ALEXANDER-CARPER BILL WOULD PRESERVE RIGHT TO TAX VoIP

The debate over the Internet tax moratorium has morphed into a larger discussion of VoIP’s impact on state and local revenue and whether the technology should be taxed. As expected, Sens. Alexander (R-Tenn.) and Carper (D-Del.) introduced a bill Wed. (CD Feb 11 p2), that would revive the expired moratorium 2 years but wouldn’t block as many taxes as another bill, S-150 by Sens. Allen (R-Va.) and Wyden (D- Ore.). At a news conference announcing the bill, Alexander and Carper made clear their intent to prevent tax jurisdictions from losing revenue as voice calls migrate to Internet transmission, because VoIP could be taxed under their bill.

“Governments collect about $20 billion in telephone taxes,” Alexander said, but “increasingly, telephone calls are being made over the Internet. The question is, what do you do about that?” Citing all taxes collected on voice calls, Alexander quoted an Ernst & Young report commissioned by the National Governors Assn., as well as information from the Tenn. State Revenue Commissioner, that said his state could lose up to $361 million in taxes annually. The loss in Cal. could be as high as $836 million annually, and Sen. Feinstein said L.A. alone could lose $225 million per year. When word of those potential losses reached Cal. municipalities, Feinstein said, “our phone began to ring off the hook.” In all, 118 cities contacted her opposing S-150, which she said was a record in her 11 years in the Senate. Feinstein is co-sponsoring the Alexander-Carper bill, along with Sens. Hutchison (R-Tex.), Graham (D-Fla.), Hollings (D- S.C.) and Voinovich (R-O.).

Hutchison, also a co-sponsor of S-150, said she wouldn’t remove her name from that bill because she remained committed to an Internet tax moratorium. But she said discussions with Tex. cities had persuaded her “the language is not right” in S-150. The bill probably would end up in court, she said, while she believed the Alexander-Carper bill wouldn’t. She said she wanted Congress to move quickly to renew the moratorium that expired Nov. 1 -- “any entity could come in and tax now” -- but said a 2-year extension was better because it would give Congress and the FCC time to sort out new technologies such as VoIP. She said Dallas could lose as much as $35 million annually, Austin $16 million and San Antonio $15 million under S-150.

S-150 supporters say their bill doesn’t address VoIP because that’s a service, and the moratorium aims to block taxes on Internet access. But Alexander and Carper point to language in S-150 that would prevent taxes on “other services,” which they argue could include VoIP. Alexander repeatedly cited FCC Chmn. Powell and his discussion of the “digital migration” of services to the Internet, telling reporters after the news conference that he viewed cable and satellite TV services as among those that could elude taxation via migration to the Internet. Carper said S-150 also could exempt from taxation music and movie downloads and would be a “huge tax cut for large corporations and the telecommunications industry.”

Carper said the FCC was about to open a rulemaking on VoIP and was examining other digital migration issues, and a 2-year ban would ensure Congress didn’t lock into place rules that wouldn’t apply after FCC rulemakings were done. He said Senate Majority Leader Frist (R-Tenn.) hoped the 2 sides would reach a compromise. Neither side, however, has shown any inclination to budge on its definition of access. Carper said the switch of Hutchison, a member of the Senate Commerce Committee, indicated their side was gaining momentum, while Feinstein said the bill was “a sleeper issue” now becoming clearer to members. The Alexander- Carper bill is endorsed by the TeleCommUnity Alliance, National Governors Assn. and other state and local groups.

The bill would reimpose the expired moratorium for 2 years while adding a provision preventing taxes on consumer DSL service. Carper told reporters after the news conference DSL providers were disadvantaged by taxes in some jurisdictions. However, the bill would preserve the right of municipalities and states to tax DSL transfers on the Internet backbone or backhaul operations and would grandfather the states currently taxing consumer DSL. It also would protect states grandfathered under the original moratorium, leaving 27 states with some grandfathering. The bill doesn’t include S-150 language Alexander and Carper argue would exclude VoIP from taxation, leaving open the possibility states and municipalities could tax VoIP.

USTA and its larger members have been prominent supporters of S-150 and pushed in the Senate Commerce Committee for insertion of language excluding DSL. USTA Pres. Walter McCormick in a statement Wed. said the Alexander-Carper bill “forces consumers of one technology to pay taxes other consumers don’t have to pay… This bill lets the government pick winners and losers in the race to offer broadband instead of establishing a framework that encourages investment, innovation and real competition from all companies.”