The tech industry, whether aware of it or not, is likely to see compliance issues arise around much more than just sales taxes in 2018. The line that separates traditional companies, which are accustomed to contending with consumption taxes, from telecom companies, which must cope with complex communications taxes and regulations, is blurrier than ever.
As increased demand continues to accelerate the pace of innovation, it’s critical to stay up to date on the latest trends within the telecom space. Here are four predictions that are likely to affect a growing number of companies in the coming year.
1. The crossover to communications taxation
Right now, numerous industries are rife with scenarios where companies outside of telecom may be crossing over into this complex taxation space as the result of technological innovations. Based on current trends, we can expect to see more services provided by both existing and emerging players that previously were not responsible for telecom taxes.
Through the widespread adoption of these cutting-edge communication solutions — such as click-to-call software, “smart” devices capable of making calls, and peer-to-peer collaboration tools with texting and conferencing capabilities, to name a few — it’s highly likely that a rapidly increasing number of companies will begin to face the complexities of communications taxation for the first time in 2018.
Whether the technology offering adds broadband, wireless or Voice over Internet Protocol (VoIP), the challenge is the same: companies accustomed to contending with consumption taxes may be faced with the possibility of coping with a much more complex web of communications taxes and regulations. And with so many states facing budget shortfalls and declining revenue streams from traditional phone services, there’s a good chance auditors will keep a close eye on new entrants into the telecom realm.
2. The rising role of streaming video
Over-the-top (OTT) programming is likely to play a significant roll heading into 2018. Amid other major game changers is the rapid expansion of video streaming subscriptions and consumers’ eagerness for a la carte services.
This will be the year we begin to see how rapidly OTT services proliferate and evolve following Disney’s announcement of a new ESPN streaming service — a move that was quickly followed by Discovery, Viacom, and AMC as consumers said they’d be willing to pay for multiple streaming subscriptions in place of traditional cable TV. While it can be easy to assume video streaming services are not subject to the same taxes as traditional cable services, this is not always the case. In the drive to remain relevant and profitable in an OTT world, companies will need to take time to understand the latest telecom laws and requirements as bundles are broken down and rebuilt to meet new consumer demands.
3. The taxation of IoT
The Internet of Things (IoT) continues to grow at a staggering pace. Understanding when IoT solutions become subject to communications taxes and regulatory oversight remains a big unknown for many IoT innovators and may put an increasing number of companies in challenging tax predicaments in 2018. Many have become accustomed to quintessential IoT products, such as the smart thermostat, that rely on a bring-your-own-internet (BYOI) model that’s protected by federal laws preventing states from taxing ISP services. As a result, some companies may not be aware that many agriculture, manufacturing, and industrial IoT applications can open the floodgates to significant communications tax and regulatory obligations.
4. The increasing footprint of SD-WAN
The footprint of Software Defined-Wide Area Network (SD-WAN) may be relatively small today — according to Gartner, it currently has less than 5 percent market share — but that is on the rise. Revenue from SD-WAN vendors is growing at 59 percent annually and is expected to become a $1.3 billion market by 2020. Because it’s both efficient and cost-effective, we expect the demand for SD-WAN to climb steadily throughout 2018. And while we expect communications tax implications to remain relatively minimal throughout the year, that could change in the future, particularly once jurisdictions begin to redefine how they approach SD-WAN from a communications tax standpoint.
Maintaining a competitive edge in this uncharted territory will require the expanding company to understand when an innovation crosses the bridge into new communications tax responsibilities. Keeping a close watch on these areas throughout 2018 can help ensure the business doesn’t lag behind on state and federal requirements.
