Internal Revenue Service

Anna Crowder

Indian Tribal Governments Specialist

(505) 837-5583

Communications Tax – an Excise Tax

OBJECTIVES

Learn how to:

File Form 720 Make deposits for a semimonthly period Make deposits that are subject to the special September rules Know the due dates of returns Avoid penalties and interest by following the rules

EXCISE TAXES

Telecommunications tax is a “collected” tax

Telecommunications tax is due on the amount collected

Communications Tax

“Attaches” at the time of paymentLevied against othersPerson furnishing the service must

act as a collecting agency for the tax imposed

COMMUNICATIONS TAXRATE

3 %

TAX IS IMPOSED ON:

Local telephone service Toll telephone service Teletypewriter exchange

EXEMPTIONS - Communications Tax

Installation chargesAnswering servicesMobile radio telephone serviceCoin-operated telephonesTelephone-operated security systemsNews services (with exceptions)Common carriers & communications companies (WATS)Military personnel serving in a combat zone

EXEMPTIONS on COMMUNICATIONS TAX

Secure an initial exemption certificate:

American National Red Cross & other international organizationsNonprofit hospitalsNonprofit educational organizationsInternational organizationsFederal state and local government (includes Indian tribal governments IF services involve an essential tribal government function)

WHAT DO I DO WITH THE TAX COLLECTED FROM MY CUSTOMERS?

File Form 720, Quarterly Federal Excise Tax ReturnReturns are due:

April 30July 31October 31January 31

May have deposit requirements

SCHEDULE A, EXCISE TAX LIABILITY

Must be completed if you have a telecommunications tax liability

Tax liability (not deposits) must match tax on return

If not included with the return or if it is not correct, you may be assessed a failure to deposit penalty

MAKE DEPOSITS SEMIMONTHLY 1—15 16—END OF MONTH

TRUST FUND MONEY

DEPOSITS

Regular method taxes

September Rule

Deposits are due by the 14th day following the semimonthly period (due 29th ) for the first semimonthly period. Deposit for the 2nd semimonthly period is due by the 14th of the following month.

For 2004, make non-EFTPS deposits by September 28 for Sept 16—25 taxes. If depositing electronically, include amounts billed September 16—26 and deposit by Sept 29.

DEPOSITS

Regular method taxes – EXAMPLE

Semimonthly depositsJan 1 – Jan 15th Deposit by Jan 29th

Jan 16 – Jan 31st Deposit by Feb 14th

Additional deposits in September

Paper CouponsSept 16 – Sept 25th Due Sept 28th

Electronic DepositsSept 16 – Sept 26th Due Sept 29th

DEPOSITSAlternative method taxes

September Rule

Deposit based on amounts considered as collected. Tax included in amounts billed during a semimonthly period is considered as collected during the first 7 days of the second following semimonthly period. Deposit by the 3rd banking day after that 7th day of the period.

For 2004, deposit by September 28 the amounts billed from September 1—10 if using paper coupons. If depositing electronically, include amounts billed September 1—11 and deposit by September 29.

DEPOSITS

Alternative method taxes (on amounts billed)

Semimonthly depositsJan 1 – Jan 15th Due Feb 11th

Jan 16 – Jan 31st Due Feb 25th

Additional deposits in September

Paper CouponsSept 1 – Sept 10th Due Sept 28th

Electronic DepositsSept 1 – Sept 11th Due Sept 29th

DEPOSIT TIP

When using the alternative method taxes, report deposits under the September rule on Form 720 for the 4th quarter. Amounts billed in September are considered collected in October.

FILE & MAKE DEPOSITS BY TELEPHONE

Use EFTPS, Electronic Federal Tax Payment System

The Easiest Way To Pay Federal Taxes

It’s easy to use

You’re in control

You decide your payment method

Always at your fingertips!

The Easiest Way To Pay Federal Taxes

It’s easy to use

You’re in control

You decide your payment method

Always at your fingertips!

EFTPS

How to enroll:

IRS Form 9779

To get a form call1-800-555-4477

How to enroll:

IRS Form 9779

To get a form call1-800-555-4477

EFTPS

A credit can be claimed on Form 720, Schedule C, if you have a tax liability to report on Form 720 for the quarter

Use Form 8849 to file a claim to get a refund if you have no tax liability for the quarter

Use Form 720X to make adjustments to prior periods

SCHEDULE C

Penalties and Interest may result from: Failing to collect and pay over

the tax as the collecting agent Failing to file returns Failing to pay taxes Filing returns late Filing false or fraudulent returns

or making false statements Paying taxes late Failing to make deposits Depositing taxes late Misrepresenting that tax is

excluded from the price of an article

FTD Penalty: 4-Tier Penalty

1 - 5 days late --------------> 2%

6 - 15 days late---------------------> 5%

More than 15 days late, but paid by the 10th day after Notice & Demand--------> 10%

Taxes still unpaid after 10th day following Notice & Demand for payment-----------------> 15%

TRUST FUND RECOVERY PENALTY

Pay over collected taxes to U.S. Government Penalty may be imposed on any person responsible for collecting, accounting for, and paying over these taxes

Need Forms Or Assistance?

IRS Web Site www.irs.gov

Forms 1-800-TAX-FORM

FAX forms (703) 368-9694

SUMMARY The communications tax is a collected tax, imposed

on the person paying for the facility or service The person furnishing the facility or service is the

collecting agency required to collect the tax from the person making the payments

The tax is based on the amount paid for the facility or service, and it attaches at the time of payment

Certain organizations, states, and political subdivisions are exempt from tax

Telecommunications tax is a “Collected” tax

The duty to collect is the person who must report the tax.

Questions?

Thank you for attending