Colorado legislature debates VoIP tax prohibition tomorrow

In the Colorado state legislature, Rep. Matt Knoedler (R-Lakewood) and Sen. Bob Hagedorn (D-Aurora), have introduced a bill that would exempt VoIP users from paying the same type of taxes that Colorado land-line and cellphone users pay.

The measure, known as the "Voice over Internet Protocol Tax Freedom Act" (HB 1173),  will receive a hearing tomorrow in the House Finance Committee. 

If enacted in to law, the bill: 

Exempts voice-over-internet protocol (VoIP) service from state and local taxation except when such service is included in a package or bundle of services and cannot be separately billed or accounted for. Allows a customer who believes that taxes have been erroneously applied to his or her VoIP service to notify the service provider of the error within 2 years and obtain a refund, and, if the refund is not made and the customer believes it should have been, allows the customer to file a complaint in district court seeking a judgment for such refund.

Now, let us consider the arguments, both for and against this legislation.

First, Rep. Knoedler and Sen. Hagedorn state in the bill that:

Voice-over-internet-protocol (VoIP) service is an emerging
technology with great potential to benefit consumers if left to develop free of unnecessary regulation, especially with respect to taxation;

The federal communications commission (FCC), in its administrative decisions and with support from the federal courts, has declared VoIP service exempt from state regulation because it is inherently interstate in nature;

The FCC has expressly reserved the issue of taxation, declining to either specifically preempt or specifically allow taxation of this service at the state or local level;

It is likely that the FCC or the United States congress will, at some point in the future, specifically preempt any taxation of VoIP service at the state or local level;

In the meantime, until some definitive federal action settles the issue, it is and has been the policy of the state of Colorado not to tax the sale of emerging technologies such as VoIP service, while maintaining the existing tax structure under which the companies that provide such services remain subject to other authorized forms of taxation to the same extent as other businesses; and Statewide uniformity on this issue is essential, to avoid conflicting policies at the local level that may have a chilling effect on the development of this emerging technology. Therefore, the issue of taxation of VoIP service is hereby declared a matter of statewide concern.

Lots of folks in Colorado are "concerned," but not all are in favor of not taxing VoIP. These arguments are summarized today in a Denver Post editorial entitled "Tax exemption for VoIP users is unfair."

The Colorado Council is cited as saying that not taxing VoIP would drive consumers to VoIP in droves. Colorado Counties Inc. legislative director Chip Taylor says that exodus from traditional land-line telephony would emperil tax revenues drawn from those services.

"It maywell be appropriate to address the overall level of taxation in the telecommunications industry," the Colorado Municipal League's Geoff Wilson is quoted as saying. "But we don't think the government should be picking winners and losers in the free market in this fashion."