News & Insights

Passed-through Telecommunications Fees Were Subject to Service Provider Tax

Tax Development Nov 09, 2016

The Supreme Judicial Court of Maine recently ruled that certain telecommunications fees passed through to customers were subject to the Service Provider Tax and did not qualify for an exemption (BCN Telecom, Inc. v. State Tax Assessor, Maine Supreme Judicial Court, No. Ken-15-541, November 8, 2016). A telecommunications carrier operated in Maine providing both local telephone service as a competitive local exchange carrier (CLEC) and long-distance service as an interexchange carrier (IXC).

The carrier paid certain charges known as PICCs, which are fees that allow a local exchange carrier to recover a portion of the interstate local loop cost from an IXC. The carrier also passed these charges through to its customers; however, the charges listed on its customers’ bills were significantly higher than the costs it incurred. PICC charges were imposed on business customers with multiple long-distance lines that did not negotiate with BCN to avoid paying the charges to recover its cost and to realize a profit.

Maine imposes a 5% tax on the value of telecommunications services sold in Maine, which is measured by the sale price [36 M.R.S. § 2552(1)(E), (36 M.R.S. §2552(2)]. “The sale price means 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” [36 M.R.S. §2552(15)]. The court ruled that the PICC charges collected by the carrier were included in the “total amount of consideration” and were therefore subject to the service provider tax. Despite the carrier’s argument that PICC fees were not consideration for actual telecommunications charges, the court ruled that there was no evidence that distinguished it from a charge for telecommunications services.

The court also addressed the exemption for sales of interstate telecommunications service pursuant to 36 M.R.S. § 2557(34). The court ruled that the PICC fees did not qualify for this exemption because the carrier did not meet its burden of proof by providing evidence that the fees were only related to interstate telecommunications services.