The Taxing Truth About VoIP Phone Service Taxes

At at one point or another, we’ve all complained about high taxes. Whether we’ve whimpered at the digits and dollar signs taken out of our paychecks, or dropped our jaws at the sales tax at the bottom of our receipts, taxes generally stir up an unsettling feeling among us all. We feel your pain. That’s why what we are about to do next is only in your best interest.

Let’s take a look at how those taxes are stacking up on your phone bill.

Taxes on wireless phone services are often higher than those on most other consumer items. According to Tax Foundation, US wireless companies charge an average of 16.26% in taxes on phone charges with local-state taxes accounting for 11.21% of that amount. While that may seem like an astronomically high fee, we just hope you’re not residing in states such as Illinois and Nebraska. Illinois racks up 20.90% in phones taxes, while Nebraska charges a staggering 23.69% in taxes!

So,what gives? What’s contributing to these high tax numbers and how can you get around them?

We’ll begin with the shortest answer: phone service carries a lot of different taxes, such as federal and local taxes, and the best way to avoid them is to switch to a VoIP provider.

To start off, let’s dive right into a breakdown of these taxes. Regardless of whether you’re using a landline or wireless traditional phone service, you are required to pay federal, state, and local taxes.

Federal taxes, which are usually around 4%, are placed at a set percentage despite your phone service provider. State and local taxes on the other hand are implemented by the state and usually range between 5% and 7% (unless perhaps you’re in the state of Nebraska!) The state and local government decide on these rates as the profits are sent directly to the local governing body. While these prices can vary in different areas, they are set the same for each service provider in that location.

In addition to these taxes, other taxes may be added onto your bill with a traditional phone service depending on where you live. Some areas charge a county tax, which is a sales tax that is the same for all service providers in that location. District tax is another sales tax, which generally supports a project in the area such as a local construction. All service providers in that area are required to enact this set district tax.

VoIP services, however, dodge these high levies because communication occurs almost entirely over the Internet rather than the PSTN line when you make a VoIP call. Currently, the government has taken a hand’s off approach when it comes to taxing VoIP services because of their means of transferring information over an IP network.

The only tax imposed on VoIP providers right now is the Federal Excise Tax. This is a set 3% cost of your monthly VoIP service. Therefore, if you’re using a service such as RingCentral, which offers service for $21.99 a month, you’d pay $.66 in Federal Excise Tax, so your total bill would be $22.65.

A 3% tax rate on VoIP phone service in comparison to the average 16.26% on wireless phone service is a drastic difference. If you were paying the average wireless tax on that $21.99/month phone bill, that would rack up to $3.58/month or $42.91/year just in taxes. Meanwhile VoIP users would pay just $7.92 in taxes each year with that $21.99/month plan.

While paying taxes can be, well, taxing, on our bank accounts, why not choose a phone service that will charge fewer taxes and ultimately save you money? Voxilla provides you with information and comparison charts to help you choose the VoIP service that best fits your needs. At Voxilla, you’ll find important details regarding ideal business VoIP providers as well as residential VoIP services.