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These taxes may be imposed by a municipality, county, school district, transportation district, state or other taxing body. The "state and local taxes" section of your bill may be a combination of such items. Sales, use and special taxes generally apply to local service charges, additional calls or message unit charges, installation charges, and intrastate toll charges. (Most states also tax interstate toll charges.) And again, these taxes are most often a percent of items to which they apply. That base may include franchise taxes, surcharges or other service fees. In other words, you are taxed on taxes!
Federal Excise Tax
This tax is imposed by Congress on non-exempt items. It generally applies to regulated services, except private lines, mileage, centrex-related enhancements, service and installation charges, and some other services. The base on which tax is calculated may include franchise taxes, surcharges, and gross receipts taxes. Originally a Spanish-American War "luxury" tax, rate has varied between 1% and 10% over years, but has been held constant at 3% since 1983.
Remember, taxes are not uniformly imposed on all services. For example, white-page directory advertising is not taxed in most states, unless this statement item includes other items. (Arkansas and Oklahoma are exceptions, however.)
Who is Exempt?
Charities, churches, schoools, nonprofit educational and hospital operations, certain other entities that receive government funding, foreign counselor operations, and others, may be exempt from state and/or federal taxes. For example, common carriers, newspapers and broadcast companies may be exempt from federal tax on some services.
To understand specific services that are exempt from federal tax, refer to Internal Revenue Service publication 510 entitled Communications Tax. This publication is very specific as to what taxes are federally imposed and which are exempt. Contact me directly if you'd like your own copy.
As you can see, taxes can be a complicated subject as it applies to your telecom bills. But understanding them can be a major step in reducing your costs when doing a cost-reduction study.
Karen Thatcher is President of TelCon Associates, a 30 year old telecom consulting and management firm. TelCon Associates helps companies gain control and reduce telecom/IT spending through a guaranteed cost-reduction consulting process. CLICK HERE to learn more.