Santa Barbara Politics, Media & Culture

Wednesday, April 09, 2008

Tax the Internet? Time for a Tea Party!

Santa Barbara County Taxpayers Association Executive Director Joe Armendariz sent the following to the the media. It's interesting food for thought as VoIP technology is clearly within the realm of the Internet rather than traditional telephony.

Last week, there were a few stories on Google's possible buy of Skype from eBay. Google with their new Android cell phone operating system, free 411 and Grand Central voice mail technology could easily change the telephony landscape with wireless internet based calls that they host. Indeed, Google recently made a play with the FCC for a new part of the wireless spectrum. Does that mean we should be taxed on innovation? And, how would you tax someone that uses a proxy server in Timbuktu? -- SDLG

Below Written by Joe Armendariz from the SB Taxpayers Association

The Santa Barbara City Council "ordinance committee" (which consists of three sitting council members) voted today to move ahead with a new expanded local Utility Users Tax (UUT) which will impose a new tax on cell phone, satellite television and VoiP service.

This is an interesting issue. The question I have is whether or not new technologies such as VoiP should be exempt from taxation due to the federal governments moratorium on taxing internet access. Voice over internet Protocol (VoiP) is clearly an internet based communications technology. Why should an economically clumsy, technology illiterate municipality attempt to swoop in and force national and/or international providers like Vonage to begin collecting a local utility tax on only those customers unfortunate enough to live within a certain zip code? Because they need the revenue of course. But this will be a nightmare for the provider and impossible to enforce by the city.

Plus, VoiP service is completely mobile, all it requires is a notebook computer with an internet connection to function. There are local area codes associated with the phone numbers, but area codes cover large regions of the state and transcend individual city boundaries. Collecting this new UUT on VoiP's will prove challenging at best as subscribers simply use out of town mailing addresses to avoid the new tax.

Furthermore, the suggestion by local government officials that this expansion in the UUT is to level the existing playing field is absurd. There are other ways to level the playing field when it comes to the existing level of taxation; eliminate the current utility users tax on telecommunications service across the board…treat all information technologies equal, make them a tax free zone to help spur innovation.

Consumers are shrewd when it come to this stuff. The status quo, where some providers (COX/Comcast) services are being taxed while others (DirecTV) are not, is bad enough. Imposing a utility tax on all providers isn't the solution. Indeed, even without taxing DirecTV, the status quo places COX and Comcast at risk of losing market share as more sophisticated and especially younger consumers access all of their information and entertainment content online (YouTube/MySpace).

If local governments need the money in order to balance their budgets, which they always do, they should find other sources of revenue. Besides, what entitles local governments to tax these new technologies and information services in the first place? What public owned infrastructure exists to avail these internet based technologies to local residents? I think California should lead the way in abolishing all user taxes on local telecommunications and other information technologies to help incentivize the next generation of technological innovation.

It is worth remembering that when you tax something, you get less of it…why is the City of Santa Barbara trying to discourage innovation by taxing it? Maybe a statewide taxpayer initiative is the remedy?

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Blogger johnsanroque said...

Two comments:

The problem with statements like this is that there’s no recognition that taxes are necessary to provide services. Nobody wants to be taxed, but non-tax people don’t address where to get the money or why, for example, California spends so little per student on education compared to other states. Voters want to believe the lies, so they elect people like Schwarzenegger who campaigned that he could balance the budget by eliminating waste and fraud, while keeping car license fees at their reduced level. Those are campaign lies, recognized by everyone except a majority of California voters, evidently. Republicans campaign on lowering taxes to increase revenue, but it’s just a slogan. For anyone who thinks that works, please explain the current CA budget deficit and the federal deficit. Have we not cut taxes enough to eliminate those highest-in-history annual deficits?

Secondly, there’s no free lunch for phone calls or any other service. If you think you can get free VOIP calls over the Internet, check you latest Cox Cable bill. Mine went up about 7% last month, and it has increased way more than inflation for many years. I refused to switch over to Cox telephone because I didn’t want to give them more of a monopoly over local services, but I still pay about $1,700 a year for Internet access and cable TV (no premium channels).

By the way, I asked the City’s Dept of Finance, which oversees the Cox contract, whom I could complain to about the latest increase. The answer was that the City has no control over cable rates or increases—it’s under federal control. When I asked what federal agency I could complain to, here’s the answer (from the City Finance Dept) to that one:

“Unfortunately, and much to the chagrin of the city, there is no federal oversight of cable pricing. The FCC was the governmental authority charged with responsibility for regulating cable prices. However, as part of the re-write of the Telecommunications Act in 1996, the Federal government unilaterally determined that "effective competition" had been reached in the marketplace and phased out regulation of cable rates. As you know, effective competition is not a reality in our own local region.”

I’m not sure if I want “free” VOIP if my IP provider is going to get that revenue through another portion of my monthly bill anyway.

4/09/2008 6:43 AM  
Anonymous Bill in the Room said...

Joe, time to take your own inventory and sweep you own side of the street.

Maybe the "other source of revenue" can be the $1 million you extracted from all the other south county transportation projects to pay for your own city and for a project you could not even describe and justify?

Joe Armendariz is this time a shill for the monopolist Cox Communications.

4/09/2008 8:55 AM  
Blogger Greg Knowles said...

SDL, I tend to agree with you on taxing the internet. I think it is a huge can of worms and I'm not sure how any local government could pull it off without some kind of wide spread abuse. I feel the pain as well with respects to Johninsanroque's comments. I am only hoping that as more options for television become available the competition will drive down the prices. Like what happened when cell phones first came out. In the end I'm sure the government will get their pound of flesh whether they tax the consumer or the providers, or both. I know that will hit me in the pocket book and that is why I'm hoping for more choices in the not too distant future. Heck it may be cheaper to use a land line than VOIP. ;o)

4/09/2008 9:56 AM  

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