Cities clashed with the VoIP industry, urging the IRS in comments...

applied in the same way as the federal excise tax (FET). “Unless the IRS applies the FET to new broadband technologies that allow for communications with the general telephone public, the city and the IRS will experience a significant decline in existing telecommunication tax revenue as commercial and residential users migrate to this new technology,” said the Cal. towns of San Buenaventura, Sunnyvale, Gilroy, San Leandro, El Monte and Pasadena in separate comments. Berkeley and San Jose said there were “several hundred” licensed telephone companies in Cal. that collected and remitted over $500 million in UUT to Cal. public agencies. They said in many of the larger Cal. cities, the telecom UUT represented as much as 5% of the total tax revenue to those municipalities. For example, Berkeley said it received $5.9 million in annual telecom revenue -- 7.3% of its total tax revenue. San Jose said it received $20 million -- 3% of its total General Fund tax revenue. “Clearly, in these times of budgetary constraints, each local tax dollar is precious, since they are primarily devoted to such essential services as police, fire, street repair and libraries,” they said. The cities said the IRS should continue to focus on the nature of the service, rather than on the type of technology, protocol or transmission method used to provide it: “The threshold question should continue to be: ‘Does the new technology, transmission method or protocol permit the user to communicate with the general telephone public?’ If yes, then taxation follows.” The cities said VoIP was “imitating traditional telephone service, by giving the customer the same quality and ubiquity as traditional wireline voice telephone service.” They said for purposes of taxation, the IRS should focus on VoIP services that have “the typical attributes of traditional telephone service,” such as use of numbers from the N. American Numbering Plan, integration with PSTN vs. Private Line, and access to emergency 911 services. For example, it said VoIP services, such as AT&T’s CallVantage, Verizon’s VoiceWing and Vonage service were “comparable to traditional phone service and include many of the same features.” The cities also urged the IRS to clarify its rule on bundling. Meanwhile, NTCA continued to defend its longstanding position that imposing the federal excise tax on communications services was “regressive in nature,” but said: “Because the outright elimination of the tax is beyond the scope of the IRS’s authority… competitive neutrality demands that it be applied uniformly across the telecommunications industry.” NTCA said it was “unfair” that only consumers receiving traditional wireline and wireless service had to pay the federal tax: “This creates an unfair competitive advantage for those employing other technologies such as [VoIP] and cable modem services… Rural telephone companies cannot compete with providers who, for no other reason than regulatory disparity, are able to offer a competitive service for a cheaper price.”