Legal Alerts and Articles
New State USF Programs
Service providers, including toll resellers, prepaid providers, MVNOs and wireless service providers, are increasingly facing a relatively new multijurisdictional obligation: state universal service funds ("USF"). State-level USF can now be found in approximately twenty-four (24) U.S. states and territories, each with varying assessment rates, filing schedules and governing regulations. State USF programs are generally similar to the federal USF program but, unfortunately, each state USF program must be approached on an individual basis in each state in which a provider offers in-state service. Providers not remitting state USF payments or filing required forms face multiplying penalties and liability.
State USF assessment rates vary from approximately 0.03033% to 6.95% of intrastate telecommunications revenues. Assessment rates are normally revised annually, biannually, or quarterly by the appropriate state USF administrator or public utilities commission ("PUC"). On the low end of the spectrum, the assessment rate for Nevada USF is currently set at 0.0%, (meaning that no remittance contributions were necessary for the current period), though carriers must continue to file and report revenue to the USF administrator.
Similar to the federal USF program, states generally permit carriers to pass along the applicable surcharge to end users. Many states have specific requirements as to how the charge must read on an end user's billing statement, if applicable. If providers choose to collect payment from end users for state USF, they will often have to file concurring tariff sheets to that effect with the state PUC.
Over half of the state-level USF programs in force are managed directly by PUCs. The remaining states are managed by one of a small number of neutral third-party administrators or consultants, the largest of which is Solix Inc. In recent months, third-party administrators such as Solix Inc. have been performing audits of telecommunications carriers to ensure compliance and proper remittance of contributions to the various state programs.
States often require monthly reporting and remittances for USF. As with federal USF, telecommunications revenues typically will determine payment frequency. For example, in Nebraska, companies that generate less than $20,000 per year in revenue may file quarterly; otherwise they must file on a monthly basis. In Nevada, carriers can chose to either file quarterly or annually. Kansas carriers with anticipated annual intrastate retail revenue below $50,000 must file an election with the Kansas USF administrator if they wish to report and pay on any basis other than monthly. Kansas carriers earning less than $50,000 are required to pay on a quarterly, semi-annual, or annual basis, depending on specific revenue calculations. In numerous states, a mandatory annual true-up (comparable to the federal program) is required for revenue generated in the previous year.
As with the federal USF program, states will not hesitate to penalize carriers for failure to file forms, submit forms on time, or pay remittances to the fund. Each state has its own procedures for enforcement. If a company is found in violation of state regulations, it stands to be fined by the state PUC. Particularly in states that are managed by third-party administrators such as Solix Inc., risks for non compliance are rising. As a result, there is no reason to suspect states to be any less aggressive than the FCC has been in penalizing carriers for similar USF-related offenses.
State USF obligations, while still evolving, are here to stay. They require no less attention than the federal USF program by service providers. If your company has questions regarding its state USF obligations, or requires assistance, please do not hesitate to contact us.
February 2008