Voice over Internet Protocol (VoIP) is officially everywhere. From conference rooms to living room couches, it’s become a communication method of choice — both at home and at work. Tens of millions of users rely on an array of VoIP-powered services, from audio conferencing to video chats to digital calls, to meet with remote employees, communicate with clients, provide customer support or simply catch up with friends and family.
At its core, VoIP is relatively easy to define. A system for converting voice analogue signals to a digital format that can travel over the internet, it makes it possible to conduct voice calls using a work or home internet connection. Some of its services allow users to call others using the same service; others enable calls to virtually any long distance, wireless, or international phone number. While many of these calls are made from computers, they can also be made from special VoIP phones, traditional phones with adapters, and wireless phones. But while the method for delivery may differ, the overarching service is the same.
From a tax perspective, the definition of Voice over Internet Protocol gets murky.
This is because the type of communications tax (and regulatory fees) that apply can vary greatly depending on the ways the service is provided. Namely, there are two key elements that impact many federal and state tax liabilities.
- Static Versus Nomadic VoIP
With static VoIP, calls are made from a fixed address, such as a private communications network, that makes it feasible to identify the origination point of VoIP calls from that service location. Static Voice over Internet Protocol often uses physical infrastructure installed at the premise on a semi-permanent basis.
With nomadic VoIP, subscribers can make calls from any broadband internet connection—meaning a call may originate from or terminate at, any location. From a tax and regulatory perspective, this can make it impractical, if not impossible, to identify call locations and separate out the intrastate and interstate portions of VoIP services for compliance with state and federal rules and regulations.
- Interconnected vs Non-interconnected VoIP
Non-interconnected Voice over Internet Protocol; sometimes referred to as “Peer-to-Peer” VoIP, is a service that allows the user to contact other users operating the same VoIP software. However, the service does not allow the customer to make and receive calls from the public switched telephone network (landline phones and cell phones).
Interconnected VoIP, on the other hand, generally allows users to make and receive calls from a regular telephone network.
Regardless of what type of VoIP service a company provides, one thing is certain:
To remain in good standing, providers must rely on continual research to ensure the latest rates and requirements are reflected in every filing and form. A lack of knowledge is never a sound defence for non-compliance, no matter how new you are to the communications tax industry or how complicated communications tax law may be.
The secret to ensuring communications tax accuracy lies in automation and expertise. With a system that’s continually updated, CSPs never need to worry about complications in Voice over Internet Protocol tax calculations. And when it comes time to file, managed services experts are meticulous about managing tax filings.
Get this Whitepaper which serves to help VoIP providers to understand what’s at stake from a communications tax perspective and plan it accordingly.