If you are not from the United States, then you are very likely used to simpler forms of taxation, such as VAT (Value Added Tax), which is a common practice in most countries. VAT keeps things pretty straightforward, thereby requiring less effort to achieve compliance. VAT is sometimes spiced up with different tax percentages, depending on the seller/buyer type or product category, but this complexity is minimal compared to some tax calculations required in the United States.
Taxes in the U.S.
The United States of America has separate federal, state and local governments, each representing a different level of imposed taxes. This setup makes tax calculation quite difficult, since tax amounts differ from state to state. To further complicate matters, there are so many different exemptions – business types, sales types, product categories, client categories – which all have to be taken into account by a business in order to achieve tax compliance. Some companies have recognized these complications and decided to offer tax calculation as a service, relieving other companies of doing all the complex calculations on their own. When companies provide tax calculation as a service, we like to refer to them simply as tax providers. One such company is Avalara, which Tridens Monetization is integrated with.
If you are a company which offers different services or products to your clients, it is wise to know how those products and services are categorized regarding tax compliance. Sales tax calculations in the U.S. can be complex, but the calculation of communications taxes can be nothing short of a nightmare.
Communications taxes, once referred to as telecommunications taxes, used to mainly focused on taxing phone calls. Today this is no longer the case, as we observe an enormous increase in the development of technologies, providing us with smart-home automation, voice and video communications, smart-car systems and other similar solutions. What these solutions have in common are ongoing data transfers which, in category, fall under communications services.
“Communications services include telecommunications, video, direct-to-home satellite, and related services. This definition includes voice, data, audio, video, or any other information or signals transmitted by any medium.” (Florida Dept. of Revenue, GT-800011 R. 04/19, Page 1. )
Calculating Communications Taxes
Determining national, state, and local level jurisdictions can be a very difficult task, especially when it comes to determining special tax districts. Tax providers typically use geo-location to ensure accuracy. There are countless laws to be tracked in order to ensure compliance. Some fees and surcharges resulting from taxation are additionally taxed, and accidentally omitting such taxes will lead to non-compliance. To add to the ongoing complexity of communications tax calculation, the rates also keep changing regularly.
Tridens Monetization Platform – The Tax Gateway
Many communications companies decide to avoid any risk of non-compliance by outsourcing their tax calculations to specialized companies. Since Tridens Monetization is a cloud billing and rating engine intended for rating communications as well, we decided to develop a component allowing Tridens Monetarisierung clients to configure and apply taxes via integration with their chosen tax provider. The Tridens Tax Gateway component is intended to communicate with multiple tax providers and relay tax calculation requests and responses. Read more in the upcoming part of this article.