911 APPORTIONMENT OPTIMIZATION

SPEAKERS:

Joe Solana, President/C.O.O. GSA – Alpharetta, Georgia

Ted Gonzales, Manager Tax Shoretel, Inc. – Sunnyvale, California

WHO WE ARE � GSA offers complete outsourcing of all Federal, State, Local and

Municipal Licensing, Registration and Filing Responsibilities. Since each carrier is different in their market approach, we create a custom Calendar for each client and monitor activity through client revenue reports.

� ShoreTel is a leading provider of cloud, onsite, and hybrid business telephony and unified communications (UC) solutions. Our award-winning, brilliantly simple communications solutions for small and mid-market companies consistently outperform the competition in customer satisfaction, customer loyalty, value, and lowest total cost of ownership.

WHAT IS 911AND WHY?

911 – HISTORICAL SIGNIFICANCE Ø  The National Emergency Number Associate was established on February 16,

1968, although not widely implemented until the 1980’s

Ø  All 911 calls are routed to Public Safety Answering Point’s (PSAP) around the country.

Ø  Approximately 96% of the U.S. 911 service is offered via Enhanced 911 (E911)

Ø  E911 automatically gives the address of the caller via an Automatic Location Identification (ALI) database

Ø  Mobiles phones utilize either Wireless Phase One (WPH1) – tower location or WPH2 which uses GPS location

Ø  VoIP – due to the nomadic nature it specifically excludes 911 service to avoid penalties for non compliance (MagicJAck, Skype)

Ø  VoIP Hosted PBX, Unified Communication providers and Residential phone providers now offer location registration in order to comply with FCC standards.

E911 Network Diagram

Ø  In the U.S., State’s under FCC guidance impose monthly fees.

Ø  Depending on the location, counties and cities may also impose a fee in addition to state fees.

Ø  Fees generally range from $.25 to $3.00 per line.

Ø  Some fees are calculated as a % of revenue.

Ø  The average fee in the U.S. is $.72.

Ø  Carriers may request reimbursement from State or Municipal funds.

Ø  How 911 line charges are calculated varies state to state and by carrier type in legislation. This is the focus of our discussion.

911 HISTORICAL - FUNDING

REGULATIONS - OPTIMIZATION & CALCULATION

TAX OPTIMIZATIONS – E911 Traffic Study - Not related to E911 unless state calculates by Revenue

Unbundling - Not related to E911 unless state calculates by Revenue, however;

-The apportionment of the bundle related to the provisioning of telecommunication services can be used to determine the line count. For Example:

- DID charges

- Trunk Charges

- SIP Trunks

- Seat Charges

Exemption Management - There are potential exemptions granted for E911, though rare.

Underlying Carrier Audit - Once you begin to register and remit for E911 billed and collected, your underlying carrier should not charge E911 any longer.

�  Interconnected VoIP Example: 1.  Seat Charges 12.0% 911 Effect 2.  Internet SIP Trunk Access 25.0% 911 Effect 3.  Router/Handsets 18.0% 4.  Feature Sets 20.0% 5.  Conferencing 12.0% 6.  Voice Mail Transcription 8.0% 7.  DID’s 5.0% 911 Effect

Ø  How do you support the allocation? FMV or cost Ø  How many service tax groups do you need to be truly optimized? Ø  How do you implement this in a billing and rating system?

UNBUNDLING 101

1. Subscriber or Seat (line) Counts

2. Access

3. Technology

Common Method of Deterring Fee Units

Example of Connecticut regulations which are indicative of many states VoIP lines are calculated per subscriber/account number. ALL VoIP line types (regular, SIP, etc.) which have the ability to reach the public switched telephone network should be added together; the charge will then be based on that total. This is used to calculate the appropriate charge within the tier structure Connecticut similar to other states has a tiered fee structure based on quantity of units determined.

SIP Interconnected VoIP – Charges based on Seat or Subscriber

This is an example of Florida’s calculation – This type of calculation method is used in many states.

� Each service provider shall bill the subscriber based on the number of access lines having access to the E911 system, up to a maximum of 25 access lines per account bill.

� Each service provider shall bill the subscriber based on five access lines per digital transmission link, (PRI or equivalent Digital-Signal-1-level service) which can be channelized and split into 23 or 24 voice-grade or data-grade channels for communications, up to a maximum of 25 access lines per account bill.

�  In the case of Florida and many other states, there is a tiered fee structure based on the quantity of units calculated

SIP Interconnected VoIP – Charges based on Access

In Some states, such as Minnesota, the fee is calculated purely based on the technology of the delivery of service or line type. •  Single & Multiple Lines - 1 surcharge per access line •  ISDN-BRI - 2 surcharge per access Line •  ISDN-PRI - 24 surcharges per ISDN-BRI •  T1/DS1 - 24 surcharges per T1/DS1 •  Partial T1s - 1 surcharge per activated channel •  Blocked Centrex - 1 charge per NAR •  Unblocked Centrex - Use “Centrex Line/Trunk Equivalency Table."

SIP Interconnected VoIP – Charges based Technology

911-EXEMPTIONS In Most states the following are common examples of exempt transactions:

Sales to state, local and federal governments Sales to not-for-profit organizations that are exclusively charitable, religious or educational.

In some states, if a client is exempt from sales and use tax on some services this extends to E911 charges as well. Illinois: Tax exempt purchases with proper documentation include E911 when the surcharge is on a tax exempt transaction. Minnesota: Fee not due if you charge a small amount of service (up to 10 minutes or $5 worth of service. Alabama: Prior to 2012 all exemptions for taxation included 911. In 2012, this was repealed and replaced with an exemption for Alabama State, Count, Local and State Educational institutions. However an exclusion of Federal government entities.

SAMPLE OPTIMIZATION/CALCULATION METHODOLOGY

SAMPLE OPTIMIZATION FOR AN INTERCONNECTED VOIP PROVIDER

Discussion of the Chicago E911 Rules Over The Top Virtual PBX - Not the provider of the SIP Trunk Calculation Methods for determining units to access fee

On Net vs. Off Net E911 Audits Books and Records

CHICAGO 911 ORDINANCE Advance Service means any telecommunications service with dynamic

bandwidth allocation such as ISDN PRI which uses a DS-1 or T-1 or similar un-channelized or multi channel transmission facility . . . That can transmit and receive at least 1.544 m3gabits per second.

Surcharges are imposed at a rate per voice grade communication channel at 5 surcharges on regular trunk lines.

Surcharges are imposed at a rate per Advanced Service at 12 surcharges per trunk line. Carriers can charge less than 12 when at least 2 bur fewer than 23 simultaneous calls can occur.

VGC* 18-23 - 12 Surcharges

VGC 12-17 - 10 Surcharges

VGC 2-11 - 8 Surcharges

* VGC (Voice Grade Communication)

SIP TRUNK STANDARD CAPACITY FIXED VOIP- REVENUE $100

State Code Tax Type Description Tax Amount County Name City Name Tax Rate Percent Taxable Fee Rate Revenue Base Tax on Tax

IL|US17031A0003 FEDERAL UNIVERSAL SERVICE FUND 11.62 COOK CHICAGO 17.9 64.9 0 64.90 0

IL|US17031A0003 FEDERAL COST RECOVERY CHARGE 1.06 COOK CHICAGO 1.635 64.9 0 64.90 0

IL|US17031A0003 IL STATE 9-1-1 SURCHARGE 0 COOK CHICAGO 0 100 0 100.00 0

IL|US17031A0003 TELECOM RELAY SERV. & EQUIP 0.01 COOK CHICAGO 0 100 0.014 100.00 0

IL|US17031A0003 IL STATE EXCISE TAX 7.89 COOK CHICAGO 7 100 0 112.68 0.8875

IL|US17031A0003 IL STATE IMF 0.56 COOK CHICAGO 0.5 100 0 112.68 0.0634

IL|US17031A0003 CHICAGO 911 SURCHARGE 3.9 COOK CHICAGO 0 100 3.9 100.00 0

IL|US17031A0003 CHICAGO SIMPLIFIED TELECOM TAX 7.89 COOK CHICAGO 7 100 0 112.68 0.8875

32.93

AZ|US04013A0018 FEDERAL UNIVERSAL SERVICE FUND 11.62 MARICOPA PHOENIX 17.9 64.9 0 64.90 0

AZ|US04013A0018 FEDERAL COST RECOVERY CHARGE 1.06 MARICOPA PHOENIX 1.635 64.9 0 64.90 0

AZ|US04013A0018 AZ TRANSACTION PRIVILEGE TAX 6.34 MARICOPA PHOENIX 5.6 100 0 113.26 0.7425

AZ|US04013A0018 AZ 911 -TELECOM SVC EXCISE TAX 0.2 MARICOPA PHOENIX 0 100 0.2 100.00 0

AZ|US04013A0018 AZ UNIVERSAL SERVICE FUND-TOLL 0.38 MARICOPA PHOENIX 0.316 100 0 120.39 0.0644

AZ|US04013A0018 COUNTY TRANSACT. PRIVILEGE TAX 0.79 MARICOPA PHOENIX 0.7 100 0 113.26 0.0928

AZ|US04013A0018 CITY TRANSACTION PRIVILEGE TAX- TELECOM 4.7 MARICOPA PHOENIX 4.7 100 0 100.00 0

25.09

Chicago Sip Trunk vs. Phoenix Sip Trunk – Standard Capacity

SIP TRUNK HIGH CAPACITY FIXED VOIP - REVENUE $100

State Code Tax Type Description Tax Amount County Name City Name Tax Rate Percent Taxable Fee Rate Revenue Base Tax on Tax

IL|US17031A0003 FEDERAL UNIVERSAL SERVICE FUND 11.62 COOK CHICAGO 17.9 64.9 0 64.90 0

IL|US17031A0003 FEDERAL COST RECOVERY CHARGE 1.06 COOK CHICAGO 1.635 64.9 0 64.90 0

IL|US17031A0003 IL TELECOM RELAY SERV. & EQUIP 0.35 COOK CHICAGO 0 100 0.35 100.00 0

IL|US17031A0003 IL STATE EXCISE TAX 7.89 COOK CHICAGO 7 100 0 112.68 0.8875

IL|US17031A0003 IL STATE IMF 0.56 COOK CHICAGO 0.5 100 0 112.68 0.0634

IL|US17031A0003 CHICAGO SIMPLIFIED TELECOM TAX 7.89 COOK CHICAGO 7 100 0 112.68 0.8875

29.37

AZ|US04013A0018 FEDERAL UNIVERSAL SERVICE FUND 11.62 MARICOPA PHOENIX 17.9 64.9 0 64.90 0

AZ|US04013A0018 FEDERAL COST RECOVERY CHARGE 1.06 MARICOPA PHOENIX 1.635 64.9 0 64.90 0

AZ|US04013A0018 AZ TRANSACTION PRIVILEGE TAX 6.34 MARICOPA PHOENIX 5.6 100 0 113.26 0.7425

AZ|US04013A0018 AZ 911 -TELECOM SVC EXCISE TAX 0.2 MARICOPA PHOENIX 0 100 0.2 100.00 0

AZ|US04013A0018 AZ UNIVERSAL SERVICE FUND-TOLL 0.38 MARICOPA PHOENIX 0.316 100 0 120.39 0.0644

AZ|US04013A0018 COUNTY TRANSACT. PRIVILEGE TAX 0.79 MARICOPA PHOENIX 0.7 100 0 113.26 0.0928

AZ|US04013A0018 CITY TRANSACTION PRIVILEGE TAX- TELECOM 4.7 MARICOPA PHOENIX 4.7 100 0 100.00 0

25.09

Chicago Sip Trunk vs. Phoenix Sip Trunk – High Capacity

OVER THE TOP PROVIDER ISSUES

•  Shoretel is not always the provider of SIP Trunks or T1’s – Over The Top Virtual PBX provider

•  However, the number of DID’s or Seats is known. Billing based on this method would create large fee’s making Shoretel uncompetitive in the marketplace.

•  This is critical situation when dealing with large Enterprise or Call Center clients having many seats but few concurrent user calls.

•  Determining method and optimization in sync with the regulations can be difficult. Since this creates two calculations – On-Net and Off-Net

  Assumptions Units     Regulation Count              Average Calls per profile in 30 days 72.05     Chicago Statute (2-11 VGC's) 8              Average Calls per day per profile 2.40     Chicago Statute (12-17 VGC's) 10            

  Average Calls per hour per profile 0.30     Chicago Statute (18-23 VGC's) 12            

  *Concurrent calls made in a day 2.40                        

            GSA GSA GSA                  Name Total

Outbound Calls

Outbound Calls To

Chicago

Total Inbound

Calls

Inbound Calls From

Chicago

Total Profiles

That Made Calls

Total Calls 30 p/profile

Total Calls made p/day p/profile

Concurrent Call Path Estimate

Total Profiles

Courtesy That

Made Calls

Total Active Profiles

Total Active Profiles

Courtesy

Total TNs That

Made Calls

Total Active

Available TNs

Total TNs

Circuit Type Total Active Circuits

Circuit Groups

  13709 4174 5610 1321 37 371 12 10 1 41 2 37 42 42Active 2w/ circuit

  2984 168 2790 264 8 373 12 10 1 11 0 8 1 52Offnet (No active circuits) 0w/o circuit  8710 2412 12176 6594 22 396 13 10 1 25 3 22 39 39Active 3w/ circuit  7602 4149 551 190 18 422 14 10 1 23 3 18 33 33Active 1w/ circuit  3938 12 9 4 9 438 15 10 1 8 0 9 11 11Active 2w/ circuit  3107 2083 2067 1303 7 444 15 10 1 7 0 7 7 7Offnet (No active circuits) 0w/o circuit

  5274 146 539 95 10 527 18 12 1 21 0 10 21 22Offnet (No active circuits) 0w/o circuit

  5009 378 2942 201 9 557 19 12 1 15 1 9 13 13Offnet (No active circuits) 0w/o circuit

  7814 337 586 130 14 558 19 12 1 28 0 14 38 38Offnet (No active circuits) 0w/o circuit  15909 848 7777 458 25 636 21 12 1 56 0 25 99 99Offnet (No active circuits) 0w/o circuit  764 764 764 27 1 764 25 12 1 1 0 1 1 1Offnet (No active circuits) 0w/o circuit  14420 111 2171 528 18 801 27 12 1 18 0 18 31 31Offnet (No active circuits) 0w/o circuit

  1095 3 95 0 1 1095 37 12 1 1 0 1 1 1Offnet (No active circuits) 0w/o circuitTotal Out

Bound Calls

630730   8754 

                     

AVERAGE CONCURRENT CALLS CALCULATION

ON-NET CALCULATION

If Carrier does provides T1 to customer:  

Calculation: Use City's surcharge chart, unless seats qty. is over 23,  then calculate the quantity T1 x 12.

Note 1:    The multiplier 12 is the max surcharges on the City’s chart.

Note 2: I do not have the number of T1’s, so I used 1 per line, the amounts will differ when actual T1 count is used.

OFF-NET CALCULATION

If Carrier does not provide T1 to customer: 

Calculation:  Use City's surcharge chart, unless seats quantity is over 23, then calculation is "quantity seats / 2".

Note:  The divisor “2” = 12 max surcharges / 24 max T1 channels

OFF-NET CALCULATION EXPLAINED

Because we do not know the number of T1’s off-net customers use, we assume they are using enough T1’s to fully support their number of seats.

 

The maximum number of surcharges can be calculated at [# seats / 2]

Sample Calculation shown in details:

     96      Number of  seats

/   24      max number channels per trunk (T1)

=    4       max number of trunks needed

x   12      max surcharges per trunk

=  48      number of surcharges

 

Result:   The number of surcharges equal half of the number of seats.

911 AUDITS – WHAT ARE THEY? �  911 Audits have been traditionally few and far between – Why?

Local authority and consortiums are small and under staffed.

�  911 Audits are increasing – similar to the rise of UUT Audits – Why?

Transfer of 911 authority and collection to the State or the PUC’s

Combining 911 Fee collection with other Taxes – CA MTS or MN TAM/TAP

Reporting 911 on Sales Tax forms is increasing

Increase in the number of VDA’s that are sales tax and 911 related by carriers.

�  911 Reporting review is increasing significantly by staff at the State and PUC level

�  911 Audits are usually simple unless a provider is using an optimization method to reduce the number of fees.

911 AUDITS – PROTECT YOURSELF •  Books and Records are the key!

•  How are you calculating - which method?

Support – usage reports, trunk reports

•  How are you billing and collecting

Does your invoice match your calculation method

Is your billing platform or tax rating engine capable of handling special calcs.

•  Does your calculation method match the services provided – Off Net vs. On Net

•  Does your contract support clients determination of Off Net use, or other calcs.

•  Is your reporting in sync with your billing and collections.

CONDUCT INTERNAL AUDIT BY A THIRD PARTY REGUALTORY FIRM OR INTERNAL AUDIT TEAM

THANK YOU FOR YOUR ATTENTION!

QUESTIONS?