Communications Tax Compliance Is Complex – but Not as Complex as It Looks

Communications tax compliance is complex. More specifically, to reuse a line from Warren Buffet, communications tax looks complex, and it is complex, but it’s not as complex as it looks.

Communications tax compliance looks less complex when you break it down into the four major processes. In this post, we’ll look at an incredibly complex component of communications tax compliance – tax calculation.

Not to worry, although the tax calculations may be complex, implementing a tax calculation solution complex is fairly simple.

To begin, communications services will be taxed, to some extent, in almost every state. These taxes may include sales tax, communications services tax, gross receipts tax, business and occupation tax, and utility users tax. Also, each service you provide may have a different tax treatment in each state. To calculate the tax consequences of a transaction, you need to know the applicable tax jurisdictions for the transaction (nexus determination), the taxability of the item sold, the rates and tax rules that apply to the transaction and the quantity and dollar amount of the item sold.

For audit protection, you should maintain an audit trail of the calculation.

Communications tax calculation can be a difficult task. There are over 12,000 different tax authorities, each with potentially different tax rates and rules for any given communications service. In addition, with the potential for periodic tax changes, the task of tax calculation and tracking becomes so difficult that it needs automation to be performed and managed properly.

An automated tax calculation solution consists of four basic components:

  1. Data input/output function for communicating with the billing system
  2. A tax research database that contains all of the current taxability information rates and rules for the communications services you will be selling
  3. A calculation engine that applies the tax research data to determine the tax consequences of your transactions
  4. A reporting system that provides information for reporting tax liabilities to the proper authorities

At the heart of the tax calculation solution is tax data. Tax data originates with tax research which is compiled from the various tax authorities and then categorized. Without current, quality tax data, the system cannot properly determine tax consequences.

CCH® SureTax® Communications makes tax calculation easy. CCH SureTax Communications is the tax calculation solution designed specifically for the unique needs of the communications industry. CCH SureTax Communications combines communications tax research with communications tax rules to generate the tax calculations and reports that you need to maintain tax compliance.

Tax calculations are driven by tax research data from Wolters Kluwer, the source of the most complete, up-to-date research data available in the communications industry, with tax applicability data and rules covering the more than 12,000 jurisdictions in the U.S., its territories and Canada.

At Wolters Kluwer, we can help guide you through the maze of communications tax compliance. CCH SureTax Communications makes tax calculation easy and with our network of partners, we make the other steps of communications tax compliance easy as well.

To learn more about communications tax compliance, download our free guide, 4 Steps to Communications Tax Compliance.

 

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Sales Tax Experts

All stories by: Sales Tax Experts

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