[IP] IRS eyes Net phone taxes
Begin forwarded message:
From: Kurt Albershardt <kurt@xxxxxx>
Date: July 7, 2004 11:09:05 AM EDT
To: dave@xxxxxxxxxx
Subject: IRS eyes Net phone taxes
By Declan McCullagh
Staff Writer, CNET News.com
http://news.com.com/2100-7352-5258809.html
Story last modified July 6, 2004, 4:21 PM PDT
A "temporary" tax created to pay for the Spanish-American War may
result in higher fees for Internet telephone calls.
The IRS and the Treasury Department have suggested that an existing
federal excise tax on phone calls should be interpreted to apply to
voice over Internet Protocol (VoIP) calls, a move that promises to roil
the fast-growing industry and follows similar attempts by state
officials to tax or regulate the technology.
In a notice published Friday, the IRS and Treasury Department said they
are considering whether the 3 percent federal excise tax should be
reinterpreted "to reflect changes in technology" used in "telephonic or
telephonic quality communications."
"They're looking at VoIP and any other potential technologies that are
flying under the radar," said Glenn Richards, a partner at the law firm
Shaw Pittman in Washington who represents VoIP companies. "Clearly
they're trying to extend their jurisdiction to apply the excise tax to
as many 'calls' as they can. It's got to be a revenue issue for them.
If everyone starts migrating to new platforms, they're facing a
decrease in excise taxes."
IRS spokeswoman Tara Bradshaw said that the agency is in the "very
beginning of the process" of updating its regulations on what is
covered by the tax code's definition of telephone service. "We're just
requesting information," she said. "We're not creating new rules at
this point. We're just requesting comments."
The IRS notice opens up another, unexpected front in a burgeoning
battle over the regulatory status of VoIP, which already has pitted
state regulators against the Federal Communications Commission and has
led the FBI to propose that wiretapping laws designed for the
traditional phone network be extended to Internet voice communications.
About 2.8 million people make phone calls over their broadband
connection, a figure that includes about 2.2 million cable customers
using circuit-switched technology. Roughly 600,000 people of the 2.8
million total use VoIP. Corporations are gravitating toward VoIP even
faster than consumers, with as many as one in 10 business calls that
once traveled over the traditional voice network taking place
completely over the Internet.
Analysts expect significant growth in the sector for the next five
years, especially now that Cox Communications and Comcast are
committing more of their budgets to building up their VoIP services.
Those predictions worry state regulators, who say they fear losing tens
of millions of dollars--from fees and subsidies provided by telephone
companies--if more calls flow away from traditional phone networks and
onto the Internet. States such as Minnesota and New York already are
trying to seize authority over VoIP companies.
A tax that never dies
Congress enacted the so-called "luxury" excise tax at 1 cent a phone
call back in 1898, when only a few thousand phone lines existed in the
country. It was repealed in 1902, but was reimposed at 1 cent a call in
1914 to pay for World War I and eventually became permanent at a rate
of 3 percent in 1990.
Former House Majority Leader Dick Armey repeatedly tried to repeal the
tax during his tenure in Congress. In May 2000, the House of
Representatives voted 420-2 for the repeal, but the Senate never acted
on the measure.
"I think there's going to be a big backlash in Congress if they try to
do this," said Armey, who is now chairman of the conservative group
Citizens for a Sound Economy. "I don't think anybody could have
legislated an application of the (Spanish-American War) surcharge to
VoIP, and I don't think that Congress will allow the IRS to do it by
fiat."
Tom Readmond, federal affairs manager for Americans for Tax Reform,
said his group "has not yet weighed in, but obviously we would oppose
extending telephone excise taxes to VoIP." The group asks politicians
to sign a no-new-taxes pledge and has lobbied against Internet sales
taxes in the past.
VoIP companies panned the IRS-Treasury notice.
"What they see is huge revenues, and whenever there's huge revenue,
they are looking to tax," said Jeff Pulver, founder of Free World
Dialup. He said that "even if it's decided the IRS can do what they
want to, they should choose not to enforce it" and follow the hands-off
approach recommended by Michael Powell, chairman of the Federal
Communications Commission.
VoIP provider AT&T, which launched its CallVantage service 14 weeks
ago, argued that VoIP "shouldn't be burdened by costs that would stifle
its growth." The company is, however, willing to "comply with any
applicable taxes," said spokesman Tom Hopkins.
Current law permits the IRS to levy 3 percent taxes on "communications
services," which include local telephone service, toll telephone
service and any "teletypewriter exchange service." Last Friday's notice
says "questions have arisen concerning the application of (that law) to
certain communications services that were not available" when the law
was revised in 1965.
The IRS and Treasury Department notice, called an advance notice of
proposed rulemaking, asks for comments from the public no later than
Sept. 30. Bradshaw, the IRS spokeswoman, said "we're requesting the
comments so we know what issues to look at."
CNET News.com's Ben Charny contributed to this report.
--
-------------------------------------
You are subscribed as roessler@xxxxxxxxxxxxxxxxxx
To manage your subscription, go to
http://v2.listbox.com/member/?listname=ip
Archives at: http://www.interesting-people.org/archives/interesting-people/