-------- Original Message --------
Subject: Proposals from JCT Staff to Modify Telecommunications Taxes
Date: Fri, 28 Jan 2005 15:26:47 -0500
From: James Maule <Maule@private>
To: <declan@private>
Declan,
The staff of the Joint Committee on Taxation has just released its
report, OPTIONS TO IMPROVE TAX COMPLIANCE AND REFORM TAX
EXPENDITURES"</a>, providing an array of suggestions designed to
increase federal tax revenue. I'm in the process of blogging an overall
discussion on my MauledAgain blog (www.mauledagain.blogspot.com). I am
reading all 69 proposals and I reached this one, from page 368 of the
report, which is at http://www.house.gov/jct/s-2-05.pdf.
It's too long to cut and paste into this email. Who knows how far, if
at all, this proposal will get....
Jim
Here's the gist of it:
page 372
Description of Proposal
In general
The proposal is presented below as three options. Option 3 represents a
more fundamental change to the tax than Option 2, which in turn
represents a more fundamental
page 373
change than Option 1. Each of the options assumes that the current
three-percent rate is applied to the relevant tax base.
Option 1: Modify the definitions of toll and local telephone services
Under this option, the communications excise tax is imposed upon both
local and nonlocal (long distance) voice telephone services, regardless
of whether the charges are fixed or vary with distance, elapsed
transmission time, both, or some other criteria. Definitions are
clarified to remove any distinction between the calculation of taxes on
local and long distance telephone services, and to clarify that the tax
is intended to apply to landline and wireless (including satellite)
voice communications services. Option 1 contemplates no additional
changes to the communications excise tax provisions. No view is
expressed regarding whether VOIP is a taxable communications service or
a nontaxable information service.
Option 2: Modernize the excise tax on voice communications services
Option 2 incorporates the changes to the tax under Option 1 and makes
further changes to the law. Under Option 2, a voice communications
service is taxable regardless of its technical form. For example, the
tax applies to voice communications services using landlines, analog and
digital wireless, satellite and VOIP, or any combination. It is not
necessary that the voice communications service provide the capability
to access the public switched telephone network (required under present
law) to be taxable.
In general, a service component is classified as a taxable
communications service if the primary purpose of the service component
is the transmission of real-time voice communications. The content of
the communications or the capability for generating, acquiring storing,
transforming, processing, retrieving, utilizing, or making information
available via communications, is not a taxable communications
service.830 For example, a service in which a caller dials a "1-900"
number for the purpose of receiving information is a nontaxable
information service. However, the underlying telephone service provided
to the information services provider by the communications provider is a
taxable communications service.831
830 This distinction is generally consistent with 47 U.S.C. 153 (20),
which defines an information service as "the offering of a capability
for generating, acquiring storing, transforming, processing, retrieving,
utilizing, or making information available via telecommunications."
However, Options 2 and 3 do not expressly adopt the operative
distinctions between telecommunications services and information
services that may currently exist in the regulatory world. In addition,
Options 2 and 3 of this proposal implicitly recognize that real-time
voice communications may be transformed into data form to facilitate
some or all of its physical transmission, and then reconstituted as
voice. Such intermediate transformation should not affect the incidence
of excise taxation, which is a tax upon the service received.
831 This treatment is consistent with present law. See Rev. Rul. 89-84,
1989-1 C.B. 296.
The telephone service that generally enables the caller generally to
place the "1-900" call (as
well as other calls) is also a taxable communications service.
page 374
To avoid controversy, certain service components are expressly
classified as taxable communications services: enhanced voice service
features, such as conference calling, threeway calling, call forwarding,
caller ID and voice mail services, as well as other ancillary services
taxable under present law.832 Directory listings (whether "white
pages" or "yellow pages"), however, are classified as information
services.833 Provision of a "regular" phone line or circuit that may
be used for facsimile, for teletypewriter, or for connection to a
"dial-up" Internet access provider is treated as a taxable
communications service unless the line or circuit cannot be used for
real-time voice communications. Provision of broadband (where the amount
for such service is separately itemized from VOIP) or dial-up Internet
access service (where not connected to the public switched telephone
network) is not taxable.
The billing and bundling rules generally remain as under present law.
However, to be excluded or exempted from the communications excise tax,
a nontaxable service component must be separately stated on the
customer's bill. The Treasury Department is granted the regulatory
authority to determine if the communications component of a service is
de minimis, if an offered service constitutes a service component, and
if a service component is a communications service or an information
service.834
Option 2 modifies certain present-law exemptions. Present-law
exemptions for the press, common carriers (e.g., trucking companies),
and radio broadcasting stations and networks are expanded to cover all
communications excise taxes (rather than only taxes on toll telephone
services).835 Separately itemized service components provided by one
communications provider to another communications provider are exempt
from excise tax to the extent that the recipient uses such services to
provide services to its customers. The exemption for public
coin-operated service is modified such that such calls are exempted to
the extent of the minimum amount charged by the coin-phone service for a
local call. The rest of the exemptions (except for private
communications services) are unchanged.
832 Voice mail services are generally classified as private
communications services under present law. See Priv. Ltr. Rul. 9006014
(November 7, 1989). Such classification would not change under the
proposal, to the extent such services are provided within the scope of
the private communications services exemption, as modified under the
proposal.
833 White pages directory listings are classified as taxable local
telephone services under present law. Yellow pages listings, however,
are classified as nontaxable advertising. See Rev. Rul. 72-616, 1972-2
C.B. 575.
834 For example, in the case of a private voice network bundled with a
video game, the Treasury Department might determine that the access to
the bundled private voice network is de minimis because access to a
similar, but unbundled, private voice network is available at no
charge.
835 If Option 2 or 3 is enacted, it may be timely to revisit whether
these and other exemptions are still warranted.
page 375
The private communication services exclusion is significantly modified.
Under Option 2, the exclusion continues to apply as under present law,
but is geographically limited to taxable communications either (a)
within a Core Based Statistical Area,836 or (b) within one building or
between buildings located on a contiguous plot of land. Rules similar to
the rules of the Mobile Communications Sourcing Act837 are applicable to
cross-border services.
Option 3: Expand the tax base to all voice and data communications
Option 3 incorporates the changes to the tax under Option 2 (including
changes to the tax under Option 1) and makes further changes to the law.
Under Option 3, the communications excise tax base is generally expanded
to include all data communications services to end-users. The taxable
base includes local and long distance voice services, VOIP, analog and
digital cellular and satellite telephone services, cable and satellite
television services (to the extent the charge is for communications),
broadband and dial-up Internet access services, paging services, and
other data communications services.
In general, a service component is classified as a communications
service if the primary purpose of the service component is the
transmission of communications, as contrasted with the content of the
communications or the capability for generating, acquiring, storing,
transforming, processing, retrieving, utilizing, or making information
available via communications. The billing and bundling rules are similar
to those of Option 2. For example, cable and satellite television is
considered to consist of a taxable communications service component
bundled with a nontaxable information (content) component.838
Unlike Option 2, communications capacity ("bandwidth") is taxable,
whether provided, for example, as a service, as a lease, or as the sale
of "lit" (activated) fiber optic cable or installed "dark"
(inactivated) fiber.
836 A Core Based Statistical Area is a geographical area containing a
recognized population nucleus and adjacent communities that have a high
degree of integration with that nucleus. See Office of Management and
Budget, Standards for Defining Metropolitan and Micropolitan Statistical
Areas, 65 Fed. Reg. 82,228 (2000). Lists of these areas are published
periodically by the Office of Management and Budget, based on
information from the Census Bureau.
837 Pub. L. No. 106-252 (2000) (codified at 4 U.S.C. secs. 116-126).
This legislation generally relates to the methodology for allocating and
apportioning mobile communications revenue for purposes of State and
local taxation.
838 The communications component of cable and satellite television
consists of the portion of the "basic" service provided by the
taxpayer attributable to the communications, i.e., the capability to
access the provider's content. Enhanced features, such as pay-per-view
and "premium" channels, are not taxable services, but are, instead,
incremental information services.
Effective Date
Option 1 of the proposal is effective for services rendered after the
date of enactment.
Option 2 or 3 of the proposal is effective for services rendered on or
after the first day of the first calendar quarter beginning 60 days
after the date of enactment.
No inference is intended as to the treatment of any issues or
controversies arising under present law.
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