Wednesday, December 22, 2004 - The Progress & Freedom Foundation Blog

Telephone Taxes in '05

A Wall Street Journal editorial pulls together the threads of three distinct digital tax issues under the heading "A National Telephone Tax?" (Subscription required) As one might expect, the editorial board at the WSJ does not favor a new national telephone tax. In addition to the market distortions it would present, the WSJ presents persuasive data on a rising tide of state revenues. Economic growth tends to increase tax receipts even when the taxman cannot reach new technologies.

However, the distinct issues are serious enough to warrant their own treatment. First there is the issue of state and local taxes on Internet-based calling. According to the WSJ, states are on the offensive on this point and rightly see the traditional tax base in decline insofar as taxes were levied on traditional telephone service. VoIP bedevils state officials on the jurisdictional issues that dominate regulatory policy as well as the pending decline of tax revenues built into the old system. How many firehouses will be shuttered because cities have not figured out how to tax VoIP? (Not many...unless you live exclusively in the land of outlandish rhetoric.)

Second, there are the manifold problems associated with "streamlined use tax" proposals. In effect, it is a cartel for state revenue officers. Finally, there is the recently enacted Internet Tax Non-Discrimination Act. This "Internet tax freedom" act only temporarily extended the prohibition on Internet access taxes and the like. Watch for the intersection of technology and taxation in the New Year; in one way or another we are bound for a collision as these issues gain traction.

posted by @ 2:50 PM | Communications