Government study: VoIP, video can be taxed

State and local governments may be able to tax certain aspects of Internet use under an existing federal law designed to ban such fees, government auditors said this week.

The comments came in a new Government Accountability Office study (click here for PDF) commissioned by Congress to examine a law known as the Internet Tax Freedom Act.

First passed in 1998 and renewed after some debate in 2004, the law prevents state and local governments from taxing "a service that enables users to access content, information, electronic mail or other services offered over the Internet."

Services like voice over Internet Protocol (VoIP), traditional telephone service and video offerings by Internet service providers remain fair game for taxation under the law, the GAO said. The scope of the moratorium has nothing to do with sales taxes for Internet purchases.

At issue is the auditors' finding that the tax ban doesn't apply to "acquired services"--in short, the actual wires, cables, fibers and other hardware used to carry Internet traffic to customers. That means an Internet service provider that leases fiber from a telecommunications company for its network could theoretically be subject to taxes during that "wholesale" transaction.

"We acknowledge that others have different views about the scope of the moratorium," the report said. "Congress could, of course, deal with this issue by amending the statute to explicitly address the tax status of acquired services."

The report drew criticism from Sen. Ron Wyden, an Oregon Democrat, and Sen. George Allen, a Virginia Republican. Both were heavily involved in drafting the law and said they intended it to provide broader relief.

"The plain language of the statute, as well as the relevant legislative history, reflect a clear legislative intent to ban Internet access taxes at both the retail and wholesale level," said Allen, who, along with Wyden and seven others, has proposed a bill that would make the Internet access tax moratorium permanent. For now, it is set to expire on Nov. 1, 2007.

In a joint letter, representatives from about a dozen telecommunications companies and Internet service providers, including BellSouth, America Online, Comcast and Verizon Communications, also expressed reservations about the GAO's interpretation, saying that senators' remarks during floor debates and language in the final law itself indicated a contrary position. They said they worried that allowing such a practice could promote discriminatory practices among those in the business of providing the infrastructure for Net access.

The practical implications of the GAO's opinion are less clear. Of the eight states surveyed for the report, California, North Dakota, Texas and Virginia said they aren't currently collecting taxes on "acquired services" anyway, and Kansas, Mississippi, Ohio and Rhode Island stopped collecting such taxes as of Nov. 1, 2005.

[Below Meigh]

Taxation without...

Now let me get this straight, the local state government can tax our internet use?

So they force our small business to go paperless filing of already ridiculous Use tax, and now want to tax the ONLY method to file their local tax in the first place???

And who will collect and enforce these taxes? The ISP? Is this financing the Spanish American War as well? (sarcasm)

I'm afraid that greed will be the demise of humanity. Not war. Not famine. Political greed.

[Seaspray0]

I feel your pain

That seems to be the way of things...

Taxed on the income you earn; taxed again when you spend it. It even works for objects... a car gets tax paid on it when it is first sold and tax gets paid on it again by someone else when it is resold as a used car.

Doesn't it make you happy to work hard and pay your taxes so the government can give it to a welfare mom so she can afford to get pregnant with yet another child. I'm just as happy as you.

Perhaps we should change the generic John Doe to Ben Dover.

[dem14035]

It's time to clear out GAO deadwood.

These overpaid bean counters need to get taken off the government payroll. Why do we waste our Federal taxes on people like this? Write your Congressemen and Senators and ask them to take the necessary action to give the axe to James R. White, Michael Springer, Assistant Director; Bert Japikse; Shirley A. Jones; Lawrence M. Korb; Walter K. Vance; and Bethany C. Widick.

The first thing these jerks should have done is phone the drafting legislators and ask them what the text of the law means.