What a surprise that Internet telephony is yet another new technology upon which the federal government is casting hungry eyes: The Internal Revenue Service and the U.S. Treasury are said to have suggested an ancient tax – the "temporary" tax imposed to finance the Spanish-American War – should be read to apply to Voice-over Internet Protocol.
But the IRS and Treasury are reported to be pondering whether that 3 percent federal excise tax should be used to meet "changes in technology" used in "telephonic-quality communications," according to a notice the two agencies published July 2.
"A tax on communications services has existed for over 100 years," the notice said. "The communications services that currently are subject to the tax are defined in section 4252, which was enacted in its current form in 1965… Since 1965, numerous communications services have been developed and marketed, the methods of transmission have expanded, and the industry has been deregulated.
"As a result of these changes, questions have arisen concerning the application of section 4251 to certain communications services that were not available in 1965. In response to these questions," the notice continued, "Treasury and the IRS are considering proposing regulations that would revise the existing regulations to reflect changes in technology."
State and local regulators have also sought to tax Internet telephony on a number of occasions in the past year. But they recently lost one round when the Federal Communications Commission, in a split ruling, decided in February that VoIP provider Pulver.com should be immune from rules, taxes, and requirements applied to traditional telephony.
"This is in no way different than e-mail and other peer-to-peer applications blossoming on the Internet," FCC Chairman Michael Powell said in handing down that ruling. "Such services have never been held to be telecom services."
But the IRS and Treasury considerations are something else. "They're looking at VoIP and any other potential technologies that are flying under the radar," said VoIP attorney Glenn Richards to ZDNet News. "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."
The IRS, however, insists they're only at "the very beginning" of updating the regulations in question. "We're just requesting information," said spokeswoman Tara Bradshaw to ZDNet. "We're not creating new rules at this point. We're just requesting comments."
The big question will be whether the government's hungry eyes hinder the projected growth of Internet telephony. Analysts are said to believe it will grow significantly in the next five years, with signs that include Cox Communications and Comcast both putting more financial resources to building VoIP services and more corporate operations looking seriously into adopting the technology, ZDNet said.
