This issue contains the second part of a two-part article on regulated and non-regulated charges and taxes placed on them. Unfortunately the subject of taxes as it applies to your telecom bills is broad enough to warrant a lengthy discussion.

In Part I, we covered the regulated and non-regulated charges that will appear on your bills. This issue will describe the different kinds of taxes that you will find, what they are paid for and who is exempt from them.

Taxes and tax-like charges may add as much as 25%, and more, to local telephone charges in some jurisdictions. This is an area to which no rules are universally applicable, so all generalities have exceptions. That being said, there are three "rules-of-thumb" which could be useful in understanding the taxes placed on your bills.

1. Generally, the four types of taxes add accomadation fees and charges; franchise taxation or surcharges; sales make use of or special taxes; and federal excise tax.

2. Taxes are not uniformly imposed on all services.

3. Some categories of users are exempt from some taxes.
Lets take a closer look at clear-cut taxes you will encounter on your bills.

Specific Service Fees and Charges
These charges can be imposed to support 911 services, operation of the Public Utility Commission (California), provision of special equipment for handicapped persons (California), Universal Service Funds, poison control centers (Texas), etc. The Presubscribed Interexchange Carrier Charge (PICC) would also fall into this category. Such charges may be calculated on a per-line or percentage basis. These fees apply universally and there are no exceptions.

Franchise Taxes or Surcharges

Usually local items, these charges may and might be imposed by the county or state governments. Most fairly often these are calculated as a percent of the items that apply, (various local service charges, additional calls or message unit charges, and installation charges), but they could be calculated on some other basis. This taxation is called a variety of names, including franchise fee, city tax, municipal charge, surcharge, additional charge (AC), gross receipts tax, etc. As usual, this varies from state to state.

Sales, Use or Special Taxes

These taxes may be imposed by a municipality, county, school district, transportation district, state or other taxing body. The "state and local taxes" section of your bill can be a combination of such items. Sales, use and special taxes generally apply to local accomadation charges, additional calls or message unit charges, installation charges, and intrastate toll charges. (Most states also taxation interstate toll charges.) And again, these taxes are most commonly a percent of the items to which they apply. That base may add franchise taxes, surcharges or other accomadation fees. In other words, you are taxed on taxes!

Federal Excise Tax

This tax is imposed by Congress on non-exempt items. It fairly often applies to regulated services, except private lines, mileage, centrex-related enhancements, service and installation charges, and some other services. The base on which the taxation is calculated may include franchise taxes, surcharges, and gross receipts taxes. Originally a Spanish-American War "luxury" taxation , the rate has varied between 1% and 10% over the months, but has been held constant at 3% since 1983.

Remember, taxes are not uniformly imposed on all services. For example, white-page directory marketing is not taxed in most states, unless this statement product includes other items. (Arkansas and Oklahoma are exceptions, however.)

Who is Exempt?

Charities, churches, schoools, nonprofit educational and hospital operations, certain other entities that receive government funding, foreign counselor operations, and others, could be exempt from state and/or federal taxes. For example, common carriers, newspapers and broadcast companies could be exempt from federal taxation on some services.

To understand the targeted services that are exempt from federal taxation , refer to the Internal Revenue Service publication 510 entitled Communications Tax. This publication is very specific as to what taxes are federally imposed and which are exempt. Contact me directly if youd like your own copy.

As you might see, taxes could be a complicated subject as it applies to your telecom bills. But information them may be a major step in reducing your costs when doing a cost-reduction study.