Tech groups tell IRS: Don't tax Internet phone calls!

[Declan McCullagh <declan () well com>]

News article on VON Coalition filing saying pretty much the same thing:
http://news.com.com/Net+firms+Dont+tax+Internet+calling/2100-7352_3-5389880.html

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Before the U.S. Department of the Treasury
Internal Revenue Service
Washington, D.C.

In the Matter of Advanced Notice of Proposed Rulemaking concerning 26 
CFR Part 49
Excise Taxes; Communications Services   Comments filed by:
The Computing Technology Industry Association (CompTIA)
4350 N. Fairfax Drive, Arlington, VA 22203
  HYPERLINK "http://www.CompTIA.org"; www.CompTIA.org

 September 30, 2004             

Public Comments:

Submitted by the Computing Technology Industry Association (CompTIA) in 
response to the Department of the Treasury, Internal Revenue Service’s 
Advanced  Notice of Proposed Rule Making (ANPRM) concerning 26 CFR Part 
49 Excise Taxes; Communications Services.

CompTIA is a twenty-two year old, global trade association representing 
the business interests of the information technology and communications 
industries.  (More information is available at  HYPERLINK 
"http://www.comptia.org"; www.comptia.org.)  For inquires regarding these 
comments, please contact: Thomas E. Santaniello, Public Policy Manager, 
CompTIA Global Public Policy Headquarters,
4350 N. Fairfax Drive Suite 440, Arlington, VA 22203, Telephone 
703.812.1333, ext. 204, Fax 703.813.1337, or email:  HYPERLINK 
"mailto:Tsantaniello () CompTIA org" Tsantaniello () CompTIA org.

Internet Protocol (IP) Applications and Telecommunications Services:

Driven by the adoption of innovative IP protocols, ubiquitous local and 
wide-area networks, and computer processing capability, PCs are as much 
a tool for “communicating” as a tool for computing.  Whether it is 
email, web-casting, online collaboration or chat rooms, we have grown 
accustom to computer-communications.   CompTIA defines this technology 
evolution as “convergence technology” (CT).  CT is when IT and 
telecommunications services intertwine as one technology, providing the 
end user with functionality characteristic of both sectors. More 
specifically, CT is the merging of voice, video, and data on a single 
network, integrating telecommunications and computer technology in a way 
that opens powerful new avenues of communication. It represents the 
intersection of telephone, computer, wireless, cable, and Internet 
networks. Spawned out of a highly competitive industry, CT has enriched 
the telecommunications industry with its wealth of applications designed 
to serve the consumer.

CompTIA believes that a significant distortion in the “Voice Over 
Internet Protocol” (VOIP) policy debate is the misunderstanding of the 
underlying technology – which is Internet Protocol communications. 
VOIP, or any other IP-based application, should be considered an 
Internet application.   For example, the Federal Communications 
Commission’s notice of proposed rulemaking concerning VOIP services was 
issued as an “IP-Enabled Services” notice.  This illustrates the 
important distinction of the underlying technology upon which VOIP is 
based.  Further, it illustrates the far reaching impact any VOIP policy 
will have on all Internet based services and the Internet overall.

VOIP is one category of an IP-enabled application.  Email is another 
IP-based application which is a text-based application. 
Video-conferencing and web-casting are additional IP-based applications 
which offer combined voice, video, and data.  Given the past regulatory 
and taxing approach to telecommunications services by the federal 
government, CompTIA is concerned about the potential that any IP-enabled 
application could be subject to federal excise taxes.

Simply because an IP application is capable of two way voice, should not 
mean it is subject to taxation. Would the IRS refrain from taxing that 
same application if the end-user turned off the voice function?  An 
uncertain tax regime is not only harmful to a nascent and evolving 
service such as VOIP, but harmful to technological innovation and 
adoption of all IP-based services.

Voice service should not be inherently taxed.  The historic 
underpinnings of taxing and regulating voice are due to the industrial 
age corporate structure of voice service providers and the quo-pro-quo 
relationship between government and industry.  Policymakers should 
recognize that 100 year-old industrial age policies are antiquated and 
obsolete in today’s global Internet economy.

Growth of the Internet through Regulatory Restraint:

Regulatory restraint over the Internet has served America well. 
Creativity and innovation in the marketplace has been dynamic and 
bursting at the seams with entrepreneurial spirit. Consumers are 
enjoying more choices, better value, and more personalized products. 
There is little compelling evidence that regulation of these vibrant and 
nascent CT services is warranted.

Federal policymakers have been very reluctant to regulate the Internet, 
dating back to wide commercial adoption of this technology.   Keeping 
the “camel’s nose out of the tent” was a clear policy objective from the 
very beginning.

U.S. Treasury Secretary, John Snow and Secretary of Commerce, Donald 
Evans made the following joint statement in July 2003 concerning 
multiple and discriminatory Internet taxation:  "The Internet is an 
innovative force that opens vast potential economic and social benefits 
of e-commerce and enables such applications as distance learning, 
telemedicine, e-business, e-government and precision farming. Government 
must not slow the rollout of Internet
services by creating administrative barriers…”  (HYPERLINK 
"http://www.useu.be/Categories/Tax%20and%20Finances/July1603InternetTaxMoratorium.html"http://www.useu.be/). 


The result of this regulation-free environment can be seen in recent 
Department of Commerce data, which shows record online sales.  The 
Census Bureau of the Department of Commerce announced February 2004, 
that the estimate of U.S. retail e-commerce sales for the fourth quarter 
of 2003, was $17.2 billion, an increase of 25.1 percent from the fourth 
quarter of 2002.  Total e-commerce sales for 2003 were estimated at 
$54.9 billion, an increase of 26.3 percent from 2002.

CompTIA supports minimal regulation and taxation of the Internet and its 
services and strongly encourages policymakers to continue to maintain 
this policy objective because it has proven to be successful.  CompTIA 
believes a policy of limited regulations provided the proper business 
environment which allowed for the tremendous global adoption of the 
Internet.

Internet is a Global Communications Network:

CompTIA is challenged understanding how federal, state, or local tax 
jurisdictions could impose such policies on a global communications 
network.   CompTIA continues to represent our membership internationally 
including Europe, Asia, South America, Canada, and the U.S. on policy 
matters.  Given the numerous international boundaries involved with 
IP-based applications and services, we remain suspect of any policy 
which ignores the inherent challenges present in such a global 
communications device.   Further, we are concerned that U.S. based VOIP 
providers will be globally disadvantaged to overseas providers not 
subject to regulation or taxation and beyond the scope of U.S. policy.

Negative Impact on Small Business:

CompTIA is also concerned about the likely negative impacts of taxes on 
IP applications.  Such taxes create market uncertainly; add higher 
costs, and a burden of collection for those companies offering such 
services.   In addition to the many larger companies which are well 
known in the IT industry, there are thousands of small and medium sized 
IT companies offering VOIP services.   Unlike traditional 
telecommunications companies from the past, new IP-based services allow 
for all sized companies to enter the market and offer services.   Many 
of these companies are small businesses.

Current IT markets have not traditionally been regulated as 
telecommunications services, and such a dramatic policy shift would have 
a tremendously negative impact on the small business segment of the 
economy.  Given the evolving condition and diversity of industry 
segments with a stake in the success of VOIP service markets, CompTIA 
believes the IRS should allow these services to develop without the 
burden of taxation.




Conclusion:

CompTIA believes the IRS should recognize the significant industry 
convergence which is occurring between IT and telecommunications sectors 
and develop a relevant policy framework.  The federal policy of 
regulatory restraint for the Internet has been successful. We urge the 
IRS to refrain from imposing telecommunication taxes on Internet 
applications.  We urge the IRS to consider the international impact of 
taxing Internet applications.   Also, we urge the IRS to consider the 
small business impact of such taxes.

Regulating a single IP-enabled application will have a profoundly 
negative impact on all IP-enabled applications.    We look forward to 
achieving social policy objectives without unnecessary regulations and 
taxation.  CompTIA believes it is in the interest of the both consumer 
and the economy to allow this revolutionary technology called the 
Internet to continue to grow and yield benefits to our society.
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