How 5G Wireless Networks Will Shape IoT Adoption and Telecom Taxation

The next two or three years are poised to become one of the most transformative periods in telecommunications history, says Tony Susak, General Manager of Avalara Communications’ tax business. With over three decades of industry experience, Susak believes 5G will unlock powerful new products for consumers and businesses alike, while supercharging Internet‑of‑Things (IoT) adoption.

While the spotlight often shines on the data‑intensive applications 5G will enable, fewer experts have examined the cost to subscribers and the tax implications for 5G‑driven services. Accenture estimates that telcos have already invested a combined $275 billion in 5G technology, and McKinsey notes that total network costs could double, indicating that service pricing may rise accordingly.

Telecommunications is the most heavily taxed service sector in the United States. "Any telecommunication‑related service can attract multiple levies—local sales tax, state tax, federal tax, E911, utility user tax, gross receipts tax, business and occupation tax, and more," Susak explains. "Taken together, those taxes can result in a combined rate of 20 % or higher."

For companies planning to launch new offerings on 5G, understanding potential telecom tax exposure is essential. Susak cautions that overlooking these taxes can jeopardize a product launch. For example, a 5G‑enabled autonomous‑vehicle service that tracks traffic and enables in‑car voice communication might be offered on a subscription basis. If the provider collects only sales tax—say 7 %—but the total telecom tax burden is 20 %, an audit would reveal a 13 % shortfall that cannot be collected retroactively, potentially triggering angry customer calls and damaging the brand.

Telecom taxes apply across a wide range of industries—healthcare, manufacturing, smart cities, smart buildings, agriculture, and beyond.

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So how can a company determine whether telecom taxes apply to a specific 5G‑enabled product or service? The answer is often "it depends." There is no single, universally accepted definition of telecommunications. The FCC has its own definition, and each of the roughly 50 public‑utility commissions and state revenue departments also has theirs.

Complicating matters, tax guidance rarely keeps pace with rapidly evolving technology. Cities such as Los Angeles, Chicago, and New York have particularly complex telecom tax regimes.

Susak recalls working on GM’s OnStar line from 2006 to 2012, when it was unclear whether OnStar was a telecommunications service or an information service. Early telematics—diagnosing a vehicle, monitoring tire pressure, remotely disabling a stolen car—was unprecedented and raised similar tax questions as VoIP and streaming video did when they first emerged.

Companies venturing into the telecommunications space must educate themselves on these tax complexities. Because technology moves far faster than tax law, gray areas will arise that can have significant bottom‑line consequences.

To prepare for potential telecom taxation, Susak recommends the following considerations:

• Identify which of your products currently fall under telecommunications tax.
• If a product is taxable, take the necessary steps before launch.
• Litigation with tax authorities is expensive; a loss in one state can trigger a domino effect.
• Form coalitions with like‑situated companies to promote consistent tax treatment.
• Marketing language matters—labeling a product as a telecom service can trigger tax liability.
• Assess your supply chain: how the product is delivered and who bears tax responsibility.
• When in doubt, seek counsel from a major accounting firm for complex cases.
• Ensure your financial systems can handle telecom tax nuances.

In short, 5G is advancing at a pace that outstrips tax and regulatory bodies. "They will eventually catch up, but until then compliance remains incredibly complex," Susak says. "Understanding potential telecom tax impacts and preparing for calculation and filing are critical for a successful product launch."