Here's a chance to increase your ISPs bottom line today. Take a look at your invoices from your bandwidth providers and make sure that your ISP is not paying state sales taxes on services you resell.

by Christopher M. Knight [February 16, 2001]

If your ISP business is in the U.S., chances are good that your telecom provider applies state sales taxes on your monthly local loop access and dialup lines—be it ISDN, DSL, Cable, PRI, T1/E1, DS3, etc.

If you operate an ISP, you are a reseller. As a reseller, most states require that you charge your dialup subscribers the applicable sales tax for their Internet service each month. Then, your ISP business pays the state treasury the amount of sales taxes it collected from end users.

The problem is that your telecom provider should not tax your ISP for bandwidth services that you resell. If you pay the state sales tax, your Internet service operation is being double-dipped.

Take action
Contact your ISPs upstream bandwidth provider and your telecom provider—inform them that your ISP is sales tax exempt and provide them with your state sales tax identification number. They may ask you to fax the number or send a copy of your ISPs tax ID to their respective headquarters in order to substantiate to the state that your business is tax exempt.

Do as your vendor's request—then review incoming invoices from your providers carefully to make sure your ISP is not paying state sales taxes. (Do not confuse tariffs or FCC filing fees with state sales taxes, as these are completely different assessments.)

Confer and consult
Typically, ISP owners don't consult with anyone about tax matters, beyond their Certified Public Accountant. Usually ISP owners don't have to seek advise from any other source. Remember, you may have to raise a stink about these tax issues with your local telco The telecom industry has tax attorneys and tax experts that they hire specifically for navigating the legal issues surrounding sales taxes, tariffs, and the like.

Pick a professional partner and pay them for their tax advice. I am not your tax consultant, you should use the information in this article to ask your legal or professional counsel what services qualify for tax exempt status in your home state.

Request a refund
I recently caught my telecom company charging my Internet operation sales taxes, even after I provided them with my tax exemption identification number when the account was established. I've also survived several state sales tax audits, so I'm here to tell you that you can petition your local state sales tax authority to refund any overpayments your ISP may have made.

Do not expect your telecom provider to fully cooperate with this request, because it means more paperwork for them, and extended refund delays for you.

Note for newbies
Don't have a sales tax identification number yet? If you're new to the ISP and operate in the U.S., all you have to do is apply for a sales tax ID number with your state department of revenue. You simply pay a small processing fee and prove that your ISP reports sales taxes it collects—quarterly, monthly or how ever often your state requires.

It's important to note that you can only request that sales taxes be waived on services that your ISP resells. If you buy a product—like a router that is required to run your network—and don't pay sales taxes to the vendor, you must pay use taxes in the same amount to your local sales tax authority.

Use taxes and sales taxes go hand-in-hand, so I recommend that you consult with your CPA or tax attorney to help you navigate these very taxing issues that can dramatically impact your ISPs bottom line.

Special thanks go to Terry Bomersbach at THE-CIA.net , who encouraged me to address this subject and provided answers to questions I had about sales taxes.

To Your ISP Single Tax Success!
Christopher Sparky Knight

PS: Got feedback on this article or want to send me a note or request a future article? Send an email my way.

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