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hello and good morning good afternoon good evening whenever you may be listening to this sky switch webinar i'm andy abramson with sky switch and today we have probably one of the more interesting and more insightful webinars we have had all year and the reason i say that is the topic we're going to cover is so deep and so broad and yet so important to you as a skyswitch reseller and to your customers because it involves a very complex area of compliance and regulation today's webinar is all about the filing requirements voip providers need to know about and we're here to educate you on how our long time and trusted friends at compliance solutions can help resellers ensure that your business and the business of your customers is operating in accordance with all requirements that's at the federal level the state level and even down to some places at the local level we're going to cover everything from registration and ongoing compliance to state regulations and taxes and rates and something known as kalia compliance as well as the history of the fcc's universal services fund rates that's the thing you see on your bill that's spelled usf and also other annual public utility commission and fcc reporting that's required and then when we're done we're gonna have our usual q a session so we can answer all and i mean as many of them as we can in the hour allotted of your questions i'm andy abramson i'm with sky switch i've had the good fortune to be hosting all of these webinars for the past eight months or so and have to tell you it's great to do them it's great to be able to expose our trusted value supplier partners like compliance solutions to you to dig in under the hood and really get down to the nitty-gritty about what you need to know my background obviously i've been involved in telecom since the late 90s but actually it goes back to the mid 80s when i bought a switch for the philadelphia flyers i was working for and it was the very first system 75 ever sold into a sports arena i guess that set me on a course that i never realized i would end up on i write a blog called voipwatch and i've been involved in over 25 telecommunication companies successful exits in the last 18 19 years so enough about me why don't we talk about mark lemmer he's the president and ceo of compliance solutions he's going to be telling us all about what compliance solutions does before mark started compliance solutions he was a tax manager an incumbent local exchange carrier where he really cut his teeth and then he also learned some of the fine points of all this at arthur young and company they were one of the original top seven super seven they call them uh or the big five i always forget how many there were of the big accounting firms that are ultimately merged into ernst young in 1989 when he's not busy figuring out how to keep you guys out of trouble he's an active marathon runner and a sports enthusiast he's run over 37 marathons and he's completed all 27 of the walt disney world marathons well that's great endurance for mark so mark with that why don't you dig in and tell us all about what's happening with ongoing compliance and why registration is so important okay sounds good thank you very much i appreciate the introduction i'm going to do my best to slow down and articulate what i'm saying uh in a webinar uh very important many times i handle presentations and i do them face to face unfortunately we cannot do those via covid 19 these days uh so i'm gonna do my best i usually talk pretty fast but i'm gonna do my best to slow down and articulate um this so if if i'm a little slower on that just know that that's why i want to make sure that i get uh you guys are able to hear everything so in the filing requirements it starts with registrations and we're going to go down the path of all the different government agencies that we have to deal with before we go there let me just go ahead and give you a little bit more on where i started from so i started yes i started in the tulsa oklahoma office of arthur young company uh back in 1987 i'm a cpa in florida and a cpa in missouri uh and one of the things that happened in the industry a big thing that happened in the telecom industry in 1984 judge green basically divested or broke up the baby bells in a t and what happened in 1985 started competition and the competition started in long distance first so in long distance competition uh what you had to do to get started there if you wanted to compete against a t and mci in sprint there's a couple handful of other folks as well but those are the big the big ones there is you had to have what's called an underlying carrier you had to have a cust you had to have a supplier that would basically know the engineering provisioning requirements know how to handle the long distance side and att didn't want to sell their network to enterprise customers uh they didn't want uh mci was had lawsuits going on like crazy and and didn't really even know what they had so there was a company that oil and gas pipeline wasn't doing very well at that time and so they decided uh this company decided and i audited this company and they were called the williams companies they did a lot of energy and they decided to put fiber through the pipelines and they already had the right-of-way so they stuck fiber through all their pipelines and within a matter of months they had a nationwide carrier and so they focused on the carrier customer market so if you had some money and you wanted to basically let's say you were a church and you had a thousand people at your church and you wanted to give great telephone rates to your church members uh with a kind of a commission kickback uh so that the church could make a lot of money and fund their children's program then what would happen is that you could get into that and the actual smartness of that system for engineering and all that was with will tells called will tell williams communications and so i audited them and took them as they went across the nation uh basically and they acquired other companies as well to create a complete network but that's where we had long distance competition and then after that then we went into local exchange competition and after that we went into uh basically wireless competition and 1993 uh ominous budget act of uh that president clinton did and then we went into voice over ip uh registrations after we actually came with community with uh competition in the local place so there's a long history here and it's important to know the history as we start talking about these filing requirements i'm not going to bore you with the long history of that i'm just telling you that i've basically been doing this for 30 plus years and it's helpful to to know where we go so uh i'm gonna there's uh a quick overview uh it's the picture so uh we'll go from there all right so now we're going to look at registrations and and in the compliance side so what we're we're primarily dealing with are three government agencies who deal with the secretary of state which is the authority to do business in a state we're dealing with the department of revenue and the department of revenue flows down all the way from a state level to a county level to in louisiana that's about ready to get hit with a huge hurricane uh the parish level and it's based on french law uh and then we also have the city level and then we also have the 911 uh jurisdictional level uh and so it goes all the way up and down and then sometimes you have things like the city of milwaukee will have a telecom tax to build a baseball stadium so you have all these different things that are going on and you'd say well why why are all these out there okay well primarily you're dealing with the sexiest industry you have out there back in the 90s president clinton tried to throw all these taxes onto electric companies but quite frankly the the american people just spit it out because electric is okay but it's not sexy you have communication and with communications you have wireless communications and you have voice over ip communications and you have a private line you know let's say an ethernet line for different things and some of you guys do cloud computing uh and so all these things are you know it's a sexy product everybody wants it okay millennials will be more than happy to pay their iphone bill as long as you don't think about their iphone so we all know that an iphone is yeah it does voice but really it's a computer okay and and it it does data transmissions and it does information services and it does two-way voice and because it does two-way voice it's subject to the far right column called federal universal service fund okay so now the question is is that how much of what you package is sold if you're a wireless carrier how much do you package that is actually considered voice communications versus uh data communications versus information you know what he's marked we mean by information well information is if you're logging into your bank and they want to authenticate you they would you'd log in and they'd text you back like a six digit code well you can't text that back there's no two-way communication that's an information service so an information service is not subject to central usf so what you have here is you have this long standing theme in this compliance that requires you to handle what's called separations separations means that you have to take your revenue and you have to classify it into interstate intra-state and international now that's for one type of communication so if you're looking at the screen that's the far right that's the fcc the fcc can only govern interstate international traffic so we have to separate it now how can you separate it i'll explain that these are concepts we'll talk about throughout the prep webinar on the department of revenue the standard for the department of revenue is called the 1989 supreme us supreme court case called the goldberg rule and that's how when will tell came into being as far as making sure you had long-distance competition how do we make sure that basically if i'm making a phone call from florida to california how do we make sure that the transverse of that call goes across florida and alabama and mississippi louisiana in texas and new mexico and arizona and california why do we make sure we don't have eight come eight different states filling me are charging me taxes so there's a rule that we did it was called the goldberg rule so there's different sets of books that you have to kind of maintain here now rather you say whoa whoa whoa whoa whoa man i have to do a couple different accounting things no you don't but there's different standards in this industry realize again this is the sexy industry so everybody wants to get their piece part of this most people will get their telecom bill and you have you have let's say you have datagate or whatever who should who's your billing company in this case and then there's a calculation arm so they would calculate the revenue call revenue rating and then there'd be a tax calculation called tax rating and that tax rating system will do both of the calculations i'm talking about the goldberg rule for department of revenue sales tax reporting 911 reporting and the fcc where you have to come up with jurisdictional traffic okay so those are some of the concepts we're going to be talking through uh we're we're going to back up real quick again look at this slide here we're going to say when you get in we and i don't want to make this an infomercial for csi but i want to let you know that this is what the process is so you have to so when i say we don't please don't take it as i'm trying to do an intro martial but what you have to do is you have to register with the secretary of state and all those states so you become a delaware corporation a lot of people are delaware corps uh you could be a florida corp or whatever it is but this site for sake of example your delaware corp now if you operate in more states than let's say you operate in in texas and oklahoma and arkansas and missouri let's say the kind of the midwest a little bit uh in the southwest uh you would register with the second what's called the secretary of state uh we would file you're a delaware corp so instead of and when you had a delaware corp and then behind that we do a registration with the irs to get your what's called your federal employer tax id number your fein number now when you get bad you could actually reincorporate again in texas or you could basically take the you could piggyback on the delaware registration with the texas registration and say hey we have a good standing certificate in delaware don't make us re-register or re-incorporate in texas because if we re-incorporate we have to go get a new tax id number from the irs so what typically happens is that you incorporate in one state and then you become what's called a foreign corp a foreign corporation in another state now foreign usually means it's outside the united states but in this in this case the word foreign means that it's outside of your domestic state of delaware or whatever state you incorporate in so we do all that and then what you have to do every year is you have to have a street address in every state and sometimes it's called a registered agent that street address basically makes sure that if then if the attorney general for that state let's say a texas needs to find you for some reason let's say that uh let's just say that that i i don't know well let's say that that will tell sushi okay or or something like that they have to service that lawsuit on the attorney general of texas and then texas is going to find your street address and deliver that to you so the registered agent is based on english common law which means you have a street address in every state in essence your corporation or your llc uh is a living person okay and so that's how they do it and then when we once a year you have to file a secretary of state report to update your office or directors and and so that's what happens as well now when we get to over to the department of revenue once again you've got all the different things you have here state city county dog catcher level they they basically it's a sexy industry they want all your taxes now the way to get out of those taxes is for for us to register you and we have a tax id number that each department of revenue there's not a whole lot of cost to do the registrations because every department of revenue whether it's at the state the city the county and all that they want your money now at the state level the governors of the state have a lot of money they can invest in i.t teams to have an online reporting system so whether you're paying payroll taxes or sales taxes or communication service taxes and on taxes that's great once you get to the county level or the city level unless you're in dallas or chicago or los angeles or something a big city they don't have the money to put an online system on there so most of the counties in the cities and the 911 districts are filed via paper paper return and a paper check so we have a system where it's all in place where we have everything together in a reporting system that basically creates the check creates the return matches it all up barcodes scans it and then we upload it and all we have to do then is stuff the envelope basically and so it sounds extremely complicated and and it is complicated but we make it somewhat simple but what we have to have is we have to have what's called a tax rated file and so this is a file that basically fills your customer there's an integrated file one side of the file builds your customer the other integrated set of the file has the summary by taxing jurisdiction so there's codes all over the place that are used but let's say uh the code is the state of missouri in the county of of jefferson county in the city of washington so that's how we kind of map it all the way down once you register now you can actually fill out what's called tax exemption certificates so this is what the first thing you do you have you list your tax id number on there and then we provide that to um to in essence skyswitch in this case and basically they make su e that they don't bill you any taxes because you're not the consumer of the service the consumer of the service is your customer so you give them a tax exemption certificate basically you get out of jail free card they take it and then they sell it to you without charging you any taxes you sell it to your customer and you charge your customer taxes so think about it this way if you were the florida department of revenue uh and you bought a ladder let's say you bought a 20 25 foot ladder to go up to the roof and you bought it for ten dollars uh it got sold to home depot or lowe's for 25 lowes or home depot or not the consumer of the latter they sell it to the general public for a hundred dollars so the florida department of revenue doesn't want tax on what home depot bought it for for twenty five dollars they want sales tax at seven percent on the hundred dollars so it's this is in america the united states this is how the sales tax exemption process works canada is different canada is a value-added tax country so they they do things a little differently there now as we go through the public utility commissions uh some of the public utility commissions on the far right side of this slide are going to want you to register with them it's just a registration process the reports that have to be filed you know we talked about usf so there's a federal usf and there's state usf returns on the federal side that rate right now is 26 and a half percent very big and it's primarily because the federal government doesn't want to reduce their size they were put in place in 1933 1934 the federal communications commission was and if you think about it if you anybody who's old enough to remember a tv show called green acres uh green acres used to because they didn't want the telephone to going into the house they used to climb a pole and answer the phone up on top of a pole okay so telephone telecom comes back to the basically the 1890s with alexander graham bell and what what what's the history of this well telephone was the snazziest thing that they had back in the 1890s so when congress had to fund the spanish-american war in 1898 guess what they taxed that's correct they tax telephone so there's a long history in telephone or telecom or iphones or whatever being the the sexiest thing out there people will pay tax on that and so there's a tax out there called the federal excise tax it's a three percent tax it really doesn't apply to you anymore and i'll explain why later but uh your your telephone service is very different than what it was back in 1898. congress was not very smart back in 1898 so they did not have a bunch of lawyers that indexed the tax to today's technology and so that's why the irs abolished basically abolished that tax uh in july of 2006. so all these different information is kind of what you need to know as you're getting into this business you're kind of getting into what's called a regulated business the fcc regulates you okay so one of the reports that they regulate you is the 477 report we will come back and maybe talk about that we if we if we want to go through some q a so this next slide is when somebody says taxes it's this big huge word that no one really understands so i basically on this slide try to split this out for you so we have taxes true think think let's go back to ninth grade civics okay um there was a there was a a guy who made a a uh a presentation last night at uh the republican national commission the convention said that he flunked he flunked civic ninth grade civics uh but he made it he's a senator now he's from south carolina he's been a senator for seven years and he made a little joke saying uh uh that there's a lot of people in washington into funk civics um anyhow but we go back to ninth grade civics you have a judicial branch you have a legislative branch and you have an executive branch so on the left side we have what's called the legislative branch and so these are taxes these are things that are approved by the house approved by the senate of the state and then signed off by the governor now that legislative branch at the county is the county commission and at the city it's the city commission and at the 911 it's the local boards so now this these taxes that you're billing on your bill to your customer these are considered fiduciary taxes so what's that mean well that means it's the government's money it's not yours all you are is a fiduciary your billing and you're the conduit of getting that money off to the government it's kind of like payroll taxes payroll taxes are fiduciary taxes if you have a bunch of employees and you give them a salary they're going to come back and tell you hey this is the percent i want you to keep so that you can send off to uncle sam so that at the end of the year when i file a 1040 return i can make sure that they show that i've already paid 2 000 and if i owe twenty two hundred dollars i only have to pay 200 bucks difference so these are fiduciary taxes so you you actually can't you should not be touching this money um you know we have another item out there called the social security and we say oh there's a lock box well there's no lock box for social security trust fund but this is this is like that though you really should keep this away from your working capital of your company um so uh on their on their books for an accounting purpose uh this is not considered revenue it's considered a tax okay it's from the legislative branch so that's so you don't have to call it revenue in the middle column is the federal communications commission and it includes also the state commissions okay these are the executive branch of the government the executive branch of the government doesn't have the power to tax however they do have the power to put a mandatory surcharge or a fee and that's what the federal universal service fund is it's a mandatory charge and so again it's a fiduciary fiduciary item it's the government's money not yours and this is because this is not taxes this is considered revenue so sometimes you'll hear this term thrown out there called tax on tax well there's really no such thing as tax on tax we defend about 100 100 companies in audits governmental audits state usf state department of revenue audits and the they don't have the power the government doesn't have the power to charge taxes on something that is a tax but they do can charge on deaths and so this is a governmental surcharge and so this adds to the revenue base of your sales taxes um oh and you can see a lot of wording at the bottom i don't want to just read screens but off to the right i have a picture of john wayne and it's john wayne because these things on the right are called company imposter charges there's the wild wild left here if you want to charge a company and post surcharge of 50 percent to your customer you can do so now these are not government surcharges so if you if i show you a lookup table uh tax lookup table these won't come up because these are provided by you now what are they for well sometimes they're forward effective you know you've got to pay for billing your customer and you're paying to a billing company so okay i pay the billing company x amount of dollars every month well i don't want to have that come out of my pocket i want to build a customer for the fact of having to keep in complying to regulation okay so what happens is that people will charge a regulatory recovery generally the amount is about five percent sometimes three percent sometimes five percent i've seen it go as high as eight or nine percent but then what happens is it's that old thing in economics called uh uh the guy's name is adam something but anyhow he came up with this theory called the invisible hand and so basically there's invisible hand out there in the market that if you get too greedy it's going to come slap your face and basically they'll go off and choose another company instead of you because you're being a little too greedy and trying to get too much money on company and post surcharges however there is nothing to prevent you to go as high as you'd like to in this situation so when somebody says tax a customer of yours says tax oh your taxes are too high what you want to do is show them this chart and say wait a minute there's a difference here two of the three items we have to do we don't even have a choice on this thing we have to impose this the one on the right we can possibly change it a little bit all right so now we're going to go down to state regulation there's uh there's a bunch of states that require a voip registration these aren't hard registrations they're usually three or four pages that basically just wants information on your company there's some states that don't they don't require it at all we talked about secretary of state so we'll keep going now these are some of the states that require the regulation uh this um you know you got california most people would assume california big state they certainly like to keep their thumb on on the on the scale here illinois another big one uh you can you can see them um you want to just peruse them uh there's a lot a lot of states that sometimes have rules and things of that nature you're seeing there's a there's an item in there in georgia called the cpni we're going to talk about cpni uh in a little bit there's a lot of telecom acronyms so you'll see in here there's uh puc stands for public utility commission remember that the public service commission from the fcc primarily are out there to protect the consumer from you evil company people who just want to rape and pillage and take as much money away from people as possible so that's kind of the role that they think they have even though it doesn't make any sense because if you take advantage of people you think they're gonna those customers are not gonna stay with you but over time this is what this has happened uh basically thinking that you're this way uh in mississippi there's a cpcn that needs a a certificate of propriet uh public information daca number there's c-lac which is called a competitive local exchange carrier this is competition on the local exchange side we have a lot of classes uh here compliance solutions that we can go over to kind of give you the history of certain things um i certainly don't want to uh uh you know go too long because i want to make sure there's some time for questions and answers let's do this let's do this because i'm already seeing some comments that you're not seeing why don't you explain a little bit that every state's different and every state's different counties municipalities but what are the current things that our resellers should really be looking out for in the different states that you're seeing wasn't happening a couple years ago so that they could be thinking about making better use of csi and what are some of the things that occurred that around all this regulation whether it's in a jurisdiction where they only want you to report or where they want certification and why don't you explain the difference between reporting and a certified report okay so uh the trends in the different states um are they really have kind of taken a little bit more of a nine nature they've backed up a little bit as far as from the public service commissions the actual department of revenues have gotten more aggressive so you want to make sure that we have this tax calculation system in place to make sure that we have a backup for all these different things uh there's a little bit more from a department of revenue perspective a little more checking on the 911 reporting for your revenue your 911 line based reporting uh they're looking at a few things like that from a certified report uh in essence the word certification really comes in at the federal communication level there are reports that you have to file once a year at the state public service commission level but every report has to be signed every report and most of this is done because i can if you sign off on a power of attorney i can sign on all these returns and we have a treasury account we remit all this you actually don't have to get involved in the minutia or the detail of this other than making sure that you fill and collect and transfer funds over we would handle pretty much everything else behind the scenes we'd handle all the reporting the annual reporting at the fcc for the 499a and the 499q 49q is a quarterly report and it's administered so at the irs the united states treasury office they outsource federal and individual income tax reporting to what's called the internal revenue service that's the agency that handles that at the fcc a governed another governmental agency they outsourced that work to a company called usac universal universal service administration company so at the usac website you would have to we filed the numbers you have to go out and sign it if they call it certification but it's really called signing so you just log on hit the button say that you've you've actually signed the return and go on so that's um so that's kind of the trends uh of what you got this here this next slide uh is a listing of an example a a real example of what it looks like for if you are in cook county illinois at the top you can look at the top cook county illinois you're a weight provider and you're providing service so here's a listing of all the different taxes and surcharges that that we would have to pay for you so uh on the far right side you can see the tax authority level of whether it's a city a state or a federal and go from there now if you did just simple math you would say holy cow i'm paying in 40 percent or 35 percent well you're really not paying 35 percent because remember look at the bottom there the bottom the federal universal service fund at 26.5 that is on inter-state traffic and international traffic so there's a lot of the offering that you provide as a voip provider that's not interstate it's in truck state so what you do there is we provide a traffic study to figure out and say okay we're selling a product for 50 bucks a package for fifty dollars of that fifty dollars only five percent goes across state lines so what you would do is you take fifty dollars times five percent times twenty six point five percent that's kind of how you would do that math so in essence you're probably looking at approximately 18 to 20 tax on on things now remember this is surcharges and taxes i just use the word tax so this is a live example we have a look up table you can look at this anytime you want 24 7 365. if you go to my website you can use a username of sales example and and a password of example so wes johnson is on this call with johnson is my sales person that supports all of the sky switch customers he can email you that user user id and password and he can answer a lot of these questions if i'm not able to address them the rest of the the rest of the time so i'm going to go down to the telecom void providers startup requirements we would register you with the 499 to get you set for federal universal service this also includes federal trs which is telecom relay for the death and the local number portability so local portability means that if you have a telephone number it gets ported from state to state if necessary the 477 return is a return that you have to report twice a year that report does by it goes by census tract which is like by one tenth of a mile where is your customer base at so you have to have an enhanced 9-1-1 system in place that enhancement on one system in place at the fcc is to say hey if somebody picks up the phone calls 9-1-1 they don't they don't they can't complete the phone call because they're having a heart attack the people on the other side the number one dispatcher can figure out exactly where you're at and then they can send the police fire an ambulance now uh those are the emergencies quick question here so everyone understands it filing is is complicated if somebody gives you a power of attorney and hire csi the csi do all of these submissions from startup to recurring to ongoing documentation for them as long as they provide you the information yes okay so that process is is what they give you a power of attorney electronically or does th t have to be wed inc what happens there so that you can someone can get started with csi and you you do the heavy lifting for the resellers of what has to be submitted because you figured out all the all the ways to do the submission what does that process look like uh the process is there's a three-page contract that just goes over what you need to provide to us as far as revenues every month and generally you don't have to do anything we get the information from datagate or or revio what we do then is in that three-page contract that goes over the treasury function of making sure that we provide a detailed treasury report to you that's how you fund we actually pull the money out of your account using an ach debit process using wells fargo and then there's a one page last page for page fours that is a power of attorney so that we can file these returns on your all the different things on your behalf we do all of this guys i don't want to i don't i want to make it it's clear it's so simple on you if you'd like us to do this and so it's it's all you're doing is signing off on the contract and scanning it and sending it back to us there's no huge web signatures you have to do at this point one the most intrusive part of this is that when we file the fcc form usf for 499 returns is you have to go to a website and click off on a button that you're signing the return because usac will not let us do that but my assistant nick and others can call you and walk you right through the process it takes less than about three minutes and we'll walk through you by spring by screen we'll we'll hold your hand all the way through this whole thing and we do 99.9 percent of the work so i just want to make it easier on that i'm hearing is you're doing the heavy lifting you're doing the work because you're integrating with two of our billing providers datagate and revio and we've had both of them on webinars like this and they've talked with the resellers and we have many many many resellers on revio a few weeks ago patrick elliott from revio on here talking about the rev i o platform and all the advancements they've made a couple months ago we had mark from datagate and all the advances they've done including incorporating the connect wise what i'm hearing is this frees up the reseller and it allows them to do what they have to do which is take care of their customer put more customers on board and live their life and not get caught up in the minutia of every state so you might be a telecom reseller in say georgia but you may have customers in alabama or florida and not be as familiar with the different regulations and compliance requirements for filing in those states it sounds like you take that pressure and that workload off of the reseller and do it all your all within the csi umbrella that's correct it's more a one-stop shop we can even do your corporate income tax work so we've been talking about transaction tax and fcc at this point but if you don't have a corporate income tax preparer we can do your corporate income taxes as well we do everything in the tax world and in the regulatory world and you're exactly right what this does is now you can focus on your customer you can focus on growth we'll take all of that administrative hassle off your shoulders and now you can now you can grow and and as i always put it the longer time that the government's involved with you the more time you're wasting on something that's not profitable so uh so yeah certainly we will we'll handle everything for you in the interest of time because we have 20 minutes left i want to keep you moving through the important points but i want to allow 10 minutes at the end for q a and we already have a few questions coming in remember folks you want to be eligible to be in contention for that sky switch swag you've got to ask a question so go ahead mark what's next okay real quick i'm going to go i'm going to finish within just another minute or so leave more time for questions the fcc cpni report sometimes you don't know the acronym cp9 means because customer prior to your network information report this means that the fcc requires you to make sure that you don't disclose any of your customer information like you can't take a customer base and then sell it for telemarketing purposes or anything like that that's against the rules and they have heavy fines for that so they want to make sure that you you have to kind of abide by the same rules at t and verizon do okay so that's what that means um i can we do have these conferences that compliance solutions have it's like a user's conference and when they're down at disney and we do them in person and all you have to do is actually have your airfare in your hotel we pick up the meals we pick up all the different things but it's free seminar on this type of stuff and it's sometimes very good we usually throw a golf tournament in there and stuff like that too the next thing is the historia the history of the rates so basically we started off in 1998 with a four percent rate in federal usf and now we're in 2020 with the 26 and a half percent rate it's just huge okay um i can explain why but it is okay caleb compliance this is uh what you have to do because you're you're basically regulated by the fcc you have to provide information for law enforcement so in essence if there's a sex offender or something like that or somebody stole a kid a child or whatever a kidnapping or whatever and law enforcement knows what's going on whether it's the fbi or local police and they know that let's say that customer is using a telephone system and they're using your numbers or somehow you're involved in all that you have to be able to provide to the federal government all of this information that the government requires so they could go catch this crook or this criminal or whatever and that's in essence what kalia compliance is i can go into a lot of detail but i that's you just need to participate in this we have a couple we have a company that does this that helps you out with this to navigate you through it it's a company with about 40 different ex fbi agents if you need it many times you won't need this so i wouldn't be too concerned about this but i just want you to know you have to you do have to comply with that and then the last part is this uh the i'll say that uh i'm a big proponent of president ronald reagan and he always said the closest thing to eternal life that we'll ever see on this earth is being on a governmental list so we know that taxes are there and death is there those are the two true is the third thing is basically being on a governmental list so we want to make sure that we don't get you on a governor list until you're ready or you need to be on there and of course then the last thing is the nice nine most terrifying words in the english language according to president ronald reagan as i'm from the government i'm here to help this is so true the government agencies the fcc and all that are not here to help you they are here to get your money you will hear terms like this at the fcc and for usac called the minimus then minimus is the most craziest term that you've thought of basically people will say oh i'm diminished i don't have to pay shuttle usf the minimus means that you don't owe more than 10 000 a year of federal universal service it does not mean that you don't have to build federal usf to your customer because if you are not big enough to build federal usf then your underlying carrier sky switch has to bill you for federal usf there's no free lunch there's no chicken in every pot a car in every garage the government is not here to help you i don't know how much passion i can tell you this the government is not here to help you i deal with you sac and the fcc all the time i'm not saying they're not good people i'm just telling you they are not after the they're not out here to help the little guy they would rather have they'd rather have a hundred att's out there that are making a billion dollars a piece then they only have to regulate 100 people instead of regulating 5 000 people out there so you i don't want to be dogmatic here but you need to have somebody that helps you because if you call you sac you got to act like they're your friend but they're going to get you in a world of hurt okay um so uh that being said uh i think we're uh we're ready for questions and answers okay well that's great you certainly gave a nice overview one of the questions that came in from carl klinger which you talked a lot about phone calls and a little bit about texting but his question is what's the regulations around sms advertising in the sense of one-way communication how is that taxed and what do you have to report and what do you have to certify uh so so sms texting if it's an information service so sometimes sms can be can be considered communications so if i'm texting you or i'm texting wes with information that would be subject to federal universal service if you're texting information from the stock market the new york stock exchange of what's going on or you see a news story or whatever that's not subject to uh regulation uh so it just depends if it's an information service or not if it is a two-way communication service you'd be subject the safe harbor percent it's called a safe harbor percentage and you haven't heard this term before so safe harbor means as we talked about separation safe harbor is what the government will allow you to use in case you can't figure out what the traffic study is so the safe harbor percent for sms texting is ten percent so is every text they consider the two-way text goes across state lines ten percent of the time uh and so what happens is that in this case you would have sales tax generally just sales tax not communication tax at the state city county uh level and then if at the federal level for the second column over for the surcharges the federal surcharges you would have that twenty six and a half percent on ten percent of your revenue uh and that that would that would basically be the high level summary of what you would have next question comes from mark colic and he wants to know what does csi charge for the service and it's the second question he says he asked what are the potential penalties for not complying so let's talk about the first part what do you guys charge and how do you charge okay we charge uh on a flat rate basis so we're not lawyers we're cpas we don't turn over the fans so we don't charge you x amount of dollars per phone conversation or anything like that so what you get in the package is going to be all of the registrations all of the reporting all of the tax online tax library we keep all of that information you have access to the tax library we keep all of your money in a separate bank account so there's no commingling of funds with our 500 other plus customers we allow you to come down to our user conferences to go through things we have an executive track we have a ceo track and a tax track so some of you guys who are not going to be interested in the minutiae detail of detailed detailed stuff but we'll talk about things like merger and acquisition work and things of that nature there's a lot of things that go into this package you can contact me at any time send me an email say mark i need a half an hour your time i want to talk about such and such or i want to talk about margin acquisition or i want to talk about property taxes or maybe even corporate income taxes or franchise taxes um you know we so it's all packaged in there it's and so it's a flat rate the flat rate generally is going to be 500 a month that that includes the fcc and one state so if you if you want to do whatever if you if you need help and you're looking at texas you could be in a thousand cities in texas and all for the 500 a month and we handle all the tax prep file remit all that back office everything there now when you go to the second state generally the second state is let's say you want to add oklahoma so generally there we'd add 125 to go to the next state so we want to grow with you very similar to the model that scott switch has we want to grow with you uh we want to help you so that you don't have any issues to go there now there's one question you didn't ask related to that but let me go ahead and see if i can answer that for a second let's say you have um let's say you're billing uh a hundred dollars a month to a customer in new mexico and you say okay well i'm only i'm only billing and collecting tax of 25 in new mexico should i really add that state uh and i'd say and i would come back and i'd say well we usually use a little test remember the remember the statement for ronald reagan you know that you don't want to be on a government list until you're ready to be there so we wouldn't really have new mexico at that time but we would do is we would monitor it we look at it for three or four months to see hey did that 25 dollars grow uh the 35 over a couple months uh or did you have what i call a trampoline customer you know you have a customer there in new mexico they do great and then after 60 days they say i don't want your service anymore well if we register you there you're stuck you're registered in new mexico we can get you out but it's a little harder to get off a governmental list so what we would do is we would monitor it with you and we'd partner with you and grow with you we did you different reports so that you can actually handle things so you can do your books now we we do all of the you know the assistance from the accounting side uh that you would need uh in a tax cut you indeed so uh so don't let's say you have a customer in texas they have a subsidiary in new mexico they want your service and now you say okay well i can't provide service in new mexico because we don't want to register new mexico no you do want to provide service in mexico grow with them what we're going to do is we're going to take the tax dollars that you build to that customer in new mexico we're going to put it into the csi um the csi treasury account that's only yours again you get a bank statement on this it's not co-mingled with anybody else stick it into that lock box basically and now you have that information right there it's fiduciary money it's not yours you stuck it into that account and now in four months when you decide okay we do need to go ahead and register new mexico now all that money's there we'll go ahead and admit that so it's a real true partnership of of about growth we have hundreds of sky switch customers that uh we've used and we've helped over the last you know five six seven eight years or whatever so um sorry to answer that an extra question you didn't ask but i figured that's the next step generally with entrepreneurs you're going to grow and you're going to be very opportunistic to keep moving so i wanted to i wanted to address that okay well that leads us to pretty much the last question we have and it's all about usf what ken corbett asks is if the telecom provider which would be like the company like skyswitch collects the usf how much risk is there is it large or small so that assumes that you're at the minimus level because skyswitch cannot collect your federal usf if you're over the minimus level again the federal the fcc doesn't love small companies um they don't they don't love mid companies they just want your money they're uh they're there to collect your revenue and they want to make sure and they want to test to make sure that what you said is interstate communications is not uh is not under undervalued so let's say you know you you say well i only think 50 of the interstate well they're going to test that they're going to make sure that you have what the amount is so so if you're if you're under if you owe less than 10 000 now so let's let's break that down like an onion let's go ahead and layer that back what does that mean well at twenty six and a half percent when the rate was ten percent the the calculation to pay in the federal usf was you take your interstate revenue times uh you take your revenue times your percentage of interstate use times the tax rate the federal usf rate so it used to be you had to have a hundred thousand dollars worth of revenue in or er to participate in the federal university service program as a direct contributor or direct input you get a direct invoice from them with the rate going up to 26 and a half percent you have to only have 35 000 of interstate revenue to get across that 10 000 threshold almost everybody's a direct contributor now there's very few where where sky switch is going to bill you for usf but if spike which builds you from the federal usf and you're still below that threshold then there's no risk i mean the risk the risk factor is making sure you pace ci switch for federal usf and that we full disclosure compliance solutions handles all of the reporting requirements for skype switch as well so we report 499 stuff for sky switch as well and all the states so when compliance solutions handles you as a reseller we also handle um sky switch so we look at both sides and so we'll see both sides and we'll if that's the case then then then you then scotch which will bill you for federal us act and we'll remit it through sky switch it's best in my opinion this is my opinion it's best sometimes when you do that you become the grandchild you don't really control your destiny so i always try to consult with clients to to not be the grandchild of somebody else if possible related to the federal usf um it doesn't hurt anything for you to go ahead and file and pay directly to usac even if you're in the minimum status so some wouldn't recommend it but you know when i consult with you i always tell you three things i'm going to tell you number one what is the statute say i'm going to tell you number two what does the industry do and what number three is what would mark lammer what would i do if i owned your company so i give you all three pieces of information and then i let you make the decision and then we go ahead and execute your decision so we're truly your advocates and your preparers and your consultants and my job is to make sure i educate you on as much as i can so that's a long answer to your question but hopefully it's a thorough answer sounds like you've got it well in hand it sounds like all of our resellers should be really you know tuned in to what csi's doing um dale morgan asks we've got um one question so i heard the u.s efforts changed at the beginning of this quarter and now interstate calls are now also interest state calls are now also taxed this is a yes no answer is this true yeah okay next question the answer is ken corbett said you missed the point of the question usf is collected i want to know about the risk of city or state local not being filed he's going back to the fact that sky switch was doing the collecting which would only be in the case of diminished as you talked so he wanted to know is is there a risk of city state or local not being filed the answer to that is yes so i gotta tell you again here's the i'm gonna tell you number one what's the statute say so at the state city and county dog factory level there's no de minimis there's no such thing as the minimus if you collect five cents for selling a piece of wrigley gum experiment gum uh you have to pay that out okay so uh is that feasible to do that it's not always feasible to do that because the patent because you haven't you don't have that many customers in that state so that's where i came with the example of new mexico but the answer is yes you need to collect remember now there's a couple different terms there's billing and collection so you could build that to your customer if your customer doesn't pay you the tax you don't have to remit it okay so you have to make sure that you report that build taxes and then there's an amount for uncollectible on the tax return as well but you would need to bill and register for at the state county facility level uh paris level if you're louisiana is there a risk they're going to come after you yes there is a risk depending on the state the question is is a big risk illinois yes it's a big risk okay texas not really a big risk um there they've got enough to do uh florida a risk not a huge risk um new york yes a huge risk big risk okay you tend to think of the states that are governors that are very intrusive they're going to want to get involved california yeah big risk okay so um so it the risk changes a little bit by the state um i've been doing this for 30 years so i kind of see what what goes on and where the audits are but hopefully that answers your question i think it does and i think there's a couple takeaways i've got i want to thank everybody for asking questions i want to thank you for taking time out of your day mark here's the takeaways one csi makes it easy for a reseller to comply and to be in regulatory compliance number one number two you take the workload away from a reseller and number three you obviate risk of a reseller doing something wrong because you also take on that risk for them because like an accountant or a lawyer if you do something wrong you're responsible so you you give them incredible comfort in knowing that something which is extremely complicated and changing by the day week month in all 50 states and and in canada and anywhere else csi has to monitor and file for you make it easy for the reseller there's almost no reason not to at least have an exploratory call with wes and the team at csi we've worked with them at sky switch we've had them sponsor our event last year at vectors with julian marley we've had a great rapport with you guys and our resellers have equally come back to us and told us how happy they are and how happy they've been so if you're a reseller who's sitting on a fence if you're a reseller who is unsure pick up the phone or email wes or mark they're nice people they're trusting they're trusted and they're great to work with so you've got no reason to not at least have that opening phone call and learn how they can help you they'll be transparent on their pricing mark told you it's flat rate they'll tell you what your risk factors are based on the type of business you're you're doing in the categories you're doing and where your customers are calling they've got the history they know what can happen and because they know what the different states and local taxing and regulatory authorities are doing and are about to do they'll head you off from a time-wasting situation that's a headache you don't need i'm andy abramson i'm with sky switch i'm thrilled that we've had mark lemmer and his team here to educate you about something which quite honestly is not easy to understand unless you're either an accountant or a lawyer or you have the 30 years of experience like mark mark thank you very much we'll have another uh webinar in a few weeks we're taking two weeks off it's coming close to the labor day period we know a lot of people like to take vacation back to school for those of you who have kids we're sensitive to that so we'll be back in a few weeks time with another great webinar so with all that in mind i'm andy abramson i want to thank you all again for tuning in i want to thank erica vasquez for a great job that she did we'll be awarding prizes to two lucky lucky winners who asked some questions you'll be getting that very cool sky switch swag that includes a pair of sky switch branded socks i was wearing mine the other day a hat a t-shirt and a pop socket and when we come back in september on the 15th we'll be featuring our friends from snome so be on the lookout for more information about that webinar that's coming up on the 15th via all of our social media our email blasts our weekender and most of all we want to thank you for those of you who are interested in the replay or what we call webinar rewind that'll be posted tomorrow by erica you'll get an email if you signed up for the webinar and we'll also tease it and make you aware of it again in the weekender thanks everybody for tuning in thank you to our friends at csi for being with us today compliance solutions is here to help you take advantage of their knowledge and their insight because they will save you pain i'm andy abramson goodbye