on taxing VoIP in Colorado
Lawmakers kill bill over revenue from growing technology
By Joyzelle Davis, Rocky Mountain News
Thursday, February 2, 2006
Colorado legislators shot down a bid to prevent state and
local municipalities from taxing Internet- based phone
services, the second year the measure has failed. The House
Finance Committee voted 7-6 to defeat the measure proposed
by Rep. Matt Knoedler, R-Lakewood, and also voted to keep
the matter from being heard again this term.
Opponents argued the measure could mean less tax revenue for
municipalities as consumers switch to voice over Internet
protocol, or VoIP, service and that it would give VoIP
providers an unfair cost advantage over traditional phone
"If we say that wireline and cell-phone service should be
taxed but not VoIP, almost everyone will transition" to
Internet-based phone services, testified Arvada Mayor Ken
His Denver suburb would lose about $400,000 a year if
telephone-line tax revenue disappeared.
Nationally, there were 1.1 million residential VoIP
subscribers in 2004, according to an October survey by
Infonetics Research, and that number is projected to balloon
to 24.3 million by 2008. The industry already is generating
about $1.25 billion of revenues a year from business and
residential customers, and Infonetics estimates that to grow
to $23.4 billion by 2009.
Knoedler said he introduced the measure out of concern
federal law says Internet commerce companies can be taxed
for interstate commerce only if they have a significant
presence in the state where the customer purchased the
product or service. Knoedler argued the measure was
necessary to "protect Colorado businesses" by allowing them
to be competitive with out-of-state providers such as Vonage.
Proponents also argued that the technology behind VoIP is
entirely different than traditional phone service because it
requires a high-speed Internet connection and isn't subject
to many of the same regulatory requirements.
Denver-based Qwest Communications, which introduced an
Internet-based phone service last year, supported the
measure. There are more than 1,100 VoIP providers
nationwide, and only "a handful" have significant Colorado
operations, testified John McCormick, Qwest's assistant vice
president for public policy in Colorado. Not passing this
measure provides "a disincentive to be a Colorado company in
this market," he said.
davisj@RockyMountainNews.com or 303-892-2514