VoIP Taxation — Change You Can Believe In

Earlier this year, the House of Representatives Subcommittee on Commercial and Administrative Law held a hearing concerning jurisdictional issues related to taxing VoIP services. Witnesses included: John Barnes, the Director of Product Management and Development at Verizon Business; Robert W. Cole, Manager, Tax Accounting at Sprint (News - Alert) Nextel Corporation; Phil Montgomery with the Wisconsin State Assembly; and James R. Eads, Jr., Executive Director at the Federation of Tax Administrators.

At the hearing, the four panelists and members of Congress largely focused on the possibility of amending the Mobile Telecommunications Sourcing Act (“MTSA”) to include “VoIP” as a means to clarify how VoIP should be taxed at the state and local level. Under the MTSA, wireless carriers apply state and local taxes based on the customer’s primary use location (typically the billing address), not on the end points of a call. All four panelists strongly urged the subcommittee to consider legislation to expand the MTSA to cover VoIP services, although no panelist testified as to the particular type(s) of VoIP services that should be covered by such legislation. All agreed, however, that applying the MTSA to “VoIP” would benefit industry by avoiding double taxation and even litigation over the proper “tax” jurisdiction for VoIP calls or services. They also highlighted that bringing VoIP into the MTSA would give customers clarity over the taxes applicable to such services and, therefore, predictable billing.

No legislation is currently pending before Congress on this issue, but the written testimony of the panelists will be included in the proceeding record. Given the strong endorsement of adding VoIP to the MTSA by both business and government representatives, it’s reasonable to expect that the industry could see shifts in VoIP taxation models later this year or early next. IT

William B. Wilhelm (News - Alert) is a partner in the law firm of Bingham McCutchen LLP. For more information please visit them online at www.bingham.com. The preceding represents the views of the author and does not necessarily represent the views of Bingham McCutchen LLP or its clients.

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