Tax-Free VoIP Forever! Forever?
(Sponsor: Lok Technology)
Jeff Pulver has been raising the alarm -- first on a post to his blog, then last week in a letter to the Wall Street Journal that made many of the same points -- that state and local governments far and wide are concocting tax schemes that will cripple VoIP. The argument, not a new one, is this: By taxing services based on this promising technology now, its development will be stunted and consumers will be denied its benefits.
I've got a couple of problems with Jeff's arm-waving on this subject. The first is purely factual. He repeatedly mentions that governors and unnamed people in Congress are hatching a plan to hit VoIP with "sin level" taxes, and he quotes a rate of 20 percent. Problem is, no one's proposing any such thing. His claim is apparently based on a misreading of the Journal's editorial. When you go back and read that, you find a statement attributed to the Council on State Taxation that current telecom taxes average 17.9 percent and produce $20 billion a year for state and local governments. The Journal's editorial skips over some important context provided in the Business Week article it quotes: That Virginia Gov. Mark Warner, while indeed attempting to bring VoIP services under his state's telecom tax, is working for a plan that would tax all voice services at the same 5 percent rate. If anyone's concocting a 20 percent tax, there's no evidence in the sources that Jeff refers to.
The second bone I have to pick with Jeff's screed is the outraged tone and panicky logic. To hear him tell it, the VoIP game in the United States is over if some city or state taxes it. Jeff's right that when cities like Santa Monica, California, with its 10 percent tax on utility users' bills, start putting their hand out, it complicates things for the VoIP firms. But it's disingenous, at best, to argue that the stakes are all about innovation and the most wonderful consumer experience that industry geniuses can devise, or that the business will be untenable if it's taxed. Vonage has boasted in its ads that it's "your phone company's worst nightmare." So when it comes to getting your business, it's a phone company, only better; but when it comes to taxes, it's not a phone company at all, but a bridge to a glorious new world that will only take shape if it remains tax free. That just doesn't wash. And unless you just expect government and all its necessary and desired roles to simply disappear or be farmed out to Halliburton, that's not a realistic or responsible position as the the move to VoIP accelerates.
OK, so what would be realistic and responsible? Kevin Werbach has laid out a pretty good outline for a prudent way to proceed. Specifically, he's talked about a "layered approach" that essentially distinguishes between networks and the applications, like VoIP, that ride on them. That approach could lead to something you might call an Internet tax: Taxing the connection to the consumer, but not the applications that the consumer runs on that connection. The goal is a fairer and more rational regime of regulation, taxes and fees throughout the telecom sector. The way to get there is to discuss the issues and negotiate the specifics. For someone like Jeff, I'd think that now's the time to get involved in that discussion rather than screaming that the sky is falling the first time someone says "tax" and "VoIP" in the same breath.