Two States, Two Very Different Approaches To VoIP Regulation

Legal Issues

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.

Filed Under: missouri, new jersey, regulation, voip