Bill Would Let States Tax VOIP

A Senate committee approves the amended bill, which is intended to let the states govern subsidies for universal service and regulate compensation to traditional telcos for access; one VOIP provider likens the surcharges to "taxing e-mail to subsidi

In a move that could threaten some of the price advantages of IP-based voice services, members of the Senate Commerce Committee have reversed key parts of a bill that originally sought to give the federal government sole regulatory power over VOIP services.

The bill was first presented by Sen. John Sununu, R-N.H., but amendments to it that were made public Thursday morning would permit the states to regulate VOIP services with taxes both to subsidize universal service and to compensate traditional telcos for access.

Sen. Byron Dorgan, D-N.D., introduced the amendment, which passed by a vote of 12 to 10. Another amendment that also passed, from Sen. Conrad Burns, R-Mont., called for E911 compliance. The entire, amended "Regulatory Freedom Act" passed by a vote of 13 to 9.

/zimages/1/28571.gifClick here to read about how some companies are addressing E911 compliance.

The states have about $20 billion a year at stake in universal access subsidies and other fees, which could erode as increasing numbers of subscribers desert the PSTN (Public Switched Telephone Network) for lower-priced, managed-network and Internet IP voice services.

Reaction from the VOIP service provider community was unsurprisingly negative. Don Hoffman, president and CEO of New York-based M5 Networks Inc., an enterprise-focused IP Centrex provider, said additional taxes for PSTN compensation would be punitive and unwieldy.

"We pay full taxes and surcharges for the services that we buy to connect to the public network, just like any business would. To then force me to break that out and pass it along to a consumer is confusing, to say the least.

"We have many clients who come to us to connect their locations across different states," Hoffman said. "To have to contend with different regulatory issues on a state-by-state basis is not how business is done today."

Jason Talley, CEO of VOIP provider Nuvio Corp., based in Kansas City, Mo., said the E911 obligation entered by Sen. Burns "is more burdensome" than that required of traditional telecom providers. "Asking us to tax VOIP to subsidize the PSTN is like taxing e-mail to subsidize the post office," he said.

The legislation now goes to the full Senate for consideration, but it is not expected to be voted on before congressional adjournment in November.

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