come into contact with the call during VoIP call transmission, as well as many different routing technologies that make regulation of each encounter difficult.
The complex supply chain of VoIP providers has made federal regulation and state taxation of VoIP service providers very complicated. The FCC enforces supply chain regulation of VoIP providers by imposing vicarious liability on wholesalers that do not verify their own customer’s status. Failing to comply can result in unnecessary taxation on all revenue or even legal action.
State taxation on VoIP is ever-changing and complicated
State taxation on VoIP is even less defined and more confusing than federal regulation. States make their own laws based on their individual definitions of what a communications service is. Unlike the federal definition, state and local bodies define taxable communications to include any transmission of voice and data regardless of media or method. State and local governments continue to become more vigilant of taxation measures on VoIP providers as the businesses (and their revenue streams) flourish.
Billing and collection of regulatory fees and state-level taxes
Navigating and complying with the regulation of 51 different jurisdictions, with little to no uniformity in their laws, is extremely difficult. Taxes are owed by the retail consumer, while regulatory fees are owed by the carrier. However, the collection of these taxes and fees can appear similar when “passed through” to the consumer by the carrier. At the state level, supply chain laws require Tier One providers to ensure their resellers or customers are paying taxes, or pay the taxes themselves. Carriers are allowed to pass the regulatory fees to the consumers as well as collect taxes and, as part of the supply chain enforcement, the carriers are actually required to collect for state taxes instead of that responsibility resting on the consumer.
As a result, many platform providers must take the business model and termination methods dictated by the carriers in order to comply with the regulations and taxation built in. A VoIP provider must either comply with the pass-through collection of taxes by the carrier, which sometimes means being taxed double in certain jurisdictions, or register in every state and risk being taxed exponentially on all revenue as a supplier if correct taxation measures are not met.
Software providers must be wary of regulation and taxation laws
Fore Street Telco partners with VoIP service providers and click to call SaaS companies such as i-Comm Connect to ensure compliance with regulatory and taxation measures for both VoIP and telecom. Fore Street Telco is more flexible than large carriers to fit the needs of any size business without sacrificing enterprise-grade security measures and redundancy.
Registered with FCC and in all states, Fore Street Telco is a CLEC that is able to terminate calls on the PSTN and provide SIP Trunking to their clients. Partners are able to utilize Fore Street Telco’s integrated billing system to collect taxes on each call from customers on a state to state basis. Partnering with Fore Street Telco ensures that software companies and VoIP service providers are able to focus on the core competencies of their business without worrying about compliance issues.
More and more companies have come to market with instant calling solutions, yet many fail to realize that as a VoIP software provider they are in the telco business and subject to a very complicated world of regulation and taxation. WebRTC is on the rise and there are various emerging click to call solutions utilizing this innovative technology. However, with more and more traffic, the FCC and state authorities are sure to increasingly scrutinize VoIP based telecommunications with an eye on the taxation opportunities associated with this thriving revenue stream.
Fore Street Telco
Fore Street Telco offers SIP trunking, integrated taxation and billing services for VoIP based products, and provides telecom consulting services. Our dedicated servers support SIP to SIP and SIP to PSTN delivery services that are scalable for all organizations.
Edited by Mandi Nowitz