Communications 101 – Some Basics and Various Tax Types

Where it all began…• Monopoly Roots• Luxury History• Regulated Rate of

Return• Break-up in 1984 –

really only 26 years…all this change

• Cable & DBS almost exact same story

Everybody in all types of business

Voice &Entertainment &

Data ServiceTelecom - just voice

CableISP

Entertainment CosWeb-based Content

Differing Taxation

What you are and how you sell it…

Issue has become - who is providing the services, not what the service is?

What’s the big deal?

• One of most heavily taxed services in US

• Hundreds of tax types, hundreds of tax bases

• Fed, State & Local, Fed + State Reg, lifeline, social treasury…

• Rate differential over 8% more vs. standard TPP*

• Issues:– Situsing (Goldberg)– Resale– Bundling– Ever-changing technology– What is communications?

* Per latest COST Study

What is Communications?

• Texas– generally defined as “the

electronic or electrical transmission, conveyance, routing, or reception of sounds, signals, data, or information utilizing wires, cable, radio waves, microwaves, satellites, fiber optics, or any other method now in existence or that may be devised, including but not limited to long-distance telephone service.”

• Maryland– “Taxable services” include (1)

cellular telephone or other mobile telecommunications service; (2) "900," "976," "915," and other "900"- type telecommunications service; (3) custom calling service provided in connection with basic telephone service; (4) telephone answering services; (5) pay per view television service; and (6) a prepaid telephone calling arrangement.

M2M/Location-based servicesQualcomm Inc. v. Commissioner,

Tenn. Ct. App. (September 26, 2007)

TN Court of Appeals affirmed - “true object” of certain tracking services was transmitting information regarding the location and status of vehicles, not version of taxable telecommunication services.

– service did not replace a truck driver’s personal cell phone…rarely used to carry on a conversation between the driver and the client’s fleet management center.

– while the system contained the ability to transmit “free form” text messages…not the principal aim of its purchasers…did little more than allow information concerning a vehicle’s status to be combined with information on its location.

Qualcomm Inc. v. Dep't of Revenue, Wash. Ct. App. (August 25, 2009)

WA Court of Appeals held that system, including the basic automatic position polls, fell within the definition of a network telephone system.

– the main issue is whether Qualcomm provides the medium over which the data are communicated and not whether it provides new information to its customers.

– the network management center converts raw data sent from the trucking companies' mobile communication terminals via satellites into a usable format for the companies without providing significant new information.

Tightrope

Audit Liability

Customer Class Action Lawsuits

Competitors/New Entrants

Technology

Communications Excise/Sales

Taxes

Taxes/Fees/Surcharges Imposed on Communications Services

Gross Receipts Taxes User Taxes

License FeesIndustry Specific Fees

Taxes/Fees/Surcharges Imposed on Communications Services

911 Fees