Two States, Two Very Different Approaches To VoIP Regulation

from the quacks-like-a-duck dept

For many years, states have been trying to tax VoIP providers as if they were telcos. From the states' perspective, they were using a "quacks like a duck" test, whereby any phone service that acted like a traditional phone service should get taxed like a traditional phone service. Since states rely on tax dollars so much, this feeling was reinforced as people started ditching landline phone service for VoIP providers. However, there are a few problems with this. The reason that telcos are taxed is because of the structure of the telephone system, and the fact that the government more or less handed over rights of way and control of the system to private companies. VoIP providers, however, have the calls travel over the internet, changing the nature of the equation, and meaning that most of the reasons for taxing telcos shouldn't apply. Shouldn't, except for politicians who can't see beyond the money. Yet, taxing VoIP is a doubly bad idea, because VoIP is still an emerging service that is rapidly changing -- offering new services and opportunities that weren't possible on landline offerings. Putting a tax on it could kill a lot of that innovation. Too many states don't see that.

Jeff Pulver is showing the contrast between two states in dealing with VoIP regulatory issues. New Jersey has passed a law saying that it will not regulate VoIP, noting "The proliferation of new technologies and applications and the growth in the number of providers developing and offering innovative services using Internet Protocol is due in large part to a light regulatory touch, including freedom from traditional telephone regulation that these new technologies and services and the companies that offer them have enjoyed in New Jersey.... These economic benefits, including consumer choice, new jobs, and significant capital investment, will be jeopardized and competition minimized by the imposition of traditional State entry and rate regulation on Voice over Internet Protocol service and Internet protocol-enabled service."

Unfortunately, Missouri isn't quite so enlightened. Despite various rulings saying that VoIP should not be taxed, Missouri is trying to bend the rules to make at least some VoIP offerings (mainly those provided by cable companies) classified as telco services that need to be taxed. As Jeff notes, if this works, then expect other states to follow suit and create loopholes for taxing VoIP providers... and then watch as all VoIP related innovation happens elsewhere.

Reader Comments (rss)

(Flattened / Threaded)

  1. Taxing VoIP

    I guess Missouri must need the money pretty bad, maybe pursuing this position to make up for lost income from other sources.

    reply to this | link to this | view in thread ]

  2. identicon
    David Frier, Nov 7th, 2007 @ 9:38pm

    Oh BTW

    New Jersey *is* home to Vonage, who probably bought and paid for that result.

    reply to this | link to this | view in thread ]

  3. identicon
    Robert, Nov 7th, 2007 @ 10:41pm

    Re: Oh BTW

    New Jersey *is* home to Vonage, who probably bought and paid for that result.

    You moron, do you really want more taxes ?

    reply to this | link to this | view in thread ]

  4. identicon
    Kevin, Nov 8th, 2007 @ 4:05am

    Re: Re: Oh BTW

    You moron, do you really want more taxes ?

    I find it funny that in America, which has one of the lowest tax rates in the western world, people constantly cry about taxes liked they're being taxed into the poorhouse. Quick deprogramming session for you: Not all taxes are bad. Some taxes make sense. Without taxes we wouldn't have a freeway system. Without taxes we wouldn't have police and fire service. Without taxes we wouldn't have a standing army capable of invading countries at random and toppling their governments.

    reply to this | link to this | view in thread ]

  5. identicon
    me.g33k, Nov 8th, 2007 @ 4:29am

    Re: Re: Oh BTW by Kevin


    Kevin you sound like someone just taking a civics class and not really in tune with how tax money is spent.

    Having seen the behind the scenes of county and state level financial operations, I can tell you that capital investment and service support spending is probably the LEAST prioritied in the allocation of dollars gathered. Even worse at the state level when spend can be pulled by various electorate districts and not really benefit the state as a whole.

    I don't mind taxes when they're appropriately administered but I have very little confidence in the majority of civic governments ability to execute that objective.

    reply to this | link to this | view in thread ]

  6. identicon
    Rob Blatt, Nov 8th, 2007 @ 6:18am


    Does this mean that there will be taxes in Missouri for people who use Skype In with a handset to receive their calls? Technically that also can pass for the "quacks like a duck" test.

    reply to this | link to this | view in thread ]

  7. identicon
    Alfred E. Neuman, Nov 8th, 2007 @ 6:18am

    lowest tax rates

    Is it really one of the lowest after adding up all the nickel and dime taxation, FICA, etc? Just a rough estimate, the real rate is close to 50%.

    reply to this | link to this | view in thread ]

  8. identicon
    rbb, Nov 8th, 2007 @ 6:19am

    Taxes are the reason I left Vonage...

    I find it amusing that Pulver is whining about taxes on VOIP. The reason I left Vonage was the bullsh*t fees they charged me on top of the basic rate, like $1.50 line portability fee for each of the two numbers I had and the federal excise tax. I moved to VoicePulse which does not charge the line portability fee, but now does charge the fed excise tax.

    reply to this | link to this | view in thread ]

  9. identicon
    Anonymous Coward, Nov 8th, 2007 @ 7:21am

    Re: Taxes are the reason I left Vonage...

    You ever see how much a PoTS provider would charge you for a new number. Would they allow you to use that number at just your home or anywhere in the world? $1.50 for additional services is less then you pay for that Big Mac.

    reply to this | link to this | view in thread ]

  10. identicon
    BritJoe, Nov 8th, 2007 @ 10:38am


    Taxing vonage makes no sense to me as it lost its status as a phone company (in my eyes) when my friend dialed 911 after being shot (he had a cellphone and was able to call 911 on that) and was asked to wait for "5-10 minutes"

    reply to this | link to this | view in thread ]

  11. icon
    TX CHL Instructor (profile), Nov 8th, 2007 @ 10:59am

    Double taxation...

    I have FiOS as my main phone service, so my VOIP service goes over exactly the same lines as my regular phone service. I have both for business reasons -- and VOIP has many features that my regular phone service doesn't have (my favorite is that every time I get a phone call from a phone solicitor, I enter their number into my "always busy" list. It's fun to see how some of them will continue to call many dozens of times just to get a busy signal.)
    The 2nd Amendment isn't about Duck Hunting

    reply to this | link to this | view in thread ]

  12. identicon
    Chris, Nov 8th, 2007 @ 11:56am

    Re: Re: Re: Oh BTW

    Without taxes we wouldn't have universal health care. oh wait... that's why US taxes are so low, cause the gov't does less for us.

    reply to this | link to this | view in thread ]

  13. identicon
    Anonymous Coward, Nov 9th, 2007 @ 4:30am

    Re: lowest tax rates

    Yes still lower - way lower.

    The phony tax issue in poltics is possible because we Americans know/care so little about the rest of the world. Combine that with politicians who play on our desire to keep our money, and you get get demagoguery.

    I need to keep as much of my money as I can also; but I want gov't services.

    Government is not the problem. Ignorance and crooks are. Now if we can just get rid of the crooked politicians . . . .

    reply to this | link to this | view in thread ]

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