Alert
Washington Gives Insight into Telecommunications Support Payments Taxability
In a recent Washington Excise Tax Advisory (ETA), Washington addressed the taxability of telecommunications support payments and miscellaneous fees received by telecommunications service providers.
This ETA is meant to provide a framework for understanding how these payments are taxed with regard to Washington’s indirect taxes, including business and occupation tax, retail sales tax, and 911 and 988 excise taxes.
This new approach to Washington’s telecommunications support payments taxability will have a significant impact on upcoming tax obligations. Use the following insights to help your organization prepare.
Service and Other Activities B&O Tax
Payments received by carriers are subject to the service and other activities business and occupation (B&O) tax when they aren’t directly tied to a sale of telecommunications services. These payments help defray business costs and ensure reasonable service rates in high-cost areas.
These support payments don’t constitute gross proceeds of sales as they aren’t tied to specific transactions but rather to business operations.
Applicable programs include:
- Washington Universal Communications Service Program (RCW 80.36.650)
- Federal High-Cost Loop (Federal Universal Service Fund)
Wholesaling B&O Tax
- Applicable Activities. Payments received from revenue pools for originating or terminating calls within the local loop.
- Example. Access fees administered by the National Exchange Carrier Association (NECA), where payments are made for local exchange carriers' services to interexchange carriers.
- Tax Application. These payments are considered wholesale transactions and are subject to the wholesaling B&O tax.
Retailing B&O Tax, Retail Sales Tax, and 911 and 988 Excise Taxes
- Applicable Situations. Direct support payments for credits or discounts provided to subscribers on their telephone bills.
- Example. A credit provided to a low-income subscriber, with the carrier later receiving compensation for it.
- Tax Application. Such payments are subject to retailing B&O tax, retail sales tax, and carriers must collect and remit 911 and 988 excise taxes.
Federal Lifeline Program
- Program Details. Provides reduced rates on mobile or home phone services to eligible consumers, with reimbursements from the Universal Service Administrative Company (USAC).
- Tax Application. Reimbursement payments are subject to retailing B&O tax and 911 and 988 excise taxes but aren’t subject to retail sales tax. However, carriers must collect retail sales tax on additional services sold directly to Lifeline subscribers.
Next Steps
Telecommunications service providers with a presence within Washington should proactively review their support payments and analyze the types of services that accompany them. It’s important to start filing the appropriate returns under the correct classification right away to avoid potential tax exposure in the future.
We’re Here to Help
To learn more about Washington’s ETA and how its changes to telecommunications support payments taxability can impact your organization, contact your Moss Adams professional.