Extras on Excise: When Tax Collection Calls, How Do Consumers Answer?

It is a truth universally acknowledged, that regardless of the service provider, one’s phone bill is always too high. However, in a case coming out of the District of Columbia, an investigative group claimed that phone companies were actually collecting fewer telecommunications emergency services assessments from their customers than required by law. Some of the fraudulent practices the group ascribed to the phone companies provide a good reason to take a look at how telecommunications charges are imposed.

In Phone Recovery Svcs., LLC v. Verizon Wash. DC, Inc, the research firm Phone Recovery Services (PRS) argued that the phone companies had simply not remitted the assessments, had undercharged customers, or had misleadingly billed higher-taxed services as services with lower tax rates. The trial court dismissed PRS’s False Claim Act (FCA) arguments; on appeal, the case was dismissed based on other grounds. This decision follows another similar FCA case PRS brought in Massachusetts, which the Supreme Judicial Court of Massachusetts threw out for lack of standing earlier this month. PRS’s efforts last year at the Court of Appeals of Minnesota were also unfruitful.

So what are telecommunications assessments like in D.C.? As mentioned above, rates vary based on the type of service. Local exchange carriers have to collect the following amounts from their customers:

  • Wireless local exchange services:
    • Exchange access lines - $0.76
    • Centrex lines - $0.62
    • Private branch exchange stations - $0.62
  • Wireless telephone exchange services - $0.76 for phone numbers with District billing addresses
  • Interconnected VoIP (voice over internet protocol) service - $0.76 per line, trunk, or path with access to 911 services

Additionally, District phone customers have to pay a prepaid wireless E911 surcharge that is 2 percent of the sales price.

In the D.C. case, PRS claimed that phone companies had provided VoIP services ($0.76 assessment) but classified them as services for private branch exchange stations ($0.62 assessment), so that “a company might save up to $0.14 per transaction.”

The District of Columbia Court of Appeals ruled that PRS had not sufficiently proven that companies were deliberately under-collecting taxes, instead of “simply interpreting applicable regulations differently or failing to establish adequate accounting procedures.” And based on the Tax Foundation’s research, compliance can be a tall order for companies. A November 2017 Tax Foundation report explains that for wireless phones alone, there are state/local taxes and fees, federal taxes and fees, and sales taxes to collect.

In sum, it’s always a good idea to check your phone bill each month.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: What is the telecommunications tax regime like in your state?

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