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  • Worthy information, VoIP calling is very cheap as we can check the International Calling Rates here
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  • 1. VoIP Panel Discussion 2005 SEATA Conference July 12, 2005 Deborah Bierbaum Meredith Garwood AT&T Time Warner Cable Director External Tax Policy 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 1
  • 2. VoIP – THE Basics Three (3) Basic Types  “Geek-2-Geek” Geek-2-Geek”  Box-to-PSTN  “VoIP Sandwich” (PSTN- Sandwich” to-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” 2
  • 3. 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 Cordless Phone Laptop Telephone VoIP Router LAN Cable 3G Cell Connection Phone Modem phone Line VoIP Wifi Gateway PDA VoWifi IP Phone Internet/IP DSL Modem Networks (100,000+ networks) WiFi Access Point DSL ISP Line Gateway PBX Gateway Cable Modem Phone iPBX Desktop Line (Gateway) IP Softphone Telephone VoIP IP Phone Custom Dialer PBX 3
  • 4. 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 Telco C.O. DSL Demarcation Modem Point - House Telephone PSTN Voice Switch DSL Modem & Routers Public Twisted Internet Pair Traditional Telephone Company Copper IP Phone Cable Headend Cable Demarcation Co. IP Point - House Soft Cable Switch Modem Router(s) TA PSTN Public 3rd Cable HFC Internet Party IP Soft Switch 4
  • 5. IP Voice Soft Switch Site 100,000 Voice IP Voice Lines Served from Soft Only 4 X 19” Racks 19” Switch IP Enabled Contact Centers & Business Locations IP SCP NCP 800 Adv Features 800 Adv Features MS CCE IVR Center 2 1-800 AT&T IP/MPLS Agent GW IP PBX PSTN Global Network Agent Local, International Center 1 TDM PBX Router w/ Gateway Cards Center 3 TDM PBX TA Agent IVR Agent Agent Agent Teleworker Agent 5
  • 6. 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 6
  • 7. 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… 7
  • 8. 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 8
  • 9. 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: * * * * 9
  • 10. 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. 10
  • 11. VoIP Regulatory Freedom Act Section 7 – No State or Local Taxation of VoIP Applications. a)In general. – No State or political subdivision a)In 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. – Subsection (a) shall not apply b)Exemption. to a fee imposed for a specific privilege, service or benefit conferred. The Future: A Borderless World 11