On November 17, 2017, the Washington Department of Revenue released excise tax advisory (ETA) 3205-2017, which clarifies the proper B&O tax classifications of telecommunication support payments and fees service providers receive.
The following is a breakdown of the different tax classifications and the circumstances that apply to each, according to the new guidance.
Service and Other Activities B&O Tax
Often, payments that aren’t directly tied to selling telecommunications services are subject to the service and other activities business and occupation (B&O) tax classification.
There are two kinds of payments included in this B&O tax category:
- State Universal Service Fund (State USF) payments—which are similar to Federal USF payments, but are administered by the state.
- High cost loop (HCL) payments—which are part of Federal USF payments.
Both of the above payments cover part of a service provider’s cost, should they provide assistance to high-cost, remote, or rural areas.
The payments are subject to the service and other activities B&O tax classification because the service provider doesn’t receive them as direct payment for the telecommunications services they provide.
Wholesaling B&O Tax
This tax applies to payments for originating or terminating calls within the local loop—often referred to as the last mile. Local service providers may receive these types of payments from other carriers or through a revenue pooling system.
Access fee payments are subject to Washington wholesaling B&O tax because the service fees are directly tied to selling telecommunication services to other service providers who resell the services to the consumer.
Service providers will need to collect reseller permits from resellers at the time of sale.
Retailing B&O and Retail Sales Tax
Two different kinds of payments are subject to the retailing B&O and retail sales tax:
- Payments that support credits or discounts for the consumer.
- Payments for providing services to specific low-income customers, such as those who partake in the Federal Lifeline Program. The payments apply credits or discounts to the consumers’ bills.
These direct support payments are subject to the Washington B&O tax under the retailing classification. This is because they’re directly tied to selling telecommunication services provided to a consumer.
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If you have any questions about how this new guidance may affect you and your business, contact your Moss Adams professional or email firstname.lastname@example.org.