VoIP Presentation

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-Geek”
Geek-2-Geek”
 Box-to-PSTN
 “VoIP Sandwich”
Sandwich” (PSTNto-PSTN w/VoIP)
Two (2) Different “Flavors”
Application
Network/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.
IP - organized digital information that travels
through a network in a sequence or grouping
known as “packets”. IP based networks are
often also called “packet networks”
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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
The Future: Any Device to Any Device over
Any Network
Telephone
VoIP
Router
Cable
Modem
DSL
Modem
DSL
Line
LAN
Connection
3G Cell
phone
Phone
Line
Wifi
PDA
VoIP
Gateway
Internet/IP
Networks
IP Phone
(100,000+ networks)
VoWifi
WiFi Access Point
ISP
Gateway
PBX
Gateway
Desktop
Cordless
Phone
Laptop
Phone
Line
Cable Modem
iPBX
(Gateway)
IP Softphone
Telephone
VoIP
Custom Dialer
IP Phone
PBX
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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
DSL
Modem
Telco C.O.
Demarcation
Point - House
PSTN
Telephone
Voice Switch
DSL Modem &
Routers
Public
Internet
Twisted
Pair
Copper
Traditional Telephone Company
IP Phone
Demarcation
Point - House
Cable
Modem
Cable
Co. IP
Soft
Switch
Cable Headend
Router(s)
TA
PSTN
Cable HFC
Public
Internet
3rd
Party
IP
Soft
Switch
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IP Voice Soft Switch Site
100,000 Voice
Lines Served from
Only 4 X 19”
19” Racks
IP Voice
Soft
Switch
IP Enabled Contact Centers &
Business Locations
IP SCP
800 Adv Features
NCP
800 Adv Features
MS
IVR
CCE
Center 2
1-800
PSTN
Local, International
AT&T IP/MPLS
Global Network
GW
Agent
IP PBX
Agent
Center 1
Router w/ Gateway
Cards
TDM PBX
Center 3
TDM PBX
TA
IVR
Agent
Agent
Teleworker Agent
Agent
Agent
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VoIP Challenges State Tax System
Data / voice distinction is blurring
 The Internet is increasingly being used for voice and
data
 VoIP is not simple voice, it is a converged multimedia
application supporting voice, data and video
Voice is becoming an application over IP networks
 VoIP architecture treats the voice packets and the
signaling as applications on an IP network
 Phone numbers can be location independent
 Phone calls are going to be distance independent
Device functionality is converging
 New technologies and protocols enable consumers
to utilize multiple technologies on one device
Do Federal Regulatory Decisions
Apply?
Federal definition of “information service”
service”




Interconnection with PSTN
Pending FCC docket re IP-enabled service
CALEA excludes “information services”
services”
Florida example: "Information service" means
the offering of a capability for generating,
acquiring, storing, transforming, processing,
retrieving, using, or making available
information via communications services
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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 clear
 Recent commentaries are questioning whether some antiquated
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 hereafter
devised, regardless of the protocol used for such transmission or
conveyance.
 . . . and Internet telephony.
 The transport over the Internet or any proprietary network using
the Internet protocol of telephone calls…
calls…
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Recent Rulings and Legislation
Arkansas – 2005 Act 1879
 Telecommunications services includes VOIP.
Florida – SB 2070 (2005)
 Includes transmission without regard to label as VoIP.
Illinois – Letter Ruling - ST 05-0008-GIL
 VoIP is telecommunications subject to tax.
Minnesota – Revenue Notice – 05-03
 VoIP is a telecommunications service.
New Jersey – Notice – 2/23/2005
 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 local
sales tax.
Wisconsin - Tax Bulletin No. 141 (Jan. 05)
 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)
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.
Confusion over nexus and high tax rates can lead to
market advantages
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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
“telecommunications service” includes such transmission,
conveyance, or routing in which computer processing
applications are used to act on the form, code or protocol
of the content for purposes of transmission, conveyance
or routing without regard to whether such service is
referred to as voice over Internet protocol services or
is classified by the Federal Communications Commission
as enhanced or value added. Telecommunications
service does not include: * * * *
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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 return
One rate for each tax type
Base uniformity for each tax type.
Applies to all transaction taxes on
telecommunication services.
Allows States and Localities to require
collection of telecommunications taxes.
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VoIP Regulatory Freedom Act
Section 7 – No State or Local Taxation of
VoIP Applications.
a)In
a)In general. – No State or political subdivision
shall impose any tax, fee, surcharge, or other
charge for the purpose of generating
revenues for governmental purposes on the
offering or provision of a VoIP application.
b)Exemption.
b)Exemption. – Subsection (a) shall not apply
to a fee imposed for a specific privilege,
service or benefit conferred.
The Future: A Borderless World
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