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FAQ: Taxes & Surcharges
Are you confused by the charges appearing on your monthly telephone bill? Do you wonder who approved these various charges and where the money goes? After reading this information, you should have a better understanding of the charges on your bill.

Keep in mind that the general charges described here may not match word-for-word of those on your local or long distance bill. The Public Utilities Commission (PUC) in each state doesn't always tell telephone service companies what wording should be used. Also, the bill format may vary from company to company.

Generally, your charges will fall into one of the following categories: basic services, optional services (both regulated and unregulated), long distance services, or taxes, fees and surcharges. Here is a breakdown of charges covered under each category:

Basic Services
Basic services are those considered necessary for you to use your telephone. The monthly basic service charge is the rate for your residential or business line (including any "distance" or "zone" charges). Your local telephone company receives the money from these charges. The PUC must approve telephone company requests for changes in basic service rates. The PUC also determines the services or capabilities that must be included in basic service (such as dial tone, voice grade service, facsimile and data transmission capability, access to 911, access to long distance service, customer billing services, and a white page directory listing). The definition of basic service is reviewed by the PUC every three years.

Optional Services
Optional services are those special features that some customers want with their basic phone service. They can be either regulated or unregulated services. Caller ID, Call Waiting, and Toll Restriction are examples of regulated optional services. Voice Messaging is an example of an unregulated optional service, because other companies besides your local phone company can provide it to you. The PUC approves changes in rates of regulated optional services, but not for unregulated services. Your local telephone company receives the money from these charges.

Long Distance Services
Long distance charges are for those calls made to phone numbers outside of your local calling area. These include both long distance calls within your state and out-of-state long distance calls. Your local telephone company may serve as a billing agent for your long-distance carrier, or you may receive a separate bill from each provider from which you receive service. The money from these charges goes to the long-distance provider. Long distance companies offer many rate plans, which may include things like minimum usage charges, monthly fees, single bill fees, and in-state connection fees. Because you have the choice of many providers, long distance rates are minimally regulated by the Federal Communications Commission (FCC).

Taxes, Fees, & Surcharges
This is where much of the confusion over telephone charges exists. In the past few years, new federal and state charges have appeared on your bill that used to be included in your basic local or long distance rates. Some of these charges are the result of bringing competition into the local telephone market. Here is a brief explanation of some of these charges:

Municipal Charge
Nearly all cities impose Municipal Occupation taxes on local telephone companies operating within their city limits. Local telephone companies are allowed to recover that tax expense from subscribers within each applicable city. Within each city the total amount of the tax is divided by the number of customers who have service with the local telephone company to arrive at your monthly charge. The municipal charge is considered a "cost-of-doing-business" for your local telephone company. The tax rate imposed on the local telephone company varies between municipalities and is not present in unincorporated areas. Your local telephone company shows this tax as a separate item on your bill. Your city or town council must approve changes in the amount of this charge.

Federal, State & City Taxes
In addition to showing the municipal charge described earlier, your local telephone company is required to collect various kinds of taxes for payment to federal, state, county and city governments. Local and long-distance services are subject to Federal Excise Tax. Your state, all counties and cities tax local and long-distance services. Home rule cities (most larger cities) do not follow state rules and can tax different items. Only the governmental body that originally approved the taxes - such as Congress, the state legislature, a county commission, or a city or town council - can change them.

Federal Access Charge
Also can be called Subscriber Line Charge. The FCC ordered this charge to pay for part of the cost to the local telephone company of supplying a phone line to your home or business. In July of 2000, the Federal Access Charge was combined with the Presubscribed Interexchange Carrier Charge (PICC). As a result, the Federal Access Charge increased. As of July 1, 2004, the charge was $6.50 for your first residential line or business line, and $7 for each additional residential line. For multi-line businesses, the maximum is $9.20 per additional line. The FCC must approve changes in the amount of this charge. The money from the charge goes to your local telephone company.

Federal Universal Service Fund (USF)
The FCC created this charge in 1998 as part of its overhaul of telephone fees. Telecommunications carriers pay into the fund based on their interstate revenues and are permitted to recover those costs from customers. The fund is used to keep rates affordable for low-income customers and those who live in high-cost areas. It also supports telecommunications services for libraries, schools and rural health care providers.

Local Number Portability (LNP)
Also can be called Service Provider Portability. Number portability allows customers to retain their telephone numbers when switching to a competitive local provider at the same location of their residence or business. The fee, set by the FCC, offsets the costs to the local telephone company for providing this technical service. Some phone service customers may receive a credit for this charge on their monthly bill.

Universal Service Charge
This charge was implemented by the FCC to ensure affordable access to telecommunications services for low income consumers, rural consumers, schools and libraries, and rural health care providers. The long distance companies pay an amount to the FCC based on the previous year's revenues. The charge can either be based on a percentage of the interstate bill or a flat rate. Many comnpanies charge 4.9%. Other companies, such as AT&T, charge a flat rate of less than $1.00. Carriers are free to decide how to recover the charge from consumers.

Lifeline
State legislatures have established this fund, also known as a low-income telephone assistance fund. The program recognizes the need for all citizens to have access to a telephone for safety reasons. The fund is used to offset the costs of providing local service at a discounted rate for qualifying low-income customers. The PUC reviews this charge on an annual basis and adjusts the rate accordingly.

Telecommunications Relay Fund
State legislatures created this fund to help hearing-impaired and speech-impaired customers obtain the assistance they need to use the telephone. Money generated from this charge is used to pay for the costs of providing the operator relay system services. Total costs of administering and delivering the relay services are divided by the total number of telephone access lines in your state to arrive at your monthly charge. The PUC reviews this fund on an annual basis and may adjust the monthly charge as needed.

911 Surcharge
State law authorized counties and 911 authority boards to charge up to 70 cents per line or wireless access per month to pay for equipment and other costs (excluding personnel costs) of providing 911 service. The amount of the 911 Surcharge on your bill will vary, depending on where you live.

Presubscribed Interexchange Carrier Charge
This charge was implemented by the FCC to allow local telephone carriers to collect access charges from long distance carriers for the use of their phone lines. The long distance companies pay local telephone carriers a flat-rate, per-telephone line charge. The charge varies from state to state based on the cost of providing local phone service in each area. For 1998, the maximum charge for primary residential lines and single-line business lines is $.53 per month. For non-primary residential lines, the maximum charge is $1.50 per line per month. Long distance phone carriers have passed this charge along to their customers at their own rates. Has sometimes been combined with Federal Access Charge or Subscriber Line Charge.

 
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