Senate Mulls Internet Tax Ban - VoIP Exempt?

securitas writes "eWEEK's Caron Carlson reports that this week the U.S. Senate will vote on renewing an Internet tax ban, but voice over IP (VoIP) may be taxed. The bill renews a state/local ban on taxing Internet services like VoIP. The federal government wants to define VoIP as a software application exempt from taxes while most states see it as an alternate form of telephony subject to telecommunications taxes. House and Senate bills that define VoIP as a software application have already been introduced but may not be voted on before the Internet tax vote."

pathetic

[parksie]

how are they planning on enforcing this? It's completley pointless.

I wonder why

[cluge]

Lets see - the large RBOC's and ILEC's have convinced the FCC that UNEP should be killed. God forbid that everyone has access to the infrastructure that your tax dollar helped build. Considering that many of the RBOC's are loosing money on DSL - it makes a lot of sense to not have competition in the area.

These same people have been working very hard and were able to convince some PSC that rate hikes were in order. [This besides the fact that they had highly profitable quarters even during the economic down turn] Thus stuffing the war chests of the big guys, helping them roll out their "loss leaders" in an effort to crush any competition.

Now they are agitating for VoIP with no taxes. Why? Simple. They've finally agreed to come to the party. Many companies have been doing VoIP for some time, and the idea that VoIP would be taxed has been held out, but now that the RBOC's and ILECS all have made major VoIP announcements suddenly we're considering legislation! IMAGNINE THAT!

At VON this year everyone was screaming that the government should take a "hand off approach". This included a rep from the FCC, AT&T legal, california and florida PSD reps. No one wants to "kill the goose that lays the golden egg". From my POV that is ideal. Let us compete and we will crush the inefficient, lazy, technically inept RBOC and ILECS. The problem is that I don't see this hands off approach staying that way. The FCC and california PSC guy hinted that some sort fo universal access fee may be in order. The other thing that was strongly hinted at is that the state's are going to loose a larege source of recouring revenue that they can't afford to loose. so a state tax may be considered.

In the end, I see VoIP taxes heading the same way as our current PSC and FCC. Favor the big guy (ie campaign contributers), and lets not have too much competition. It wasn't more than 2 years ago when somone said that VoIP will take 2 decades to become mainstream. Sprint, AT&T, Bell South and Verizon will all be switching voice at their cores within 7.

This bill is a step in the right direction. Lets see if the congress can keep the playing field even. If they do - the RBOC's and ILECs are in trouble unless they make some fundemental changes to their corporate cultures. I bet they will protect their little fiefdoms - look for modified legislation in the next 12-18 months to give them a leg up. (As if their monopoly's weren't enough)

cluge
AngryPeopleRule [angrypeoplerule.com]

Re:Bah

[digitalunity]

There was just recently a nice article in Forbes about this very subject. Apparently, the local phone companies are scared shitless because the internet is capable of destroying their stranglehold on the telecommunications market.

The biggest problem with taxing VoIP is that you only need to pay for VoIP when calling someone who still has POTS. VoIP-to-VoIP calls are free.
I strongly believe the feds should ban ALL taxes on internet based telecommunications.

The only good benefit we get from the phone taxes is the emergency services connection. That WILL have to be figured out though.

IP law is not the enemy?

[poptones]

All this time we keep focusing on how bad IP law is going to keep us in the technological dark ages compared to our more adaptable evolutionary cousins abroad - but really it's looking more and more like the tax-mad politicians are the true enemies of evolution. It was easy to look at the nonsense going on in India with the government attempting to ban IP telephony and criticise, but it appears our own politicians are determined to prove once and for all India (has) had nothing on us.

the chaos of law

[plnrtrvlr]

You can see all kinds of examples of how, over the years, our lawmakers have tried to govern all kinds of things that they didn't understand. If you want a good example of how the laws governing the internet will look in fifty years, go wander around among the laws governing the environment for a while, or the regulations under which the FDA operates, or anywhere else that the government tries to regulate a scientific or technical issue. These people are lawmakers, not scientists or engineers, and aside from the fact that they simply do not understand what it is they are trying to regulate, they are not really listening to anyone who does understand either. The primary focus of a lawmakers attentions are on their own wallets, followed by those people who see a profit to be made or lost, and lastly by those blocks of voters who might be able to march together under some doomsday banner of dire predictions. I don't want to sound like I'm advocating anarchy, because some degree of regulation is needed on the internet (think child porn or DDoS attacks) but the more we allow the government to regulate, the more confusing and contradictory the regulations will become. Thinking just in this cae, they might tax VoIP now, with half a dozen exceptions to exempt games for instance, only to have to pass new laws later to close loopholes and make new exemptions, until such a time as when a game-maker may need to pay a lawer a weeks worth of wages just so he can safely publish his work. I can only see internet taxes working as an all or nothing deal if we're going to avoid a tax code that would be 10 times as confusing as the most complicated codes we have now. Think some flat (2% maybe?) tax on all goods and services that would be collected by a federal department and redistributed to the states by percentage of what was actually sold in a state. If we just let the lawmakers go according to whim the resulting tax code will choke anyone who wants to do business with or on the internet. Not that I'm fond of the idea of another tax or another governmentl department to administer it.....

Re:What defines VoIP?

[kayen_telva]

They dont exist. Its a "lesser of two evils" situation and has always been. mostly.

Re:pathetic

[SquierStrat]

Of course they would. It's called power. If you control someone's finances you have power over them. That's why your employer can tell you what to do and that's why the founding fathers tried to limit taxation by banning direct taxes.

Re:Bah

[SquierStrat]

*You* don't. Most people use one though because most people have no idea how to set up their own SMTP server. You doing that would be like someone using a private courier rather than the US Postal Service. Make sense?

States like mine in a quandry

[adzoox]

So what do states like mine (South Carolina) really want?

Our govenor says that promoting small business and entrepreneurs is the key while attracting big companies like BMW.

Yet, taxing VoIP is against the sentiment entirely. I know that telephony (especially on the business side) is a VERY expensive part of my overhead. I plan on switching to Vonage soon. Taxing it would make it less of an advantage vs regular phone service.

So either our goverments want it easier to for small business to succeed due to the reduction of overhead costs that the internet brings or they don't.

It goes the same for taxes in general over the internet. Not having to collect and send in sales taxes is HUGE relief of manpower!

Exactly...

[Kjella]

*You* don't. Most people use one though because most people have no idea how to set up their own SMTP server. You doing that would be like someone using a private courier rather than the US Postal Service. Make sense?

...so when everybody you'd like to hit with this tax (i.e. spammers) would do so, haven't you then simply created a massive, complex system with lots of international tax rules, money transfers and administration for absolutely no gain at all???

Kjella

Re:They might be right

[cibus]

One has already paied for the bandwidth one uses for VoIP. Thats what differs it so much from normal telephony.
If some service provider wants to charge for a VoIP service then this provider should be taxed... but for regular "free" services taxing makes no sense.
Whats next... HTTP taxing??

Well... Let's make this simple

[Talez]

If it interfaces with the PSTN its a telecommunications medium and should be taxed accordingly because it is a PSTN service.

If its a point to point connection between two users with no PSTN involvement the baby bells can go jump.

Fair? I think so.

"On The Internet" should be irrelevant

[frankie]

Why is this so damn difficult for most people to understand?

1. Commerce "on the internet" should be treated exactly the same way as all other forms of non-local commerce (phone, fax, mail order, etc).
2. If you think we need a rule #2, please refer to rule #1.

Re:Skype?

[WindowlessView]

-->How exactly do they intend to regulate the unregulatable?

They don't. Even the pols aren't that stupid. What they will end up doing is taxing any applications that interface and crossover to the Public Switched Telephone Network (PSTN). The last time I looked Skype did not do this (and now probably won't ever do so).

Re:What defines VoIP?

[MinotaurUK]

I think it'd be extremely difficult to achieve consistent taxation across VoIP connections, simply because without a hell of a lot of packet sniffing how do you tell that the traffic is VoIP at all.

On the other hand, taxing it at the VoIP - PSTN gateway end (bear in mind most current and short-term-future VoIP use will ultimately need to break out onto a PSTN network eventually) would probably be easier to implemnet consistently.

Re:A Moving Target

[DragonTHC]

we pay communication taxes on the internet service!
and on my phone line which my DSL is on.

I pay about $20 a month just in taxes for my phone+DSL.

taxing VOIP is ridiculous since you're still paying taxes on the internet service.

as for sales tax on the web, we're still dodging that bullet.

adding it would seriously decrease website revenues.

Re:Bah

[1ucius]

I'm as anti-tax as the next, but even I am not sure if it makes sense to heavily tax POTS and then make VoIP tax free. Taxes on equivalent services should be roughly the same. Otherwise, the government is picking winners in the market.

Re:States like mine in a quandry

[gooberguy]

I think your governor might be lying just so he can get more votes while still receiving donations from larger companies (like the telephone company). Lying ,in general, is pretty common among politicians. They can even lie and stay in office. Look at Nethercutt (a representative from Washington). He promised to stay in office for only three terms, but he was doing such a good job that he ran for office again, and won again. In that case it wasn't really a bad thing since most of the people loved him, but there are many other examples that are much worse.

The States See Another Cash-Cow Disappearing

[ZPO]

The key can be found in the article...
--
"It's the threat and the possibility that all of these services could migrate to the Internet," said Alexander's aide. "As services migrate to the Internet, you could bundle these services, and the telecom taxes that states currently collect they could no longer collect." -- Sen. Lamar Alexander (R-TN)
--

This is simply about the states being afraid of losing a very lucrative revenue source. The thought behind it has nothing to do with with the implementation, the technical reasons for VoIP deployment, or even whether its a Bad Idea (TM) or not. Its all about maintaining tax revenue for the state.

There are legions of accoutants, lawyers, and beauracrats in every state (hell, in every level of government) looking for things that might be taxed to generate revenue. It has nothing to do with whether the tax is smart, appropriate, or germane. Its about finding sources of revenue to support state spending.

Maybe they'll settle on taxing PSTN bridging.

[Ungrounded Lightning]

Are we just talking about apps that mimic a telephone, or are we talking about all VoIP applications?

The sane thing to do would be to tax subscription VoIP/PSTN bridging. (PSTN = Public Switched Telephone Network.)

VoIP computer-to-computer connection is just another IP application. It lets you communicate with another computer user - but so does just about EVERY OTHER application on the Internet. (VoIP just happens to transmit voice, rather than the text streams of chat and IM, the compositions of email/blogs/web pages, the reference information of DNS, the "computer-as-person conversations" of telnet/rlogin/ssh, and so on.)

PSTN bridging creates a connection to the legacy telephone network, completing the emulation of the formaer service. You can use the "pay phone" model of outgoing calls only or the "customer line" model of a subscription that accepts PSTN calls to an assigned phone number. While it does have an Internet component, there's no question that it also has a PSTN component. It's also pretty clear that the PSTN component is the dominant functionality and the Internet component is just a new kind of "phone line" transport between the PSTN to the user.

So a logical thing to do would be to apply the tax to VoIP/PSTN bridging. This would leave pure IP applications untaxed, including computer-to-computer VoIP calls. And it would answer the fairness objections from the telephone companies.

= = = =

Alternatively, now might be a good time to review the tax structure on telephone service.

The tax to support the 911 service got hung on them as a convenient place to put it. The service was only available to telephone subscribers, so there was SOME fairness in that. But these days practically EVERYONE is a telephone subscriber, so fair allocation of the cost is not as much of an issue. And 911 is REALLY part of the dispatch functions of the emergency services (a convenience to replace fire/police callboxes and separate phone numbers for each service). It's not a necessary function of the telephone network. In fact, it's an expensive service provided BY the telephone network TO the emergency services. Shouldn't it be paid for out of the budgets of the services, rather than by a tax on phones (whose collection is ALSO a drain on the phone companies)?

Similarly, the rest of the taxes on phones are either related to specific telephone issues (funding regulatory boards, funds transfer between long-distance and local cariers related to the monopoly breakup, buying equipment for phone number portability) or yet another hidden government money grab on the consumer's pocket book for "public purposes" ("universal" and "lifeline" service subsidies, federal and local taxes). It's clearly appropriate to charge the phone-company specific fees to the phone company customers (and to VoIP/PSTN bridging customers SOLELY to the extent that they fund a function used by the bridgers as well). As for the rest: since the government isn't going to tax the Internet, it should take those taxes off the phone companies, too.

If the government wants to subsidize phone service for the poor, roll it into the welfare system (rather than soaking the other phone customers just because there's some mental resonance). If the government just wants to suck money out of the pockets of the citizens, lump it in with the other general taxes.

As for "universal service", why should the people in the cities pay for phones for people in the country? People in the cities moved there, and pay MUCH higher living costs, in order to be in closer communication with other people. If somebody in the boonies wants a wire strung 50 miles to get a benefit of city living in his lower-cost country location, let him pay for it. (Or get a cell phone and a cradle, and maybe a high-gain directional antenna, if he's within some services' coverage area.) There's no "Internet universal service" - and the government is trying to DEregulate local phone service and allow othe