Congress Threatens to Extend Phone Tax to All Data Communications

Among the “loopholes” that the House Joint Committee on Taxation targeted in its report (see The Picket Line ) is the one that allows people to use new-fangled phone-like stuff in phone-like ways without paying the excise tax on phones. It was only a few years ago that Congress voted to repeal the phone tax entirely (it was originally a “temporary” tax designed to pay for the Spanish-American War, but it never seemed to expire). But now:

The committee, deeply involved in writing U.S. tax laws, unexpectedly said in a report that the 3 percent telecommunications tax could be revised to cover “all data communications services to end users,” including broadband; dial-up; fiber; cable modems; cellular; and DSL, or digital subscriber line, links.…

“Cellular phones are being manufactured that may operate using VoIP through Wi-Fi access, as well as through more traditional means,” the tax committee’s report says. “As voice phone service migrates to using Internet Protocol, there may be no way to distinguish ‘packets’ of voice and ‘packets’ of data.” VoIP refers to voice over Internet Protocol, or making telephone calls through a broadband connection.

The congressional report comes not long after the Internal Revenue Service and Treasury Department said they were considering how the Spanish American War tax should be reinterpreted “to reflect changes in technology” used in “telephonic or telephonic quality communications.” Tech companies including Microsoft, Intel and Skype slammed that idea in a letter, asking the IRS to “refrain from any attempt to extend the excise tax to VoIP services.”

The discussion in the tax committee’s report, however, ventures far beyond VoIP. “Extending the tax to all communications requires taxing Internet access, bandwidth capacity, and the transmission of cable and satellite television,” it says.