VoIP Industry Newsletter: Navigating VoIP Regulatory and Taxation Requirements

Sep 2011

A Guide to Managing Regulatory and Taxation Requirements for an Enterprise and Retail VoIP Service Provider

In order to fully comply with the law, there are numerous regulations, taxes and fees that every Enterprise or Retail VoIP Service Provider is required to file, report or disburse—regardless of city, state, province or country of presence. It takes a regulatory attorney, or other expert in the field, to navigate the intricacies and, more important, limit your liability. When it comes to regulatory and tax issues, there are not many shortcuts. Hiring good counsel is the best and most prudent investment. With that disclaimer, I am hoping to provide a framework for understanding the questions you should be prepared to answer as you navigate regulatory bureaucracy. In addition, I have linked to some online resources to help you get a handle on this arduous task.

One very important question to determine upfront is where you will offer services. The more jurisdictions in which you offer services (with normal increments being country, state or province), the greater the number of agencies that will require certifications, taxes and fees. And as you may have guessed, more agencies means more expense incurred meeting those requirements. For an introductory launch or an abbreviated marketing campaign, I always recommend choosing a limited geographic area to keep regulatory costs down.

Once you know where you will operate, there are a number of good questions to steer your investigation, registration and compliance with regulatory bodies and those allowed to collect taxes and fees. Here are several considerations that can streamline the process:

Regulations

1. Start with the national regulating body for telecommunications—in the US it is the FCC, OfCom in the UK, ARCEP in France, etc. A thorough list with website links is on Wikipedia and another on Cellular-news.com. There is excellent info on the ITU site discussing national regulators, as well.
2. Determine the one or more licenses you will need upfront. For example, in the US, if you intend to sell international calls, you need a Section 214 certificate in addition to other licenses (iVoIP, etc.). Once you have the list of what you need, you can generally find online resources with guidelines, samples, etc.
3. Check with the national regulator about sub-regulators such as state public utility commissions, provincial governments, local jurisdictions, etc. Generally, looking at invoices from a few of the largest operators in the jurisdiction(s) you will serve is helpful. Any regulatory body that is sub-national will usually appear as a tax or fee on the invoice.

Taxes and Fees

1. Ask for advice from any and all people you know who have dealt with tax calculations in your jurisdictions. The first thing to determine is if it is possible to calculate taxation information without proprietary data from a specialist company. In the US, you need CCH, BillSoft or another because of tax rate and fee complexity and variability.
2. How you present your Enterprise or Retail VoIP service can affect how you have to calculate taxes. For instance, some operators bundle minutes of usage with features and functions – these are taxed differently. It can be worth a few hours of consultation with an attorney simply to frame your offering correctly.
3. The classification of communications services has become very complex. Spend some time researching or speaking with an expert on how, operationally, the service works to determine how it should be classified. Like the question above, a little bit of forethought into exactly how you operate your service can change tax and fee requirements. In the Voice from the Industry section in this Newsletter, Jonathan Marashlian discusses how SIP service classification has added another layer of debate about taxation based on operational specifications.
4. Determine if you will need assistance in remission of taxes and fees to the correct authorities. Wherever this is complex enough to require assistance, there are companies that will process and pay on your behalf for a fee.

If I have one goal in writing this article, it is to underscore how challenging it can be to be in full compliance with all regulatory bodies, tax calculations, fee calculations and correct remission of relevant funds as a VoIP Enterprise or VoIP Retail service provider. Like anything, there are more efficient ways to clear these hurdles. Hopefully, thinking about the questions and considerations above will assist your thinking on the matter. If you have a rule of thumb or a suggestion that you want to share please feel free to submit your comment to me at micah@voiplogic.com. Micah
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