Telecom Taxes, Fees, and Surcharges

October 7, 2016 Logan Bibby

As with most things, your telecommunication services — internet, TV, and telephone — are subject to taxes. Because of the utility regulations at every level of government, you can pay an additional 20-30% on top of your monthly costs. These taxes include excise taxes, sales/use taxes, regulatory fees, E911 fees, franchise fees, Universal Service Fund (USF) charges, and other pass-through charges.

Unlike most other companies, we estimate these telecom taxes, fees, and surcharges (“telecom taxes” for short) on our proposals to ensure our customers know what the maximum amount they’ll be paying.

Federal Excise Tax

  • Imposed by the IRS.
  • 3% tax on local telephone service.

The Federal Excise Tax was introduced in the late 1800s as a “luxury tax” imposed on households with phones on long-distance service. It was reintroduced in 1914 to help fund World War I, again in 1932 for national relief programs, and again in 1941 for World War II but amended to tax only local service. Congress made the tax permanent in 1990 under the Revenue Reconciliation Act.

Per the IRS Publication 510, the Excise Tax does not apply to installation charges, two-way radio, answering services, long distance service, internet service, teletype services, and private communication services (such as a business’s internal phone system).

Some nonprofit organizations are exempted from the tax: international organizations, the American Red Cross, hospitals, educational organizations, blood collector organizations, and governments. Those organizations must file a Certificate of Exemption from Federal Excise Tax on Communication Services, with exceptions. (As part of our implementation process, we will file this for you.)

Sometimes the Excise Tax is charged for some items it shouldn’t be. A refund claim should be submitted through the carrier for a refund.

Sales and Use Tax

  • Imposed by state and local governments.
  • Rate varies depending on the state, county, and municipality.
  • Taxable services vary but usually include telephone, teleconferencing, auxiliary voice features (call forwarding and call waiting), mobile phone, and right-to-use charges (setup and activation fees, recurring charges, access fees)
  • Cable TV and internet are generally exempt.

Sales tax is imposed at the point of sale on tangible goods. Use tax is imposed on storing, using, consuming, and sometimes distributing those goods or providing a taxable service.

Most government, nonprofit educational, and religious organizations are exempt from the taxes and other special exemptions may apply. Some states are beginning to pull back on the exemptions.

Federal Access Charge

  • Charged by the vendor.
  • Assessed only on telephone service.
  • Rate varies by vendor/carrier.

Introduced in 1984 to help reduce per-minute long distance rates and is fee charged by the carrier for providing access to its local network. The maximum allowable charge per line is set by the FCC, but carrier can charge less or nothing at all. Because states regulate access charges for intrastate calls, a state subscriber line charge may also be included.

May show on a bill under many names: End User Common Line Charge, Federal Subscriber Line Charge, FCC Authorized Line Charge, Interstate Access Charge, Federal Access Charge, 9ZR (the USOC code), FCC Access Charge, and others.

Universal Service Fund

  • Imposed by the FCC.
  • Assessed only on local and long-distance voice services.
  • Rate varies from month-to-month.

Initially, the Universal Service Fund (USF) was a charge assessed to long-distance carriers by the FCC in response to the Communications Act of 1934 calling for “rapid, efficient, nation-wide, world-wide wire and radio […] at reasonable charges.” Those charges subsidized service in rural and high-cost areas. The Telecommunications Act of 1996 later expanded the assessed fee, established the USF formally under the FCC, and expanded it to include rural healthcare, schools, and libraries. Today, the USF funds Connect America Fund, Lifeline, and E-rate.

Depending on if and how the carrier recovers the charge, this USF fee can vary from month to month. It is usually presented as a percentage of voice charges.

Regulatory Cost Recovery Fees

  • Charged by the vendor.
  • Rates varies by vendor/carrier.

Recovery cost recovery fees can be a single charge or multiple, but are assessed to recover some of the charges the government imposes on the carriers such as the Telecommunications Relay Service, FCC Assessment, Local Number Portability, and the North American Numbering Plan. The fee may also cover the costs of administering the FCC programs and compliance by the vendor.

911/E911 Tax

  • Imposed by local governments.
  • Rates vary by jurisdiction.

A 911/E911 tax is imposed by local governments to support the emergency equipment and call centers. Enhanced 911 (E911) allows the call centers to receive the address of the phone’s location set either through an online system or by GPS.

Other Surcharges and Fees

Depending on the jurisdiction, other charges may be assessed on a telecom bill. Rates, charge types, and body of government vary. For example, in Texas, a Poison Control Fee is assessed on voice service to support poison control centers, and, in New York City, a NY Metro Transit Authority Surcharge is assessed on voice service to support the city’s transit operations.