Thursday, November 18, 2004 - The Progress & Freedom Foundation Blog

Internet Taxation and VoIP

It appears Congress, in the 13th hour (we're past midnight when in a lame duck), is finally ready to extend the moratorium on discriminatory Internet taxes and access taxes, more than a year after the previous moratorium expired. Jonathan Krim of The Washington Post reports today that a year-long deadlock on legislation has been broken. A key victory is that the moratorium, while not permanent, for the first time explicitly bans taxes on DSL service.

This debate is far from over, however. VoIP will loom large between now and November 2007, when this new moratorium is due to expire. Former governors now in the Senate, including Lamar Alexander (R-Tennessee) and Tom Carper (D-Delaware), will make sure of that. These two successfully prevented the moratorium from becoming permanent, and fear that as consumers shift from regulated wireline phone service to potentially unregulated VoIP, the tax revenue states and localities draw from those wireline services will disappear.

The Senate sponsors of the moratorium, George Allen (R-Virginia) and Ron Wyden (D-Oregon), insist their legislation doesn't address taxation of VoIP. But just as VoIP is forcing a reexamination of universal service subsidies (a topic PFF will examine in a December 3 congressional seminar), VoIP also should force a reexamination of the logic behind telecom taxation. If current telecom taxes aren't justifiable, does it make sense to migrate them to VoIP?

As Kyle and Randy have noted, the FCC has taken its first step in preempting states from regulating VoIP. Keep in mind, however, there are thousands more state and local taxing authorities than there are public utility commissions.

posted by Patrick Ross @ 9:40 AM | VoIP