VoIP and Taxes (Again)
(Sponsor: Lok Technology)
Earlier this week, Jeff Pulver noted that Pennsylvania has decided it can tax VoIP as a telecommunications service even though it cannot regulate it as such. Andy Abramson noted Pulver's note, and commented "big trouble brewing ... big, big trouble." Now I'm noting both of their notes -- partly because Jeff's was a little mysterious about what action Pennsylvania took and partly because, although I see that the new-breed VoIP services see these tax developments as a stumbling block to their business plans, I'm not sure I buy that this is the beginning of the end for IP-communications innovation (which is how I interpret Andy's comment).
First, what Pennsylvania did, by way of CCH Tax and Accounting's no-frills but quite informative Tax Newsletter.
The newsletter says Pennsylvania declared VoIP services as subject to state and local sales tax. The state's reasoning:
"VOIP does not come within the enhanced telecommunications service exclusion from sales and use tax since VOIP uses computer-processing applications solely for the management, control, or operation of a telecommunications system or the management of a telecommunications service. Although VOIP uses Internet protocol that allows the transmission of packeted data across a network or across multiple networks, it does not interact with the information it transmits but merely serves to address and route the information."So, in my layman's interpretation: If it dials like a phone and rings like a phone, it's a phone; the particulars of how the user's voice goes from point A to point B don't concern us much.
I think this goes to an issue that I've heard Pulver and others talk about: The future for VoIP companies lies in pushing the envelope of what a telecommunications service is and can be; if they settle for delivering a service that's a phone company, only better and cheaper, then they're doomed to fail against bigger, better-funder, better-connected competitors. Regardless of warnings like that, what we see in the VoIP marketplace are phone companies that have a few more tricks up their sleeves than the tired old telcos, but, gee, they sure seem to be in the same business. This is the same issue the regulators are dealing with: Company V is signing up thousands of our people in our state. It provides phone service, and that's all it provides. But it's telling us that it's not a phone company and shouldn't be overseen or taxed as one.
This isn't an argument for turning loose every city and state to tax VoIP or for creating new, discriminatory taxes. As we've said before, the situation heightens the urgency for changing how our networks are regulated and taxed.