[July 14, 2004]

IRS to Cash-in on VoIP

BY JOHANNE TORRES

As Internet telephony digs its way into both residential and commercial servicing, the government has been keeping a good eye on how the yet-to-be regulated services will fit in, and compete side-by-side, with the other more traditional telephone services. The IRS and the Treasury Department have been looking into adding an extra percentage of tax to legacy telephone services, as well as other telephonic quality communications (a.k.a. VoIP). With that said, it’s just a matter of time before we see the extra fee column on our bill from Vonage (news- alert). 

The department proposes a change in the now 3 percent federal excise taxes on telephone calls in order to abide with telecommunications technological advances. The agency advanced an open notice of proposed rulemaking, instigating telecoms to comment and identify their services and products in order to obtain information. 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."

For all we know, voice over IP (VoIP) (define - news - alert - tutorial) could only be the initial spark that would ignite a whole new spectrum of telephonic technologies. This is exactly why the announcement raised eyebrows at telecoms putting them in check for many changes to come their way. With VoIP regulation in its infancy, governmental departments—be it the IRS or the FCC, would have to start evaluating which company provides what, find a way to classify them, and compare their services with legacy telecommunication providers.

VoIP providers may then try to compare their services to other types of online communication platforms, to evade any kinds of regulations, taxes, fees and penalties galore. In an attempt to dodge such atrocités, companies like VoIP provider Free World Dialup have requested to be classified and recognized as a sole “online” VoIP service provider of calls placed and received between computers, never involving legacy telephone equipment. Whatever they said they provided  was apparently good enough for the FCC to declare them immune from the whole tax and rules enchilada. FCC’s Chairman Michael Powell called on the similarity between these services and various peer-to-peer (P2P) (news - alert) applications running on the net.

The current number of VoIP users adds up to over 2.5 million, at residences. In the corporate world, customers place as many as 10 percent of the telephone calls that used to be made using legacy telephone equipment. This makes us wonder if companies like Vonage, AT&T (news - alert - quote) and other providers of all VoIP services (computer to legacy telephone included), will reconsider their service plans in order to circumnavigate any of the fees and keep customers in high spirits.

Johanne Torres is the Assistant Editor for TMCnet.com and Internet Telephony magazine. Previously, she was the Assistant Editor for EContent magazine in Connecticut. She can be reached by e-mail at jtorres@tmcnet.com.