All connectivity service providers in the United States are required to comply with federal, state, and local rules. These rules include collecting and filing regulatory fees and taxes.
Please note this is not intended to be tax advice. For further insight, we recommend consulting with your tax expert.
Taxes are newly implemented, starting on April 4, 2024.
What are the different types of taxes?
In the telecommunications industry, taxes and fees can be distributed by various jurisdictions. Here's an overview of each type of tax:
Please note this is not an exhaustive list as taxes vary based on the end user's billing address.
Federal Taxes and Fees:
Federal Excise Tax (FET): This is a tax on the services offered by telecom companies, currently set at a standard rate.
Universal Service Fund (USF): This fee supports the provision of telecommunications services to rural areas, low-income consumers, and schools and libraries. The fee percentage changes quarterly and is applied to all interstate and international end-user telecommunications revenues.
Regulatory Fees: These are fees charged by the Federal Communications Commission (FCC) for the regulatory costs associated with telecommunications services.
State Taxes:
State Sales Tax: Many states impose a sales tax on the sale of telecommunications services. The rate can vary widely by state.
State Universal Service Fund (SUSF): Similar to the federal USF, some states have their own funds to support telecommunications services in underserved areas.
Other State-Specific Fees and Taxes: These can include 911 service fees, telecommunications relay service fees, and other state-specific regulatory fees.
Local and Other Taxes and Fees:
Local Sales Taxes and Fees: Some local governments impose additional taxes or fees on telecommunications services.
Gross Receipts Taxes: Some jurisdictions tax the total revenues of telecom companies rather than just sales, which can apply at the state or local level.
Utility Users Tax (UUT): This is a tax on the consumption of utility services, including telecommunications, within certain municipalities.
Each of these taxes and fees can vary significantly not just between states, but also between local jurisdictions within the same state. Taxes and fees are very specific to each location, and are based on the billing address of the user.
What's the difference between the Recovery Fee and Taxes?
Telecom taxes and fees encompass a range of federal, state, and municipal taxes and fees that telecom companies are responsible for collecting, filing, and remitting.
The Recovery Fee is in place to cover expenses related to meeting telecom regulations (where applicable) to remain in compliance with federal, state, and local telecommunication expenses. These expenses are those not considered to be taxes.
The Recovery Fee is collected in addition to telecom taxes.
Good to know
Here are some examples of states known for imposing relatively high taxes and fees on telecommunications services:
Note these compliance fees are updated periodically. Please consult local jurisdictions for more information.
New York:
State Sales Tax on Telecommunications: New York charges a state sales tax on telecommunication services which, when combined with local taxes, can result in a high overall tax rate.
Metropolitan Commuter Transportation District (MCTD) surcharge: This surcharge applies to certain services provided within the metropolitan commuter transportation district, including telecommunication services.
Florida:
Communications Services Tax (CST): Florida has a high CST that applies to all telecommunications services, including cable, satellite, and VoIP services. This tax is in addition to the regular state sales tax.
Illinois:
Telecommunications Excise Tax: Illinois imposes a state excise tax on telecommunications services.
Chicago Telecommunications Tax: In addition to state taxes, Chicago imposes its own telecommunications tax, which is higher than many other locales.
Washington:
State Business and Occupation (B&O) Tax: This tax is levied on the gross receipts of businesses operating in Washington, including telecommunications companies.
State Sales Tax and Local Utility Taxes: Washington also imposes a sales tax and various local utility taxes on telecommunications services.
Nebraska:
Telecommunications Occupation Tax: Nebraska has one of the highest occupation tax rates applied to the revenue of telecommunications businesses.
Universal Service Fund: The state also levies a charge to support its Universal Service Fund, which is relatively high compared to other states.
California:
State 911 surcharge applies to all lines unless they are otherwise tax exempt. You can read more information on this here. In the user's invoice, this is called "State E911 Fee".
San Francisco local tax is typically referred to as "Access Line Tax". This applies to mobile telephone communications services for both non-residential and residential users. You can read more information on this here. In the user's invoice, this is called "Local E911 Fee".
These taxes contribute to the overall cost of telecommunications services in these states and can significantly impact the pricing strategies of telecom companies operating within these jurisdictions.
How are taxes collected?
All federal, state, and local taxes and fees will be listed and collected on each payment made within Connect, for both new and renewing subscriptions. We partner with experts to break down the anticipated usage of a plan to help minimize tax costs to subscribers while remaining compliant.
Taxes and the Recovery Fee are completely handled within Gigs. We apply the applicable taxes and fees in Gigs Connect and to users' invoices. These are additional amounts held by Gigs to cover costs mentioned in this article, and will not affect the payout you receive.
Exemptions
What are tax exemptions?
Tax exemptions in the telecom industry are benefits provided by governments that waive certain taxes or fees on telecommunications services or infrastructure for end users. These exemptions can include sales tax, property tax, income tax, customs duty, and regulatory fees.
We at Gigs support exemptions under the condition of being notified by customers before the subscription has been purchased. See below the process on how to request it.
How to request a tax exemption
Prior to purchasing a phone plan, customers must inform Gigs of their intent to request a tax exemption. Currently, Gigs can only apply tax exemptions for users who have not yet purchased a phone plan. We are actively working on resolving this limitation and will notify customers once it's addressed.
Customers are responsible for verifying the documentation demonstrating a user's eligibility for tax exemptions.
Customers are required to email the Gigs Support team ([email protected]) team to request the exemption. They should attach the exemption certificate and provide relevant user details.
Gigs will respond within 24-48 hours to confirm the validity of the exemption and apply it to the user's account.
Once the exemption has been applied, the user can purchase the subscription.
Tax exemptions can only be applied for users who have not yet purchased a phone plan.
Important to note
Since we are unable to apply a tax exemption to an already existing plan, it's important that the user and the Gigs customer requests the exemption before the plan has been purchased.
If an exemption eligible user purchases a phone plan before an exemption has been requested and applied, there's currently no way for us to correct this for their current plan.
Presently, there's no immediate fix for this scenario, but we are working in building a solution. We'll communicate these updates once a solution is available.