VoIP. VoIP. Panel Discussion SEATA Conference July 12, Overview. Overview of VoIP Technology Explore State and Local Tax Issues

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VoIP

Panel Discussion

2005 SEATA Conference

July 12, 2005

Deborah Bierbaum AT&T

Director External Tax Policy

Meredith Garwood Time Warner Cable Vice President Tax

Overview

Overview of VoIP Technology

Explore State and Local Tax Issues



Definitions



Nexus



Sourcing

Review Federal Tax Legislative Initiatives

impacting the state and local taxation of

VoIP

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VoIP

–

THE

Basics

Three (3) Basic Types



““Geek-2-GeekGeek-2-Geek””



Box-to-PSTN Box-to-PSTN



““VoIP SandwichVoIP Sandwich”” (PSTN-

(PSTN-to-PSTN w/VoIP)

to-PSTN w/VoIP)

Two (2) Different

Two (2) Different “

“Flavors

Flavors

”



ApplicationApplication



Network/Facilities basedNetwork/Facilities based

Quick Refresher

…

terms - IP

“

IP

” stands for “Internet Protocol.” - a universal

language allowing devices / computers to

communicate.

IP is a technique by which information [data,

pictures, music, and voice] is digitized into a

format suitable for transport on an IP-based

network.

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The Value of IP

–

One Network

–

Many Services

IP is very, very pervasive

IP is cost effective

Works over wired and wireless

Leverages existing infrastructures

IP is very flexible and content agnostic

Therefore, allows

true convergence

of



Video



Data



Voice



Other

Internet/IP Networks (100,000+ networks) IP Softphone IP Phone VoIP Gateway PBX

Gateway Cable Modem Cable Modem VoIP Router DSL Line Phone Line

WiFi Access Point Wifi PDA DSL Modem Cordless Phone PBX iPBX (Gateway) IP Phone 3G Cell phone ISP Gateway VoIP Custom Dialer Telephone Telephone Phone Line

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What is VoIP?

Voice over Internet Protocol is both a technology and a service.

The technology is Internet protocol that enables packet transmission over data networks.

The service is voice transmission. Voice over IP enables new services to be created.

Currently there are two common methods for broadband IP telephony:

Hosted applications: the service operates independently of the access network (AT&T

CallVantage and Verizon VoiceWing)

PacketCable: the service is interlocked with the access network (Digital Phone Service from Comcast and Time Warner)

Local Network Wiring - Telco v. IP Phone Architecture

Local Network Wiring - Telco v. IP Phone Architecture Demarcation Point - House Telephone Voice Switch TA Router(s) Cable HFC Cable Co. IP Soft Switch

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IP Voice Soft Switch Site

100,000 Voice

Lines Served from

Only 4 X 19

Only 4 X 19”” Racks Racks

IP Voice IP Voice Soft Soft Switch Switch

IP Enabled Contact Centers &

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VoIP Challenges State Tax System

Data / voice distinction is blurring



 The Internet is increasingly being used for voice andThe Internet is increasingly being used for voice and data

data



 VoIP is not simple voice, it is a converged multimediaVoIP is not simple voice, it is a converged multimedia application supporting voice, data and video

application supporting voice, data and video

Voice is becoming an application over IP networks



 VoIP architecture treats the voice packets and theVoIP architecture treats the voice packets and the signaling as applications on an IP network

signaling as applications on an IP network



 Phone numbers can be location independentPhone numbers can be location independent 

 Phone calls are going to be distance independentPhone calls are going to be distance independent Device functionality is converging

Device functionality is converging



 New technologies and protocols enable consumersNew technologies and protocols enable consumers to utilize multiple technologies on one device

to utilize multiple technologies on one device

Do Federal Regulatory Decisions

Apply?

Federal definition of

“

information service

”



Interconnection with PSTN



Pending FCC docket re IP-enabled service



CALEA excludes “

CALEA excludes

“information services

information services”

”



Florida example: "Information service" means

the offering of a capability for generating,

acquiring, storing, transforming, processing,

retrieving, using, or making available

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Aligning State and Local Tax

Statutes with New Technologies

State and local definitions of taxable telecommunications

do not necessarily follow FCC or State regulatory

definitions. Similar differences can exist over interstate

character of VoIP

Are state and local tax statutes robust enough to keep

pace with the rapid pace of changes in technology and

convergence.



 Not all statutes, rulings, or opinions are clearNot all statutes, rulings, or opinions are clear 

 Recent commentaries are questioning whether some antiquatedRecent commentaries are questioning whether some antiquated definitions cover VoIP

definitions cover VoIP

Current State and Local Tax

Treatment of VoIP

State and local tax definitions of telecommunications

often include transmission of voice and data regardless

of media or protocol

Sample statutes:



 Or other medium or method now in existence or hereafterOr other medium or method now in existence or hereafter devised, regardless of the protocol used for such transmission or devised, regardless of the protocol used for such transmission or conveyance.

conveyance. 

 . . . and Internet telephony.. . . and Internet telephony. 

 The transport over the Internet or any proprietary network usingThe transport over the Internet or any proprietary network using the Internet protocol of telephone calls

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Recent Rulings and Legislation

Arkansas

Arkansas –– 2005 Act 1879 2005 Act 1879

 Telecommunications services includes VOIP.

Florida –– SB 2070 (2005) SB 2070 (2005)



 Includes transmission without regard to label as VoIP.Includes transmission without regard to label as VoIP.

Illinois

Illinois –– Letter Ruling - ST 05-0008-GIL Letter Ruling - ST 05-0008-GIL

 VoIP is telecommunications subject to tax.

Minnesota – Revenue Notice – 05-03

 VoIP is a telecommunications service.

New Jersey

New Jersey –– Notice Notice –– 2/23/2005 2/23/2005 

 VoIP is subject to the sales tax and the 911 tax.VoIP is subject to the sales tax and the 911 tax. Pennsylvania - Sales Tax Bulletin 2005-02



 VoIP is a telecommunications service subject to state and localVoIP is a telecommunications service subject to state and local sales tax.

sales tax.

Wisconsin - Tax Bulletin No. 141 (Jan. 05)

Wisconsin - Tax Bulletin No. 141 (Jan. 05) 

 Sales tax applies to VoIP.Sales tax applies to VoIP.

Nexus

Does the state or local taxing authority have sufficient “nexus” with many of the providers of VoIP?



 Scripto v. Carson, 362 U.S.207 (1960)Scripto v. Carson, 362 U.S.207 (1960)

Nexus through use of third party contractors

 Annox Inc. v. Revenue Cabinet, Case No. 03-CI-1605 (Franklin Cir. Ct. March 2005),

Upheld a finding by the Kentucky Board of Tax Appeals that

Annox Inc., a switchless reseller, had nexus with Kentucky

 America Online, Inc. v. Johnson, Tenn. Ct. Appeals No.

M2001-00927-COA-R3-CV (7/30/02)

AOL had no physical presence in the state and economic

ties to the state did not equal physical presence.

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Sourcing a Transaction

What jurisdiction has the right to tax the charge for VoIP service?

 Goldberg v. Sweet – US Supreme Court’s 2 out of 3 rule

Determining origination, termination and service address.

Area codes, central offices and the Internet

Can providers comply

 Jefferson Lines

Getting on the bus

 Streamlined Sales Tax Agreement Sourcing Rule:

a sale of telecommunications services sold on a basis other than a call-by-call basis, is sourced to the customer's place of primary use.

 Pooled minutes

Service address last default is place of primary use.

 VoIP calls sold on a call-by-call basis

Is your tax statute out-of-date?

SSTP Definition of

Telecommunications

“Telecommunications service” means the electronic

transmission, conveyance, or routing of voice, data, audio, video, or any other information or signals to a point, or between or among points. The term

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Internet Nondiscrimination Act

SEC. 1108. EXCEPTION FOR VOICE

SERVICES OVER THE INTERNET.

Nothing in this Act shall be construed to affect the

imposition of tax on a charge for voice or similar

service utilizing Internet Protocol or any

successor protocol. This section shall not apply to

any services that are incidental to Internet

access, such as voice-capable e-mail or instant

messaging.

Streamlined Sales & Use Tax Act

Each Member State must apply the

simplification requirements of the Agreement to

taxes on (telecommunications) services.

Exceptions:



 Requirement for one uniform returnRequirement for one uniform return 

 One rate for each tax typeOne rate for each tax type 

 Base uniformity for each tax type.Base uniformity for each tax type.

Applies to all transaction taxes on

telecommunication services.

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