VOIP Taxation (was Re: [Asterisk-biz] Voip startup regulations question)

[alex at pilosoft.com]

On Tue, 30 Aug 2005, Cirelle Enterprises wrote:

> you will only need a business license in the state you are physically
> doing business in.  You do not need to have one in any state you sell to
> provided you do not have a physical presence.  This goes for sales tax
> as well.
> 
> this is the current status and may change if the feds let the governors
> have their way.
Keep in mind, regulation of taxation of any voip service is a *serious*
clusterfuck right now. Determining what you should pay to your vendor and 
what you should bill your customer is a very complicated issue.

Each state has different laws on regulation of telecommunications services
(new york state has 7 different taxes that may or may not apply). I'm not 
even getting into this - its not relevant to most people here and it would 
take 3 pages to explain just for new york.

On federal level, you have 3% excise tax on "tolls that vary with distance
and duration", that is somewhat unclear whether it applies for long
distance calls that do not vary with distance (i.e. fixed per-minute
rate). 5 appeals courts say no, IRS says 'yes', it hinges on the meaning
of word 'and'. It is unclear what would courts say about "broken-out"
rates, which vary depending on NPA/NXX (so they *sort of* vary with
distance, but indirectly).

Then you have USF (applies on interstate tolls) that you should bill to
your customers and remit to FCC (or be charged that same USF by your
carrier).  USF does not apply to carriers providing international calls,
but if you do both interstate and int'l, you have to pay USF based on
total revenues. 

Thus, if you have significant international volume (either originated
internationally or terminating internationally) and want better regulatory
treatment, you will need to have two corporate entities which should bill 
the end customer[s] separately.

You may find that (depending on your mix of local/out-of-state/
international origination and termination) you will need up to 5 corporate
entities in order to minimize your tax burden. Its insane.


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Alex Pilosov    | DSL, Colocation, Hosting Services
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