Rearguard Action Against Telecom Revolutions


The IRS and the Treasury Department are seeking comments on a possible plan to impose an existing 3 percent federal excise tax (whose roots lie in an "emergency" Spanish-American War measure) on voice over Internet protocol (VoIP) telecommunications; frequent Reason contributor Declan McCullagh has the whole story. An excerpt:

The IRS notice opens up another, unexpected front in a burgeoning battle over the regulatory status of VoIP, which already has pitted state regulators against the Federal Communications Commission and has led the FBI to propose that wiretapping laws designed for the traditional phone network be extended to Internet voice communications. About 2.8 million people make phone calls over their broadband connection, a figure that includes about 2.2 million cable customers using circuit-switched technology. Roughly 600,000 people of the 2.8 million total use VoIP. Corporations are gravitating toward VoIP even faster than consumers, with as many as one in 10 business calls that once traveled over the traditional voice network taking place completely over the Internet.

Analysts expect significant growth in the sector for the next five years, especially now that Cox Communications and Comcast are committing more of their budgets to building up their VoIP services.

Those predictions worry state regulators, who say they fear losing tens of millions of dollars–from fees and subsidies provided by telephone companies–if more calls flow away from traditional phone networks and onto the Internet.

The official announcement from IRS and Treasury here.


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  1. God–or better yet, the government–forbid that technological progress should undermine the status quo.

  2. There is no technical method, present or possible, to exclusively tax VOIP on the Internet.


  3. jdog,

    Why in the world would that stop the IRS from trying anyway?

  4. An “emergency” measure from the Spanish-American war being used to impose a tax today?

    Imagine 100 years from now, when the long-forgotten Patriot Act, allegedly just an “emergency” measure from the attacks of 2001, is used to arrest people who failed to pay taxes on their vacation home on Mars or whatever 🙂

  5. jdog — what they’d tax are those people who have it included as part of their ISP’s service, or who go through a company to get set up. You’re right that they’d have a hard time taxing people who set up their own voip system, but those people will probably be in the minority. People what to be able to use their Voip to talk to people on cellphones and landline phones. If they do that then it becomes traceable and thus taxable.

    What they’re shooting for is adding a small fee or tax to those people who are willing to pay $10 – $20 a month for a no hassles, unlimited calling VOIP setup.

  6. “People want to be able to use their Voip to talk to people on cellphones and landline phones.”

    Perhaps this (minor) tax would act as an incentive for people to ditch their cell- and landline-phones in favor of VoIP over broadband or WiFi. The technology is already there, and spreading.

    Once it’s all in the IP domain, hard crypto should make taxes and wiretaps a moot point.

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