Sales Tax Articles
Sales Tax State Activity Update - March 2005
Pennsylvania and Wisconsin Talk VoIP
Pennsylvania
Voice Over Internet Protocol, or VoIP, is considered to be a telecommunications service subject to Pennsylvania state and local sales tax. VoIP is defined as real-time audio or data transmitted/and or received in a digital format using Internet protocol data packet transmission, or any similar or successor protocol transmission. Calls may be made between users of the same VoIP service or other VoIP users and those with landline or mobile telephone service. However, some VoIP services work only over a computer or VoIP telephones while others allow a traditional telephone to be used with an adapter.
The term "telecommunications service" is defined in 72 P.S. ยง 7201(rr) as:
"Any one-way transmission or any two-way, interactive transmission of sounds, signals or other intelligence converted to like form which effects or is intended to effect meaningful communications by electronic or electromagnetic means via wire, cable, satellite, light waves, microwaves, radio waves, or other transmission media. ..."
Since VoIP utilizes computer-processing applications solely for the management, control or operation of a telecommunications system or the management of a telecommunications service, it does not come within the enhanced telecommunication service exclusion from sales and use tax. VoIP utilizes Internet protocol that permits the transmission of packeted data across a network or across multiple networks, but does not interact with the information it transmits; it merely serves to address and route the information.
The federal Internet moratorium, the Internet Tax Non-Discrimination Act (P.L. 108-435) specifically excludes VoIP, allowing states to tax it as a telecommunications service. In addition, the Federal Communications Commission (FCC) has ruled that digital voice is not subject to state public utility regulation, however, the FCC has not expressed an opinion on state taxation of the service.
Sales Tax Bulletin 2005-02, Pennsylvania Department of Revenue, 1/28/05
Wisconsin
Wisconsin has issued a Tax Release in a question and answer format describing various scenarios where Voice Over Internet Protocol (VoIP) is subject to Wisconsin state and local sales tax.
Various telecommunications and cable television service providers have started offering a new telecommunications service, called Voice over Internet Protocol (VoIP), as an alternative to more traditional, circuit-based telephone service. Even though the Internet is already used as a transmission pipeline by traditional telephony carriers for segments of their business (which use is transparent to the customer), VoIP is designed to allow the user to place telephone calls over the Internet, at times without the use of any telephone circuits dedicated to the call. However, in order to use VoIP, the user is required to have a broadband or high-speed Internet connection, such as a cable modem or a digital subscriber line (DSL). Some VoIP services allow the user to call other users with the same service, while other VoIP services allow users to call anyone with a telephone number, including local, long distance, mobile, and international numbers.
Depending upon the provider of the VoIP service, the user may be able to make calls using their regular telephone with an adapter, a telephone connected to their computer, or a microphone connected to their computer. VoIP works by converting a vocal audio signal into a digital signal, which can be transmitted over the Internet in the same manner as e-mail, data, or digital photographic images, and then converted back into an audio voice signal at the destination.
The Tax Release stated that VoIP is subject to Wisconsin sales tax if the service originates or terminates in Wisconsin and is charged to a service address in Wisconsin. The VoIP service is a telecommunications service as provided in sec. 77.51(21m), Wis. Stats. If the provider does not have sufficient nexus to report tax to Wisconsin, the Wisconsin customer will be liable for use tax on the service charges. If the seller of the VoIP service does not know the location where the individual VoIP calls originate or terminate, they should be sourced to the customer's place of primary use, as provided in sec. 77.51(17m), Wis. Stats. The customer's place of primary use is the street address where the customer's use of the VoIP service primarily occurs (i.e., the customer's residential street address or primary business street address.)
Tax Release #1, Tax Bulletin No. 141, Wisconsin Department of Revenue, 1/1/2005Subscribe to CyberTax News and receive the latest indirect tax news, including rate changes, rule updates, compliance issues, and more, delivered directly to your email.
Call 800.355.3500 to Speak to a Sales Representative.
