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 taxation -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 may be useful in knowledge the taxes placed on your bills.

1. Generally, the four types of taxes incorporate service fees and charges; franchise tax or surcharges; sales utilize 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 distinct taxes you will encounter on your bills.

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

Sales, Use or Special Taxes

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

Federal Excise Tax

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

Remember, taxes are not uniformly imposed on all services. For example, white-page directory selling is not taxed in most states, unless this statement merchandise 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 distinct services that are exempt from federal tax, refer to the Internal Revenue Service publication 510 entitled Communications Tax. This publication is very distinctive as to what taxes are federally imposed and which are exempt. Contact me directly if youd like your own copy.

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