IP: FCC Regulated Charges on Telephone Service from TELECOM Digest V20 #3 OR I WONDER WHERE MY $S WENT

[Dave Farber <farber () cis upenn edu>]

----- Original Message ----- 
From: <editor () telecom-digest org>
To: <ptownson () massis lcs mit edu>
Sent: Friday, February 25, 2000 3:06 PM
> Date: Thu, 24 Feb 2000 22:26:38 -0500
> From: Monty Solomon <monty () roscom com>
> Subject: FCC Regulated Charges on Telephone Service
>
>
> http://www.state.ma.us/dor/rul_reg/directiv/2000/dir00_2.htm
>
> Directive 00-2 
>
> FCC Regulated Charges on Telephone Service
>
>
> Background:
> The Federal Telecommunications Act of 1996 granted the Federal 
> Communications Commission ("FCC") authority to regulate pricing of 
> telecommunications services. As the result of FCC regulations, some 
> retail customers may see unfamiliar separately stated charges on their 
> telephone bills. The Department has received a number of taxpayer 
> inquiries concerning whether Massachusetts sales or use tax is properly 
> due on these charges. 
>
> Issue:
> Are FCC regulated surcharges, which may be separately stated as a 
> recurring monthly charge on a retail customer's telephone bill, subject 
> to the Massachusetts sales and use tax on telecommunications services?
>
> Directive:
> Generally, FCC regulated surcharges, which may be separately stated as a 
> recurring monthly charge on a retail customer's telephone bill, are part 
> of the sales price of telecommunications services subject to tax. The 
> charges include, but are not limited to, local telephone number 
> portability charges, universal service charges, federal subscriber line 
> charges, and Presubscribed Interexchange Carrier Charges. 
>
> Discussion of Law:
> Massachusetts has imposed a sales and use tax on telecommuncations 
> services since 1990. Taxable telecommunications services include "any 
> transmission of messages or information by electronic or similar means, 
> between or among points by wire, cable, fiberoptics, microwave, radio 
> satellite or similar facilities but not including cable television." (1)
>  G.L. c. 64H, 1 and G.L. c. 64I,1. Telephone services including 
> separately stated charges for long distance telephone calls are subject 
> to tax. See TIR 99-2 and 830 CMR 64H.1.6. Generally, tax is imposed on 
> the retail sales price of taxable services, which includes the vendor's 
> cost of materials, labor or services, interest charges, losses or other 
> expenses. G.L. c. 64H,  1. 
>
> Following is a brief explanation of some charges or surcharges that may 
> appear on a retail customer's telephone bill based on information from 
> the F.C.C. The description of these charges on a customer's bill (or 
> whether they are separately stated to the retail customer at all) may 
> vary from one telecommunications vendor to another. These charges are 
> not taxes; they are not remitted to any federal or state government 
> agency. The charges represent part of the vendor's cost of doing 
> business and are retained by the vendor. As part of the regulation of 
> the pricing of telephone services, the FCC permits, but does not 
> require, a telecommunications vendor to recover these costs from its 
> retail customers through a separately stated charge appearing on the 
> retail customer's telephone bill. These charges are part of the sales 
> price of the telecommunications services subject to tax. See generally 
> DD 86-1. These recurring charges are eligible for the thirty dollar per 
> month residential exemption. 830 CMR 64H.1.6(5).
>
> The Massachusetts Department of Revenue does not regulate the pricing of 
> telephone services. The following information is provided for general 
> reference purposes only:
>
> Local Telephone Number Portability Charges - 
> To increase competition in local telephone market service, Congress 
> directed local telephone companies to offer "telephone number 
> portability," which refers to the customer's ability to retain the same 
> telephone number if the customer elects to change local carriers. In 
> order to provide this capability, local companies had to invest in 
> upgrades to their network. The FCC determined that local companies could 
> (but were not required to) recover these costs through a small, fixed 
> monthly charge assessed to customers. These charges began appearing in 
> February, 1999 in areas where telephone number portability is available 
> and may continue to appear for 5 years. 
>
> Universal Service Charges (2) - 
> Generally, the FCC's Universal Service support mechanisms ensure that 
> affordable access to telecommunications services is available to low 
> income telephone customers, telephone customers who live in areas where 
> the costs of providing telephone service is high, schools and libraries, 
> and rural health care providers. This federally mandated support is 
> funded by compulsory contributions from all interstate 
> telecommunications carriers, including long distance companies, local 
> telephone companies, wireless telephone companies, paging companies, and 
> payphone providers. The amount of the contribution is less than 4 
> percent of their billings for the previous year, adjusted quarterly 
> based on projected Universal Service demands. The FCC does not require 
> that companies contributing to Universal Service recover these costs 
> directly from their customers, however they are permitted to do so 
> through a separately stated monthly charge that may be a percentage of 
> the customer's bill or a flat amount.
>
> Federal Subscriber Line Charges - 
> Local telephone companies recover some of the costs of the actual lines 
> connecting homes and businesses through a monthly charge appearing on 
> the customer's telephone bill. This charge is usually called the 
> "subscriber line charge," but also may be referred to as the "federal 
> subscriber line charge" because it is regulated and capped by the FCC. 
> Currently, the charge is capped at $3.50 a month for a primary 
> residential line. The charge for additional residential lines at the 
> same service address and business lines is permitted to be higher. 
>
> Presubscribed Interexchange Carrier Charges ("PICC") - 
> A charge that long distance companies pay to local telephone companies 
> to help them recover the costs of providing the telephone wires, 
> underground conduit, telephone poles, and other facilities that link 
> each telephone customer to the telephone network. A long distance 
> company pays this charge for each residential and business telephone 
> line presubscribed to that long distance company. There is no tax due on 
> PICC charges paid from one telecommunications vendor to another. 
> However, if a retail consumer or business has not selected a long 
> distance company, the local telephone company may bill the consumer or 
> business for the Presubscribed Interexchange Carrier Charge. If the PICC 
> charge is billed to the retail customer, it is subject to sales tax. 
>
> More detailed information on federal regulation of the pricing of 
> telecommunications services is available from the Federal Communications 
> Commission, 445 12th St., SW, Washington, D.C. 20554 (toll free number: 
> 888-225-5322) and the FCC website at : 
> http://www.fcc.gov/Bureaus/Common_Carrier/factsheets. Additional 
> information regarding the pricing of telephone services is also 
> available from the Consumer Division of the Massachusetts Department of 
> Telecommunications and Energy (toll free number 800-392-6066), One South 
> Station, Boston, MA 02110 and the DTE website at www.magnet.state.ma.us.
>
> Bernard F. Crowley, Jr.
> Senior Deputy Commissioner of Revenue 
>
> January 28, 2000
> DD 00-2
>
> Footnotes: 
> 1. A temporary amendment to the definition of taxable telecommunications 
> services which excluded "internet access services, electronic mail 
> services, electronic bulletin board services, web hosting services or 
> similar on-line computer services" expired on July 1, 1999. However, 
> subsequent federal legislation generally created a moratorium on the 
> imposition of new taxes on Internet access charges and electronic 
> commerce until October, 2001. See TIR 99-2 for more details concerning 
> the federal legislation. Despite the expiration of the Massachusetts 
> statutory exclusion for Internet-related services, taxpayers may 
> continue to rely on the lists of taxable and non-taxable services in TIR 
> 99-2 until the expiration of the federal moratorium (and any extensions) 
> or further notice from the Department. (return to text)
>
> 2. AT&T currently uses the label "National Access Contribution" when 
> they show the combined charges for Universal Service and the Carrier 
> Access Line Charge (PICC). (return to text)