Supreme Court Sets the Stage for Changes to VoIP Taxation

The U.S. Supreme Court has set the stage for VoIP service providers to challenge regulatory oversight by states.  It happened on October 21, 2019, when the Court decided not to hear the case  of Charter Advanced Services (MN), LLC, and Charter Advanced Services VIII (MN), LLC, v. Minnesota Public Utilities Commission (MPUC).

The case was an appeal of a District Court decision which found that Charter’s VoIP service is an information service that cannot be regulated/taxed by the states.    The situation stems from a decades-old FCC rule mandating that if VoIP is a telecommunications service, it gets taxed and regulated in the same way as “traditional” telecommunication services by both the federal and state authorities, but if it is an information service, it may not be subject to state regulation at all.

The dispute has been brewing for years because the FCC has steadfastly refused to say  whether VoIP is an information service or a telecommunications service, leaving it up to the courts to decide on an individual case basis (as a side note, in 2005 the FCC ruled that ‘computer-to-computer’ VoIP is an information service, and therefore not taxable, as a result of the efforts of Vectors keynote speaker Jeff Pulver).

By my count, 33 states currently impose taxes and other regulatory charges on VoIP services by relying on the “telecommunications” classification.  By choosing not to entertain Minnesota’s appeal of the lower court decision that VoIP is not a telecommunications service, the Supreme Court endorsed the idea that VoIP is an information service.  This is sure to have repercussions throughout the other 32 states.

On the other hand, this decision could be the impetus for Congress to step in and pass a law that subjects VoIP to more regulation – an outcome that might not be surprising in a political climate that looks favorably on oversight of cloud services.