United States

Maine: Passed-Through Charges Included in Service Provider Tax Base

Nov 14, 2016
From KPMG TaxWatch

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The Maine Supreme Judicial court recently held that a telecommunications service provider was liable for sales tax on certain fees passed on to customers. The fees at issue were Primary InterExchange Carrier Charges (PICCs), which were paid by the taxpayer to access local telephone infrastructure. The taxpayer passed these fees on to certain customers, although the amount passed on included a profit component and was substantially more than the taxpayer actually paid to local exchange carriers. Specifically, the taxpayer received over $800,000 in PICCs from Maine customers during the audit period, but paid less than half of that amount to local exchange carriers throughout the U.S. during the audit period.  On audit, Maine Revenue Services determined that the PICC revenues were subject to service provider tax as part of the sales price paid for in-state communications. The taxpayer protested this characterization and, after a trial court ruled in favor of the taxpayer, Maine Revenue Services appealed.

For the tax years at issue, a five percent tax was imposed on the value of telecommunications services sold in Maine, measured by the sale price. Under Maine law, “sale price” meant the “total amount of consideration, including cash, credit, property and services, for which . . . services are sold . . . without any deduction for the cost of materials used, labor or service cost, interest, losses and any other expense of the seller.” The court, rejecting the taxpayer’s argument that the PICCs were access charges, quickly concluded that the charges were part of the “total amount of consideration” paid by the taxpayer’s customers for telecommunications services. It appeared that the court found it significant that the taxpayer used the PICCs to earn a profit, rather than doing so through its rate structure. Although there was an exemption from service provider tax for sales of interstate telecommunications services, the court determined that the taxpayer did not establish that all—or even a portion of—the PICCs arose from the sale of interstate telecommunications services in Maine. Please contact Joe Senier at 617-988-1025 with questions on BCN Telecom, Inc. v. State Tax Assessor.


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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.