When it was revealed this week that the city of Baltimore is suing Vonage to collect a $3.50 monthly tax for subscribers using its Internet phone service, the city opened up an issue that has defied resolution for years.
Baltimore instituted the tax on all phone lines in 2004, but apparently didn't file the lawsuit until recently.
"The service that Vonage is providing clearly fits the definition of a telecommunications line," said Joshua N. Auerbach, an assistant city solicitor, according to media reports.
Not so, says Vonage, which claims it is an information service and therefore exempt from taxes. Vonage won a hard-fought battle in a federal court in Minnesota more than three years ago in which the judge in the case ruled that Vonage's service was an information service.
However, the tax issue keeps raising its head, particularly as long distance charges drop and VoIP services like Skype continue to eat into traditional telephone company services and revenue. The drop in telecom taxes has hit hard the Universal Service Fund, which is used to subsidize telecommunications in rural areas.
FCC chairman Kevin Martin has suggested that telephone numbers could be taxed instead of phone lines. That approach would concern Vonage, which issues phone numbers, but not peer-to-peer VoIP providers like Skype, whose users normally don't use numbers.