2017 is shaping up to be a pivotal year for the wireless industry – although not for the reasons many carriers are accustomed to considering.

Advancements in infrastructure, Unified Communications (UC), 5G, and the Internet of Things (IoT) are among the technology advancements on everyone's radar. But at the base of this mountain of innovation lurks a less-discussed topic that could cause considerable complications in the coming months: communications taxation.

In the eyes of legislators and regulators, every new technology, data plan, and bundle – right down to the very last app – raises questions around equity in taxation. As the FCC and state lawmakers look for new ways to collect in a connected world, the pace at which requirements change is both frequent and furiously fast.

This can make it incredibly frustrating, if not impossible, for the fast-growing carrier to account for the latest tax laws when pricing new services, products, and bundles. It's all too easy to launch a new product without being aware that the company has suddenly become subject to a set of complicated communications taxes and ever-evolving regulatory fees.

Even when executives are made aware that a new product will be impacted by taxation, the solution is rarely straightforward or simple. In the complex world of communications taxation, there’s no guarantee that yesterday’s tax rules and rates will be tomorrow’s (or even today’s).

The question to ask is: What’s next?

Staying ahead of the curve

Topping the list of questions about the future of communications taxing and surcharging:

· What will the changing winds at the FCC mean for Universal Service Fund (USF) contributions – and for FCC compliance in general? Has the Connect America Fund reached its final iteration, or are additional reforms on the way?

· Will USF contribution requirements expand to include broadband and text messaging? Will the Title II broadband controversy take the program in a different direction?

· And, perhaps most vexing, will many IoT services and software continue to be exempted through the internet tax moratorium – or will some offerings be subject to communications taxes and USF contributions?

Staying ahead of this next wave of change is paramount. As any broadband CFO or tax director can attest, the looming answers to these questions and others like them hover like a cloud about to shower a storm of increased potential for miscalculations, overpayments, and underpayment – not to mention costly audits and penalties.

Lately, those clouds are impacting things at the state level, too. Numerous states – Connecticut, Colorado, Iowa, West Virginia, Ohio, and Michigan, to name a few – are currently considering consumption tax increases that will likely apply to communications services and products.

And the moment a new requirement goes into effect, there’s the complicated matter of communications tax accuracy for new and evolving technologies.

For example, take the multidirectional nature of Unified Communications.

Something as simple as tax on a text message can become very complicated, very quickly. Even the provider with a reliable system for determining communications taxes and USF obligations on traditional services like voice calling or SMS may need an entirely different process for deciding what fees and taxes will apply when a message is sent via Internet Protocols or translated to voicemail. Are these communications service or information services? The tax differences can be dramatic.

Bottom line: When it comes to regulation of communications services, the one certainty is that there will never be consistency, at least not for the foreseeable future. With current collections still relying heavily on near-extinct long distance revenue, we can anticipate many more changes as regulators and lawmakers look for new ways to expand resource bases.

The problem is that the tech revolution has created so many opportunities that slowing down to examine the potential impacts of upcoming tax law changes can seem incredibly burdensome. But figuring out what a company's exposure might be from a tax perspective before these changes go into effect could be the difference between a product launch that's profitable and one that ushers in an otherwise avoidable era of expensive audit liabilities, penalties, and fees.

With so much focus on innovation and infrastructure, we all need the occasional reminder that keeping ever-evolving compliance issues top of mind is just as critical to productivity and profitability.


Toby Bargar is an attorney and senior tax consultant at Avalara for Communications, which provides tax automation software and regulatory reporting services that help providers stay ahead of ever-changing communications tax law.