The telecommunications industry is fast-changing. Technology advancements—including the still-developing Internet of Things and 5G—are seemingly constant, presenting new opportunities and challenges with regard to doing business. Oftentimes, the introduction of new technology also impacts tax policy, and by extension, your tax strategies as they relate to sales and use, income, and property tax.
Compliance is the first step in any tax cycle. And while the technical aspects of compliance might change from year to year (for example, new reporting requirements for “cutting edge” services and applications), the nature of compliance—filing and bill-paying—remains the same. But that doesn’t mean you shouldn’t look for ways to improve your compliance process for the benefit of both your company and your team. Following are three best practices for telecom tax compliance that will help you better manage your obligations, and also maximize tax savings.
Top 3 Practices For Telecommunications Tax Compliance
- Develop a compliance strategy.
Sometimes companies think of compliance as something to “get through” before the substantive matters can be tackled—things like valuation, negotiation, and appeals. A better approach is to have a strategy going into compliance that will address important issues from the start.
As part of a deregulated industry, telecom companies have some leeway to be strategic in their tax positions. (Tweet this!) So no matter what type of tax return you’re filing, first determine your positions; what’s important to you this tax season? Your answer should dictate how you fulfill your compliance requirements.
- A reevaluation of your deduction strategy may prompt you to take advantage of favorable depreciation positions, like qualified technology equipment, potentially changing the way you report.
- If the state or federal government implemented a change that affects telecom taxes and fees, you might need to change your position with regard to your billing practices and how these are tracked and recovered.
- If you know your company will see a loss this year, that might impact the way you plan to maximize your net operating losses to either increase cash flow or reduce future tax expenses.
- The nature of telecom property tends toward the intangible, often including assets related to intellectual property on the balance sheet, and providing revenue from digital services like cloud management and security, edge systems, data management, etc. Legislative and legal changes in the way your intangible assets are taxed for property tax and digital service revenue is treated for sales and use tax create important strategic decisions.
Know what you’re trying to achieve and why, so you can align your telecom tax compliance strategy with your positions.
- Document your compliance practices.
Every tax department should have a working explanation of the process they use to fulfill compliance activities. This is important for two reasons: First, it is a proactive way to handle the knowledge transfer of departing employees, whether they’re retiring after many years on the job or leaving to work somewhere else. Second, documenting your current process allows you to start thinking about how your team can take advantage of tax automation. The highest-performing tax teams are continually evaluating the way they fulfill their compliance objectives, looking for ways to be more efficient and improve outcomes. Understanding your process inside and out is the starting point for figuring out how it can best be streamlined with software.
See the software telecommunications giant Comcast used to dramatically reduce the time its team spends on property tax compliance.
Take the time while you’re doing compliance this year to document and map out your process. What are you doing currently, and how does that compare to what you’ve done in previous years? Note any changes that were made.
- Review your compliance process.
Once the compliance season ends—which could be a few months or continuously ongoing—it’s time to review how your process worked. Do it while everything is still fresh in your mind, and consider ideas around how you can improve. What were the biggest bottlenecks? The most time-consuming activities? The lowest-value tasks? How can processes be more effectively carried out? Would advanced software tools be helpful? Also, now is a good time to figure out your strategy for the following tax year so you can start working on the process improvements that will help you best carry it out.