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Marashlian & Donahue, LLC
The CommLaw Group
1420 Spring Hill Road
Suite 205
McLean, Virginia 22102
Telephone: (703) 714-1300
Facsimile: (703) 714-1330
E-mail: mail@commlawgroup.com
Yesterday, by a 3-2 party-line vote, the FCC adopted network neutrality rules “to preserve the Internet as an open network enabling consumer choice, freedom of expression, user control, competition and the freedom to innovate.” While the text of rules is not yet available, the FCC provided a high-level summary of the three principles that will guide the FCC’s regulation of Internet activity, including Transparency, prohibitions on blocking traffic and no undue discrimination. The FCC proposes somewhat different treatment of wireline and wireless broadband Internet providers, citing the still developing mobile broadband network as reason for introducing network neutrality rules in phases. Both wireline and wireless broadband providers will be subject to a transparency rule, which requires providers to make available their network management policies, and to versions of a prohibition against blocking access to certain services or content. Only wireline providers will be subject to a rule prohibiting “unreasonable discrimination.”
The FCC recently announced that the proposed Federal Universal Service Fund ("USF") contribution factor for the First Quarter of 2011 will be 0.155 or 15.5%. This amount is a significant increase from the Fourth Quarter 2010 contribution factor of 12.9% and the highest USF contribution factor to date.
Jurisdictional lines between federal and state regulation of Interconnected VoIP services are becoming increasingly blurred as states move to assert jurisdiction over both nomadic and static Interconnected VoIP service offerings. The trend toward increased state regulation of these services continues as the Maine and Vermont public utility commissions released orders asserting jurisdiction over the intrastate "fixed" VoIP services offered in those states, and in Illinois where a new law requires providers of fixed or nomadic Interconnected VoIP services to register with the Illinois Commerce Commission (“ICC”).
IP-based communications service providers are advised to be on high alert for increased taxation by states, as federal stimulus funding has dried up and state taxation authorities are pushed to look for other sources of taxable revenue.
As anticipated, on November 5, 2010, the Federal Communications Commission ("Commission") released a Declaratory Ruling granting the petition of the Nebraska Public Service Commission and the Kansas Corporation Commission seeking a declaratory ruling that states are not preempted by federal law from imposing state universal service contribution obligations on the intrastate revenues of nomadic interconnected VoIP providers. The Declaratory Ruling became effective upon its release and was limited to prospective-only relief, which effectively precludes states from imposing retroactive contributions. States are now free to assess USF contributions on revenue derived from nomadic Interconnected VoIP services, subject to the conditions outlined in the Ruling.
On October 8, 2010, President Obama signed into law the Twenty-First Century Communications and Video Accessibility Act of 2010 ("the Act"). The Act aims to ensure access to Internet Protocol ("IP")-based communications and video programming. The Act directs the Federal Communications Commission ("FCC" or "Commission") to issue new regulations to implement its provisions which include mandates for hearing aid compatibility for VoIP and related services (including electronic messaging and video conferencing). Equipment manufacturers and service providers alike must ensure that their products and services are accessible and usable by people with disabilities.
On October 28, 2010, the Federal Communications Commission ("FCC" or "Commission") released a Public Notice, inviting the submission of data to assist the Commission in evaluating the issues raised in its Special Access Notice of Proposed Rulemaking ("NPRM"). In the NPRM, the FCC proposed to examine the level of competition for special access facilities. The Commission sought comment on its pricing flexibility rules, specifically soliciting proposed measures to maintain just and reasonable price cap rates upon expiration of the CALLS plan.
The next-scheduled PIU Report to underlying transport providers is due no later than November 15th. This report will cover the Second Quarter of this year (July 1st - September 30th). Pursuant to Federal Communications Commission ("FCC") requirements, all prepaid calling card providers must report Percentage of Interstate Usage ("PIU") factors, and the call volumes on which these factors were calculated, to those carriers from which they purchase transport services.
On October 26, 2010, the Federal Communications Commission's ("FCC" or "Commission") Enforcement Bureau ("Bureau" or "EB") issued Notices of Apparent Liability for Forfeiture ("NALs") against IDT Telecom, Inc. ("IDT"), Total Call Mobile, Inc. ("Total Call"), MGA Entertainment, Inc. ("MGA") and cBeyond Communications, LLC ("cBeyond") for violations of the FCC's hearing aid compatibility ("HAC") rules. The HAC rules require, among other things, that all wireless handset providers, including resellers, offer a certain number of hearing aid compatible handsets and make available to consumers via labeling on the handset and handset box and in website disclosures, information about the performance ratings of the handsets. The rules also require providers to report to the FCC annually on their compliance with these requirements.
Over the years, many clients have come to know The CommLaw Group as the law firm they turn to first, whenever a regulatory issue arises. We've become trusted advisors on all matters regulatory, whether before the Federal Communications Commission or the multitude of state & local governmental agencies with jurisdiction over your communications business. We appreciate your loyalty, faith, and trust in our expert professional guidance in these areas.
On October 19, 2010, the Wireline Competition Bureau of the Federal Communications Commission ("Bureau") released an order granting in part Network Enhanced Telecom, LLP's ("Network IP") request for review of a 2008 Universal Service Administrative Company ("USAC") audit classifying its revenues as USF-assessable prepaid calling card revenues, and requiring Network IP to reclassify certain wholesale revenues as end-user revenues because its customers failed to provide adequate resale certifications.
Reminder, the deadline for filing FCC Form 499-Q with the Universal Service Administrative Company ("USAC") for the Third Quarter is November 1st.
Our firm's Communications Taxes and Fees Practice provides clients experienced counsel on a wide-variety of federal, state and local taxes, including sales, use, excise and transaction taxes, 911/E911 fees, and other "tax-like" fees applicable to communications services and products. Our lawyers regularly engage in communications tax planning, compliance, risk analysis and mitigation, audit avoidance strategies, audit defense and litigation, rulings, and technical advice.
The FCC recently clarified that section 222 of the Communications Act of 1934, as amended (Communications Act), does not prevent a telecommunications carrier from complying with the obligation in 18 U.S.C. § 2258A to report violations of specific federal statutes relating to child pornography.
On September 22, 2010, the Federal Trade Commission (FTC) testified before a subcommittee of the Senate's Commerce, Science and Transportation Committee and recommended that proposed data security legislation introduced by Senators Pryor (D., AR) and Rockefeller (D., WV) (The Data Security and Breach Notification Act of 2010, S.3742) be modified to extend its requirements and FTC enforcement authority to telecommunications common carriers.
On September 23, 2010, the Federal Communications Commission ("FCC") released its Further Notice of Proposed Rulemaking ("FNPRM") and Notice of Inquiry ("NOI") regarding E911 rule changes and extension of existing rules to additional VoIP and wireless services.
The FCC recently announced that the proposed Federal Universal Service Fund ("USF") contribution factor for the Fourth Quarter of 2010 will be 0.129 or 12.9%. This amount is a decrease from the Third Quarter 2010 contribution factor of 13.6%.
The next-scheduled FCC Certification must be filed no later than September 30th. This FCC Certification covers the Second Quarter of this year (April 1st - June 30th).
Our firm prepared the following Advisory to update clients about ongoing Universal Service Fund ("USF" or "Fund") reporting and contribution obligations. As most clients are already aware, the Federal Communications Commission's ("FCC" or "Commission") rules mandate that all interstate telecommunications service providers ("ITSPs") must contribute directly to the Federal USF if their annual interstate and international telecommunications revenue exceeds $10,000.00. ITSPs with revenue under the $10,000.00 threshold are considered de minimis and are not required to contribute directly to the USF (but will pay USF pass-through amounts to underlying carriers).
The deadline for payment of the annual FCC regulatory fee for FY 2009 is August 31st. All entities which possess an FCC license must pay the annual regulatory fee by this date or face severe late penalties and possible enforcement action.
On August 5, 2010, a group of Voice over Internet Protocol ("VoIP") industry leaders and advocates filed a foreboding ex parte letter with the Federal Communications Commission ("FCC" or "Commission"). The ex parte letter was filed in a proceeding wherein the FCC is considering requests by the Nebraska Public Service Commission and the Kansas Corporation Commission ("State PUCs") to clarify state authority to impose Universal Service Fund obligations on providers of Interconnected VoIP providers. Signatories to the ex parte include: AT&T, Google, the Information Technology Industry Council, National Association of Manufacturers, Qwest, Microsoft, TechAmerica, the Telecommunications Industry Association, Skype, Verizon, VoIPnet Technologies, and the VON Coalition ("Industry Group").
The deadline for filing FCC Form 477, the Broadband and Telephone Competition Report, is Febraury 1st. As the FCC pursues implementation of a national broadband plan, data collection through Form 477 will play a significant role for years to come. As such, we anticipate aggressive FCC enforcement of this deadline.
Our firm recently became aware of on-going investigations by the Federal Communications Commission ("FCC" or "Commission") into the regulatory compliance of providers of "virtual office" communications solutions. The Commission's Enforcement Bureau ("EB") issued letters of inquiry ("LOIs") seeking information specifically related to Universal Service Fund ("USF") compliance.
The Securities and Exchange Commission ("SEC") has filed charges against Veraz Networks, Inc. ("Veraz" or "Company"), a California-based telecommunications company, for violations of the Foreign Corrupt Practices Act ("FCPA"). The SEC accuses Veraz resellers, consultants, and employees of making and offering payments to employees of government-controlled telecommunications companies in China and Vietnam to improperly influence these foreign officials to award or continue to do business with Veraz. According to the SEC's complaint against Veraz, one of the Company's supervisors referred the payments as the "gift scheme."
Colorado's new law, which took effect March 1, 2010, requires larger out-of-state retailers (i.e. retailers with more than $100,000 in annual sales that do not already collect Colorado state sales taxes) to notify their Colorado customers that they owe a Colorado state tax on their purchases. Such retailers must also send an annual report to customers each January detailing their purchases during the prior year and the amount of Colorado sales tax on those purchases. Failure to comply will result in penalties on a per violation basis.
On July 22, 2010, Representatives Rick Boucher (D-VA) and Lee Terry (R-NE) introduced sweeping legislation to update the Universal Service Fund ("USF" or "Fund"). In a statement released with the 58-page Universal Service Reform Act of 2010 ("Reform Act"), Reps. Boucher and Terry announced that the USF, as currently structured, is broken and that recent contribution rates of more than thirteen percent are unacceptable and unsustainable. Reps. Boucher and Terry blame this failure on the Fund's inability to keep up with the changing telecommunications landscape and assert that their proposed reforms will ensure the continued viability of the USF.
On July 13, 2010, a federal magistrate judge tentatively endorsed a settlement agreement worth 8.4 million dollars (plus an additional two million dollars for attorneys fees and costs), thus, potentially ending a class action lawsuit against prepaid calling card provider STi Prepaid LLC ("STi Prepaid"). However, the settlement is not final and will need to be approved during an additional "fairness hearing," scheduled for November 16th.
Stating that "existing sales and use taxes are inadequate and ill-equipped to address today's digital economy," Congressman Rick Boucher (D-VA), Chairman of the House Communications, Technology & Internet Subcommittee introduced legislation that would establish a uniform national framework for the taxation of digital goods and services, the Digital Goods and Services Tax Fairness Act (HR-5649). The bill is co-sponsored by ranking House Judiciary Committee member Lamar Smith (R-TX).
Over the next several months, through a series of e-mail advisories we will be introducing you some of our other, lesser known Practice Areas, competencies and skills. We will also introduce you to the distinguished professionals leading these Practice Areas and share with you representative examples of our many achievements assisting clients with legal matters outside our traditional regulatory core. Today, we are introducing you to our Intellectual Property and Technology practice. To learn more about this practice area and for a Menu of Services and Fees, we invite you to download our guide: Did_You_Know_-_Intellectual_Property_Practice.pdf and our Menu_of_Trademark_Services_and_Fees. Please also and visit our website at http://www.commlawgroup.com/practice_areas_intellectual_property_and_technology.php for more information.
As noted in past advisories, due to the current economic climate, states are becoming increasingly aggressive in the enforcement of their regulatory and tax obligations. As a result, some states are now going so far as to hold the principles of limited liability entities personally responsible for the regulatory and tax liabilities of their businesses. Two recent cases from New York and New Jersey provide clear examples of this trend.
The FCC released its schedule of annual regulatory fees for FY 2010. For Interstate Telecommunications Service Providers ("ITSPs"), the FCC adopted a fee factor of 0.00349 (or 0.349%), which reflects an increase over last year's fee factor of 0.00342 (or 0.342%).
The deadline to file International Traffic Reports with the Federal Communications Commission ("FCC") is July 31st. All carriers providing international telecommunications services between any U.S. point and any non U.S. point - i.e. clients required to possess an FCC Section 214 License - must file an International Traffic Report with the FCC in accordance with Section 43.61(a) of the Commission's rules. This includes foreign carriers that serve a U.S. point, as well as private carriers and carriers that provide non-tariffed international communications services.
On June 29, 2010, Network Enhanced Telecom ("NetworkIP") met with staff from the Federal Communications Commission's ("FCC" or "Commission") Wireline Competition Bureau ("WCB") to discuss Universal Service Fund ("USF") contribution issues relating to its pending appeal of a Universal Service Administrative Company ("USAC") audit decision.
On June 29, 2010, the Federal Communications Commission ("FCC" or "Commission") released an order directing CCI Communications, LLC ("CCI") to compensate Payphone Service Provider ("PSP") collection agent, APCC Services, Inc. ("APCC") for completed calls in the amount of $1,868,451, plus interest.
On June 3, 2010, the Telecommunications Regulatory Board of Puerto Rico ("Board") issued an Order requiring all providers of fixed interconnected Voice over Internet Protocol ("I-VoIP") to contribute to Puerto Rico's Universal Service Fund ("USF") based on their intrastate revenues.
The FCC recently adopted a contribution rate of 0.00585 (0.585%) for the Interstate Telecommunications Relay Service ("TRS"). This contribution factor is a significant decrease from last year's TRS contribution factor of 0.01137 (1.137%). The new TRS contribution factor will go into effect July 1st and remain in effect until June 30th of next year.
Due to the current economic climate, many states are scrambling to meet budgetary shortfalls and are desperately seeking new sources of revenue. As a result, states are becoming more aggressive and creative in the application and enforcement of their tax laws. As part of the firm's continuing efforts to keep clients informed of important issues in state tax law, we have assembled the following summary of recent tax law developments affecting the telecommunications industry.
On June 11, 2010, prepaid calling card provider, Allcom Telink Corporation ("Allcom") notified the Federal Communications Commission ("FCC" or "Commission") that it intends to cease reporting prepaid calling card revenues at face value for Universal Service Fund ("USF") purposes. Instead, Allcom plans to contribute only on revenues actually received, rather than the retail price, or face value, of cards that the company sells to distributors and other non-contributing resellers.
On June 17, 2010, the Federal Communications Commission ("FCC" or "Commission") released a Notice of Inquiry ("NOI") seeking comment on its proposed legal framework for the future treatment of broadband service. Comments are due July 15, 2010 and reply comment are due August 12, 2010.
The FCC recently announced that the proposed Federal Universal Service Fund ("USF") contribution factor for the Third Quarter of 2010 will be 0.136 or 13.6%. This amount is a decrease from the Second Quarter 2010 contribution factor of 15.3%.
On June 1, 2010, an anonymous party ("Anonymous Petitioner") filed a petition ("Petition") seeking the establishment of a Universal Service Fund ("USF") safe harbor for audio-bridging providers and integrated teleconferencing service providers. Specifically, the Petition requests that the Federal Communications Commission ("FCC" or "Commission") issue a declaratory ruling setting an appropriate USF safe harbor percentage applicable to all conference-bridge providers who offer services of a mixed jurisdictional nature.
On June 1, 2010, AT&T, Verizon, CenturyLink, and SureWest ("Wholesale Providers") filed a petition for clarification or partial reconsideration ("Petition") of the Federal Communications Commission's ("FCC" or "Commission") Wireline Competition Bureau ("WCB")'s order ("Telepacific Order") granting TelePacific Corp. d/b/a TelePacific Communications' ("TelePacific") Request for Review of a December 2009 Universal Service Administrative Company ("USAC") decision reclassifying its Internet access service as a Universal Service Fund ("USF")-assessable interstate telecommunications service.
On May 27, 2010, Alliance Group Services, Inc. ("Alliance") filed an application for review of a Federal Communications Commission's ("FCC") Wireline Competition Bureau ("WCB") order upholding a June 2001 Universal Service Administrative Company ("USAC") decision applying its asset transfer policy to a transaction involving Alliance and U.S. Republic Communications ("U.S. Republic").
The FCC recently announced a proposed contribution factor of 0.0000181 (0.00181%) for the North American Numbering Plan ("NANP") for the fiscal year beginning July 1st. The proposed NANP contribution factor reflects an increase from last year's contribution factor of 0.0000165.
On March 23, 2010, the Federal Reserve Board ("Board") issued its Final Rule implementing Title IV of the federal Credit Card Accountability, Responsibility and Disclosure Act of 2009, which was signed into law May 22, 2009 (collectively, the "Rules"). The Rules amend the federal Electronic Funds Transfer Act (EFTA), and the Final Rule amends the EFTA's Regulation E.
On October 1, 2009, Wisconsin became the latest state conform its sales and use tax laws to requirements of the Streamlined Sales Tax Project ("SSTP"). The SSTP is a collaboration among several states to simplify their state sales and use tax administration and to try to minimize the many differences between the tax policies and practices of participating states. These states hope that, by harmonizing their sales and use tax laws, they will be able to convince Congress or the courts to remove the legal impediments currently preventing them from collecting sales and use taxes from online out-of-state retailers.
The North Carolina Department of Revenue ("NC DOR") is targeting online out-of-state retailers that have operated affiliate programs in the state to resolve issues of potential sales and use tax liability and assist the State's revenue collection. The NC DOR's Internet Transactions Resolution Program ("Program") is intended to foster cooperative discussions between the NC DOR and online out-of-state retailers.
On May 20, 2010, the Federal Trade Commission ("FTC") announced a stipulated order ("Settlement Agreement") resolving its consumer protection case against calling card company, Diamond Phone Card., Inc. In the complaint, the FTC alleged that the company made false claims about the number of calling minutes its card delivered. The complaint also alleged that the company failed to properly disclose "maintenance fees" and other hidden fees that reduced the number of minutes on the card. The Settlement Agreement requires Diamond and its principals to pay $500,000 and to disclose clearly all fees associated with their cards.
Jonathan S. Marashlian and Michael P. Donahue will be presenting a webinar on the FCC's implementation of the National Broadband Plan on Tuesday, June 8, 2010 from 2:00 PM EST until 3:30PM EST. In particular, we will discuss the proposed classification of the telecommunications component of broadband internet access as a "telecommunications service" subject to Title II regulations. We will also preview the FCC's implementation agenda, which calls for over 60 rulemaking and other regulatory proceedings over the next year.
On May 3, 2010, MeetingOne.com Corp. ("MeetingOne") filed a petition ("Petition") with the Federal Communications Commission ("FCC" or "Commission") requesting a review of a March 3, 2010 decision issued by the Universal Service Administration Company ("USAC"). Despite claims its conferencing service was 100% Internet Protocol ("IP")-based, USAC concluded that MeetingOne is subject to Universal Service Fund ("USF") contributions on its future revenues and is required to report, and contribute on, its revenue back to 2008.
The FCC recently solicited comments on the National Exchange Carrier Association's (NECA) annual payment formula and fund size estimate for the Interstate Telecommunications Relay Service (TRS) Fund.
On April 30, 2010, the Federal Communications Commission's ("FCC") Wireline Competition Bureau ("WCB") issued an Order granting TelePacific Corp. d/b/a TelePacific Communications' ("TelePacific") Request for Review of a December 2009 Universal Service Administrative Company ("USAC") decision reclassifying its Internet access service as a Universal Service Fund ("USF")-assessable interstate telecommunications service.
On April 30, 2010, Verizon filed an ex parte letter with the Federal Communications Commission ("FCC" or "Commission") discussing Verizon's universal service contributions on its prepaid calling card ("PPCC") revenues.
On April 21, 2010, the Federal Communications Commission ("FCC" or "Commission") issued a Notice of Inquiry ("NOI") representing the fifth in a series of promised rulemaking proceedings designed to implement its National Broadband Plan. In its NOI, the FCC seeks comment on whether the Commission should establish a voluntary program under which participating communications service providers would be certified by the FCC or a yet to be determined third-party entity for their adherence to a set of cyber-security objectives and/or practices. The Commission also seeks comment on the components of such a program, if any, and whether such a program would create business incentives for providers of communications services to sustain a high level of cybersecurity culture and practice.
On April 21, 2010, the Federal Communications Commission ("FCC" or "Commission") issued a Notice of Inquiry ("NOI") representing the fourth in a series of promised rulemaking proceedings designed to implement its National Broadband Plan. Through its NOI, the FCC would like to enhance its understanding of the present state of survivability in broadband communications networks and to explore potential measures to reduce network vulnerability to failures in network equipment or severe over-load conditions, such as would occur in natural disasters, pandemics, and other disasters.
On April 27, 2010, the Wireline Competition Bureau ("WCB") denied a request by Alliance Group Services, Inc. ("Alliance") for review of a prior Universal Service Administrative Company ("USAC") decision.
On April 21, 2010, the Federal Communications Commission ("FCC" or "Commission") issued the third in a series of promised Notices of Proposed Rulemakings ("NPRMs") designed to implement its National Broadband Plan. In its NPRM, the Commission proposes consumer-friendly modifications to the current CableCARD system with the goal of fostering a competitive market for navigation devices compatible with Multichannel Video Programming Distributors ("MVPD"). CableCARDs allow a consumer's television to display MVPD-encrypted video programming.
On April 21, 2010, the Federal Communications Commission ("FCC" or "Commission") issued the first in a series of promised Notices of Proposed Rulemakings ("NPRMs") designed to implement its National Broadband Plan. By this NPRM, the Commission took its first step toward long-awaited Universal Service Fund ("USF") reform.
On April 8, 2010, the Federal Communications Commission ("FCC" or "Commission") announced its 2010 agenda for implementing numerous recommendations of the National Broadband Plan ("Plan") -- including more than 60 rulemakings and other notice-and-comment proceedings. The Plan, which the FCC delivered to Congress on March 16, 2010, lacked specific details on the FCC's proposal to transition the Universal Service Fund ("USF"), currently supporting traditional switched service, to universal broadband support.
On April 6, 2010, the U.S. Court of Appeals for the District of Columbia ("Court of Appeals") ruled that the Federal Communications Commission ("FCC" or "Commission") lacks authority to regulate Internet Service Providers' ("ISPs") management practices. In 2007, Free Press and Public Knowledge filed a joint petition for declaratory ruling with the FCC, challenging Comcast's practice of interfering with subscribers' use of peer-to-peer programs. In 2008, the Commission ruled that Comcast had "significantly impeded consumers' ability to access the content and use the applications of their choice." Comcast voluntarily committed to a new system for allocating bandwidth and, thus, the Commission simply ordered the company to disclose the details of its new plan.
The Federal Communications Commission ("FCC" or "Commission") recently issued letters to various prepaid calling card providers ("PCCPs") inquiring into their marketing practices. The letters request detailed information relating to PCCPs' provisioning of prepaid calling card services, including descriptions of the channels through which the cards are distributed and marketing activities. The FCC also asked for supportive documentation, including contracts and rate decks. Carriers must respond within 30 days, and each response must be signed by an officer of the responding entity.
The FCC recently issued a Notice of Proposed Rulemaking soliciting comments on its Annual Regulatory Fees. For Interstate Telecommunications Service Providers ("ITSPs"), the FCC proposes a fee factor of .00351 (or 0.351%), which reflects an increase over last year's fee factor of 0.00342 (or 0.342%).
The Wisconsin Public Service Commission ("WI PSC") recently adopted new rules that impose a fee on all voice service providers operating in the state. According to the WI PSC, this new fee will help fund Wisconsin's fire protection and police fund. The "Police and Fire Protection" assessment is applied to two types of transactions. First, a fee of $0.38 is imposed on each retail transaction for prepaid wireless telecommunications plans. Second, a monthly fee of $0.75 is imposed on each voice communications connection with an assigned telephone number (including landline, cellular line, and a communication service provided via a VoIP connection). If a communications provider provides multiple connections to a subscriber, the fee will be $0.75 for each of the first 10 connections and one additional fee of $0.75 for each 10 additional connections per billed account (i.e. $0.075 fee for each connection over 10).
In an effort to find new or expanded sources of revenue, an increasing number of states are targeting out-of-state businesses. Specifically, a number of states have passed or are considering implementing so-called "Amazon Laws" aimed at collecting sales taxes from online out-of-state retailers. Similarly, many states are forgoing the traditional "physical presence" standard for establishing nexus in favor of more expansive "economic presence" nexus standards for income and franchise tax purposes. This advisory discusses two such examples.
Due to the current economic climate, many states are scrambling to meet budgetary shortfalls and are desperately seeking new sources of revenue. As a result, more and more states have proposed mandatory unitary combined reporting as a way to generate additional income tax revenue.
Unitary combined reporting applies to a commonly owned and controlled group of corporations that are engaged in a "unitary business." Under unitary combined reporting, such corporate groups must calculate their state-level tax by combining all of their business incomes and apportioning a single combined amount of income to the taxing state using various apportionment factors. Currently, twenty-four states impose unitary combined reporting in connection to corporations' state income tax assessments.
On April 7, 2010, the Federal Communications Commission ("FCC" or "Commission") published final rules in the Federal Register relating to the Commission's E-Rate Program, a federal support mechanism that discounts telecommunications services, Internet access and internal connections for eligible schools and libraries. First, the Commission modified its rules to include interconnected VoIP and text messaging as eligible for E-Rate support. The Commission clarified that special features or software available in conjunction with text messaging services do not qualify as eligible services. The Commission also clarified that Ethernet, web pages protected by usernames and passwords, wireless LAN controllers, user licenses for VoIP systems and virtualization software qualify as eligible services.
States are increasingly searching for new tax revenues in this economy, and popular targets are out-of-state entities. California has recently enacted a new law to tax out-of-state entities.
On March 1, 2010, Massachusetts regulation 201 CMR 17.00 went into effect. This new regulation will require anyone who collects or stores the names of Massachusetts residents' names in connection with their social security number, driver's license number, or credit card or debit card number to develop and maintain a comprehensive information security program. The information security program must include technical, administrative, and physical safeguards for this sensitive information.
On March 16, 2010, the Federal Communications Commission ("FCC" or "Commission") released its highly anticipated National Broadband Plan. The Plan, however, lacks specific details on the FCC's proposal to transition the Universal Service Fund ("USF"), currently supporting traditional switched service, to universal broadband support.
The Commission confirmed its recommendation to end support for basic voice services by 2020 by shifting the High-Cost portion of the Fund into the Connect America Fund ("CAF") to support broadband-based communications services. The Commission emphasized accountability, efficiency and sustainability. To sustain the Fund, the FCC suggested expanding the contribution base but neglected to adopt a specific recommendation to achieve this goal. The Commission did suggest, without identifying specifics, that it will likely include broadband providers in the USF contribution base.
On March 1, 2010, Level 3, LLC and several of its affiliates (collectively "Level 3") filed an application for review of a Wireline Competition Bureau ("Bureau") order, in which the Bureau upheld a decision of the Universal Service Administrative Company ("USAC") to assess late fees, interest, and penalties on Level 3 due to a dispute over the filing of Level 3's revised 2008 FCC Forms 499-A.
On March 5, 2010, Global NAPS, Inc. and several of its local affiliates ("Global NAPS") filed a petition ("Petition") with the Federal Communications Commission ("FCC" or "Commission") requesting that the Commission issue several declaratory rulings regarding the tariff treatment of Voice over Internet Protocol ("VoIP") traffic. Specifically, Global NAPS seeks the following rulings from the Commission: 1) that federal law prohibits state commissions from subjecting VoIP traffic to intrastate access charges; 2) that once a carrier's traffic has been determined to be primarily nomadic VoIP, the remainder of its traffic should be classified as interstate absent clear proof of intrastate calls; 3) that telephone numbers/LERGs are not reliable indicators of the geographic end points of a call; and 4) that connecting carriers forwarding VoIP traffic are not subject to interstate or intrastate access charges.
The FCC recently announced that the proposed Federal Universal Service Fund ("USF") contribution factor for the Second Quarter of 2010 will be 0.153 or 15.3%. This amount is an increase from the First Quarter 2010 contribution factor of 14.1% - and the highest USF contribution factor to date.
Pursuant to the American Recovery and Reinvestment Act of 2009, commonly known as the stimulus package, Congress required the Federal Communications Commission ("FCC" or "Commission") to develop a National Broadband Plan to ensure that all Americans have access to high-speed Internet services. The FCC must deliver its Plan to Congress by March 16, 2010. In anticipation of the release of its proposal, on March 5, 2010, the FCC announced its plan to transition the Universal Service Fund ("USF"), which currently supports universal access to basic telephone service, to universal broadband support.
The next-scheduled FCC Certification must be filed no later than March 31st. This FCC Certification covers the Fourth Quarter of this year (October 1st - December 31st).
On February 24, 2010 the Federal Communications Commission ("FCC") released an updated FCC Form 499-A and instructions. The form and instructions, which were released in anticipation of the upcoming April 1, 2010 filing deadline, memorialize several recent Universal Service Fund ("USF") rule changes and other updates which ensure consistency with the current USF contribution methodology.
On February 16, 2010, on behalf of the Ad Hoc Coalition of International Telecommunications Companies ("Coalition"), The CommLaw Group filed a Petition with the Federal Communications Commission ("FCC" or "Commission") requesting the immediate suspension of all enforcement of the Carrier's Carrier Rule pending the conclusion of a rulemaking proceeding to eliminate confusion and set uniform standards with respect to the rule's particular requirements. On February 25, 2010, the FCC released a Public Notice soliciting comments and reply comments, due March 29, 2010 and April 13, 2010, respectively.
On July 2, 2009, AT&T, through several of its affiliated incumbent local exchange carriers ("LECs"), filed a lawsuit in the United States District Court for the Northern District of Texas against numerous prepaid calling card companies, including IDT Telecom, Inc. (collectively "IDT"). AT&T alleged that IDT improperly attempted to avoid paying AT&T for the use of its network facilities to make long-distance calls. Specifically, its lawsuit alleges that IDT sells calling cards that use "local" numbers to originate interstate calls to its calling card platforms.
Due to a shift from a traditional brick and mortar based economy to e-commerce, states have grappled in recent years with substantial losses in sales and use tax revenues. Unable to assert jurisdiction over "remote" or out of state companies, legislatures have creatively interpreted and expanded the concept of "nexus" in order to collect taxes from such entities. Nexus refers to a company's connection with or presence in the taxing state that is substantial enough to allow the taxing authority to collect taxes from that business. Absent nexus, a state cannot assert jurisdiction over a company and require it to collect sales and use taxes from its end-user customers.
Customer Proprietary Network Information ("CPNI") Certifications must be filed with the FCC by March 1st. Under the FCC's rules, all providers of telecommunications and interconnected VoIP services must file a CPNI Certification with the FCC. The Certification must contain a statement of compliance which: (a) describes, in detail, the policies and procedures a service provider has instituted to safeguard CPNI and (b) reports any instances of CPNI-related breaches during the past year.
On February 12, 2010, the Nebraska Supreme Court affirmed a district court decision rejecting Tracfone Wireless, Inc.'s ("Tracfone") proposed method of collection of state enhanced 911 ("E911") surcharges from its wireless customers. The decision affirmed an order of the Nebraska Public Service Commission ("PSC") which directed Tracfone to use one of three preapproved methods of collection.
On January 29, 2010, the Wireline Competition Bureau of the FCC ("Bureau") issued an Order denying Level 3 Communications, LLC and several other providers' (collectively "Level 3") joint request for review of a Universal Service Administrative Company decision. Level 3 sought reversal of USAC's computation of its USF liability based upon erroneous calculations in its 2008 Form 499-A and waiver of interest and penalties applied due to the company's failure to pay invoices based upon inaccurately reported revenues.
On January 8, 2010, U.S. TelePacific Corp. ("TelePacific") filed a request with the Federal Communications Commission ("FCC") for review and reversal of a December 2009 Universal Service Administrative Company ("USAC") decision reclassifying its Internet Access service as a Universal Service Fund ("USF")-assessable interstate telecommunications service. TelePacific challenged USAC's decision as contrary to the FCC's rules and its 2005 Wireline Broadband Order which identified functionally integrated wireline broadband Internet Access services as information services, beyond the FCC's jurisdiction.
On December 28, 2009, Grande Communications Networks, LLC ("Grande") filed with the Federal Communications Commission ("FCC") a request for review of a Universal Service Administrative Company ("USAC") audit. Grande sought review of the following USAC decisions: (1) classification of its per-line "customer access charge"; (2) treatment of its DSL-based Internet access revenues prior to August 13, 2006 and (3) classification of its resale revenues.
On December 31, 2009, D.C. Attorney General ("AG") Peter Nickles filed suit in D.C. Superior Court against AT&T Corp. (AT&T), a subsidiary of AT&T, Inc. The complaint sought to claim for the District the unused balance on prepaid calling cards sold to consumers with D.C. addresses. According to the complaint, these sums, commonly known as "breakage," belong to the District under its escheat law, the Unclaimed Property Act.
On December 3, 2009, the Federal Trade Commission ("FTC") presented a statement on prepaid calling cards to the Subcommittee on Commerce, Trade and Consumer Protection of the U.S. House of Representative, Committee on Energy and Commerce.