The mobile space is one that is always evolving, and in such a competitive landscape it’s almost inevitable that new and innovative offerings will push the boundaries not just on the consumer side but also for internal accounting.
Last week, Avalara Senior Tax Consultant and Attorney Toby Bargar noted “in the eyes of legislators and regulators, every new technology, data plan, and bundle – right down to the very last app – raises questions around equity in taxation.” And sponsored data certainly fits that bill.
The sudden proliferation of sponsored and zero-rated data programs in recent years prompted the Federal Communications Commission (FCC) to launch an investigation into whether those offerings violated net neutrality rules. While that investigation was scrapped by the new administration in February, it raised the question of how other federal agencies might think of those programs. Especially one agency in particular: the Internal Revenue Service.
So how exactly does sponsored data shake out for carrier tax purposes?
According to Bargar, there’s very little in the way of “on-point tax rules” around sponsored data because the model is so new. However, he said accounting around the service can largely be viewed as a “use tax issue.”
“Companies are essentially paying for a commodity input in order to facilitate the customer buying their services. This would be similar to an item you purchased as a promotional give away to offer with another product,” he explained. “Traditionally purchasers buying something to give away as a promotion are subject to potential use tax on those transactions and the same may apply in this scenario.”
There’s a little more to the story, though.
“Thanks to the Permanent Internet Tax Freedom Act (PITFA), data sales enjoy relatively limited taxation in the first place and the same limitations would likely apply to data subsidy payments,” Bargar continued. “In the long term, it is conceivable that some state may challenge the PITFA moratorium in the context of data subsidy payments on an interpretation that these transactions do not fit the statutory definition of an ISP sale.”