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No ban 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 services.

"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 Fellman.

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

http://www.rockymountainnews.com/drmn/tech/article/0,2777,DRMN_23910_4434411,00.html