Excise taxes are one of the most important tax receipts to the federal government since they tend to be levied on specific goods and services. One of the areas where excise taxes tend to apply is in telephone services. And so, getting an understanding of these taxes and the various filing guidelines becomes crucial for the businesses and individuals utilizing telecommunications services. This paper will outline a comprehensive overview of excise taxes on telephone services: basic information as to what these are, who might be liable to pay them, and how to file them correctly.
What are Excise Taxes on Telephone Services?
Excise taxes on telephone services actually target charges relevant to the local and long-distance telephone services including cellular and other forms of communication. Generally, these are taxes collected at a percentage of the revenues of such services. The federal excise tax on telephone services originated in 1898 to pay for the Spanish-American War. Although the rationale of the creation of this tax may have changed, it was not scrapped.
As of now, the federal excise tax rate of telephone services is 3% on the amount paid for services. Besides federal tax, almost all the states place their individual excise taxes on telecommunication, which again depends on the state tax policies.
Who Pays Excise Taxes?
This tax is generally the responsibility of the telecommunications services providers to pay and, consequently, is passed on to the consumers. You may then see this on your next bill as included in the long list of charges. Yet, what most people do not know is that businesses that provide telephone services have to pay these taxes and file and remit them to the federal as well as state governments.
It’s essential for individuals and businesses, who avail telecommunication services, to be informed about the levies. If you are a provider of telephone services, then it is imperative that you stay up-to-date regarding the taxes imposed upon the provided services.
Find out your tax liability. Examine your telephone services revenues for the tax period to ensure that you have correct records of all charges-all local, long distance, and other services charged to your customers.
Use the Right Form
The businesses are required to file Form 720, which is the Quarterly Federal Excise Tax Return, on federal excise taxes levied on telephone services. This is a return designed specially to report different types of excise taxes on items such as communication services. Here’s a shortened format on how this form should be filled:
- Part I: Report the gross amount of telephone services billed to customers. Make sure you account for all income applicable, since that is what will be used as your basis to calculate the tax.
- Part II: Calculate total excise tax due by multiplying 3% to the net total service revenue reported in Part I. Be careful so there won’t be any mismatch on the computation.
- Part III: This part is used for reporting any prior overpayments or credits that may lower your current year tax liability.
Payment of Taxes
Pay your excise tax. It could be made through a process called EFT or you could mail a check or money order with your form. Make sure to file the return and avoid penalties and interest for late payments. For instance, your deadline for filing Form 720 would generally be about :
In case of commercial enterprises, returns must be filed on the last day of the month succeeding the end of each quarter: April 30, July 31, October 31, and January 31.
State and Local Taxes
In addition to federal taxes, you should search for state and local excise tax applied on your telecommunication services. States have different laws about the taxation of telecommunication services. Filing will differ so ensure you are cognizant of your state’s requirements and follow through along.
Record Keeping is the Key
You should keep all the transactions and filings related to excise taxes from telephone services after the tax filing. You must retain copies of your Form 720, including supporting documents, for at least three years. This will ensure easy reference if there is an audit by the IRS or your state tax authority.
Telephone services must be claimed for excise taxes by any telecommunication business. For proper exercise of this obligation and avoidance of penalties, you should know the tax rates, the filing processes involved, and all other responsibilities. This process enables you to manage the complexities in the process of excise tax filing assertively and duly, and your business moves forward flawlessly with tax obligations well clarified. Tax laws and regulations can change so often, so staying updated regarding any activities of the IRS and changes in the tax authority of the state is always going to help to ensure that one files accurately and timely.