Phone-tax fight heads to Capitol
Municipalities want the income; Internet-based phone-service
providers want to remain tax-free.
By Beth Potter, Staff Writer Denver Post
Wednesday, January 25, 2006
Denver-based Qwest and other sellers of Internet-based phone
service in Colorado are ready for Round 2 against city
governments in a battle over at least $80 million in yearly
State Rep. Matt Knoedler, R-Lakewood, is sponsoring a bill
drafted with Qwest's help to keep Internet phone service
tax-free in Colorado. A similar Knoedler bill in the 2005
legislative session failed by one vote.
"This bill would protect businesses from burdensome taxation
and regulation and could place Colorado's high-tech economy
at an advantage nationwide," Knoedler said.
The bill is up for a vote by the House Finance Committee on
Vonage, the nation's largest Internet-based phone-service
provider, also opposes taxation on its service, a spokesman
But taxes on land lines and cellphones generate big money
for state and local government coffers - $83.2 million in
2004, to be exact, said Chip Taylor, legislative director of
Colorado Counties Inc.
If most telephone customers switch to Internet phone
service, a move analysts predict will happen in 10 years,
that revenue would disappear under Knoedler's bill, Taylor
Land-line telephone customers typically pay about 30 percent
of their bills in taxes and surcharges. Most are historical
fees and charges that have nothing to do with phone service,
Taylor wants the same taxes that are applied to land lines
and cellphones applied to Internet calls, also known as
Voice over Internet Protocol, or VoIP, phone service.
"Why are we treating one kind of phone service differently
than another kind of phone service?" Taylor asked.
Officials feel similarly at the Colorado Municipal League,
which represents city governments.
"We don't think the government should be busy picking
winners and losers in the free market in this fashion," said
Jeff Wilson, a Municipal League spokesman.
About 3.8 million customers nationwide use Internet phone
calling, said Travis Mitchell, vice president of business
development at Denver's VoIPReview, an online trade
magazine. Exact numbers for Colorado are not available.
Internet services are not taxed.
Arvada Mayor Ken Fellman says it doesn't matter how
residents make calls; cities still need the revenue that
comes from telephone lines.
Arvada would lose about $400,000 a year at current
collection rates if telephone-line tax revenues go away,
Fellman said. The city's yearly budget is about $65
"It means fewer cops on the street, fewer libraries,"
Fellman said. "You're giving a tax break to one part of the
industry that doesn't need it, at the expense of local
Regardless of the taxing issue, Qwest needs to be
competitive to survive in the marketplace, said Chuck Ward,
Qwest's top regulatory-affairs official. The former Baby
Bell has been required to charge all sorts of taxes attached
to its phone services over the years, and many of its
competitors don't have to, Ward said.
"A lot of it is a legacy from when there were no alternative
services," Ward said. "Now customers have choices, so it's
a competitive issue for us. Our idea is to reduce our
Like Internet phone service, Comcast cable's Digital Voice
service is not taxed.
Cindy Parsons, Comcast's Denver spokeswoman, said with the
tax-collection issue getting more attention across the
country, Comcast is being cautious.
She said the cable company, which serves about 700,000
customers in Colorado, makes a "voluntary contribution" for
state and local taxes, excise taxes and gross-receipt taxes
for its Digital Voice customers, but she wouldn't say how
Staff writer Beth Potter
can be reached at 303-820-1503 or