TheTimesTribune.com, Corbin, KY

Community News Network

June 25, 2014

Mobile web siphoning revenue from U.S. cities as landlines fade

LOS ANGELES — Tweeting, Facebooking, Skyping smartphone users are costing U.S. states and cities revenue as taxes rooted in old-fashioned telephone service fail to keep up with the Internet era.

In Phoenix, Ariz., the loss of $1.3 million in telephone tax revenue translates to the cost of training and equipping 10 police officers, said Mario Paniagua, the budget and research director. In Springfield, Illinois, a $200,000 shortfall in telecommunications revenue is keeping the library from extending hours.

"I imagine at some point you'll have an app called the 'Call Your Friend' app and you won't be using the phone network at all," said Max Behlke, the manager of state-federal relations for the National Conference of State Legislatures in Washington. "It is a concern for states and localities because this has been one of the most reliable revenue streams they have. Phone service is almost as much a necessity as food."

Just as they created new business models for retail sales, taxi service, short-term accommodations and watching movies and listening to music, smartphones and the Internet are changing how people dial each other up. Tax-dependent governments, still struggling to recover from the 18-month recession that ended five years ago, find themselves seeking to compensate for a once-reliable source of money.

Unlike voice calls, which face levies either on landline or mobile networks, data use can't be taxed under federal law. And that's where the growth is. Mobile Internet use more than doubled last year from 2012 to 3.2 trillion megabytes, according to a report released this month by CTIA-The Wireless Association, an industry trade group.

While voice use over cellular networks rose 14 percent, multimedia-messaging soared 29 percent, according to the trade group. Text messaging, which uses the same mechanism as voice calls and is also taxed, fell 13 percent.

"It's not that people are talking less," said Scott Mackey, a partner at KSE Partners LLC, a lobbying and public- relations firm in Montpelier, Vermont, that represents the cellular industry. "It's that people are talking less on the public switched network. Down the road, voice is going to become another application on your Internet service."

The pace of change has outstripped tax structures created for an era in which telephone service meant a trusty rotary-dial Western Electric 500 plugged into the wall. Phone companies in the U.S. had 140.9 million phone lines at the end of 2012, down from 161.8 million five years earlier, according to Bloomberg Industries.

In Illinois, taxes on telecommunications fell to $572 million for the year ended June 30, down $98 million from 2011, according to the state Department of Revenue. In Arizona, Phoenix's revenue from phone-call taxes slid 7.2 percent in the past year.

Officials there are looking for ways to close a shortfall in next year's budget created in part by the city council's lowering of a grocery tax as well as the $1.3 million drop in telecommunication revenue, Paniagua said.

"We're not talking about a huge amount of money, but it puts a further strain on our budget," he said.

In Springfield, the capital of Illinois, taxes on telecommunications provide $3.1 million of the $4.5 million budget for the main library. They fell $200,000 behind the mark for the year that ended Feb. 28, said William McCarty, the city's budget director.

So the library, which cut hours during the recession, stays open only until 6 p.m. on Thursdays and Fridays and 5 p.m. on weekends, he said.

"Even to just maintain the services that we have, we have to dip into the general fund," he said.

The Illinois state government, collecting 15 percent less in telecommunications revenue than two years earlier, has recouped the loss through higher taxes on cigarettes and liquor, said Susan Hofer, a spokeswoman for the Revenue Department.

Florida's telecommunications-tax revenue fell 6 percent between 2011 and 2013, according to its Revenue Department. In Seattle, telephone taxes have declined since 2002 because of a "lackluster" economy, industry consolidation and competition from non-taxed Internet voice services, the city said in its 2014 budget. Telecommunications tax revenue dropped 3.7 percent between 2011 and 2012.

Software that replicates the function of phone calls has been beyond the reach of state and local tax collectors since President Bill Clinton signed the Internet Tax Freedom Act of 1998.

Now, users of Microsoft's Skype, the most popular so- called voice-over-Internet application, spend more than 2 billion minutes a day connecting with one another, said Ali Dwiggins of Waggener Edstrom Communications, a spokeswoman for the company. Apple has a similar application, FaceTime, used 15 million to 20 million times a day, the company said in February. Text messaging is being eroded by free Internet-based alternatives such as Facebook's WhatsApp, a service that it acquired in February for $19 billion.

Internet-based calls have better sound quality and flexibility to add video and data, said John McGlory, 23. He answered a call to his Phoenix-based information technology consulting business, Metro Ventures, with an application that adds a second line to mobile phones, tablets and computers, called Line2. Plus, they're cheaper.

Cities and states have no business taxing calls or other functions on the Internet, he said.

"The Internet isn't a right, but I almost see it that way," McGlory said. "You are not using any city equipment or facilities."

Mackey, the cellular industry representative, said cities and states need to wean themselves from dependence on chatty phone customers.

"Thirty, 40 and 50 years ago, they were able to grant franchises on local telecom services and collect revenue from them," he said. "This is no longer a good way to tax in the 21st century."

1
Text Only
Community News Network
Front page
NDN Video
What's Got Jack Black Freaking Out at Comic-Con? Doctors Remove 232 Teeth From Teen's Mouth Bradley Cooper Explains His Voice in 'Guardians of the Galaxy' Deja vu: Another NYPD officer choke-holding a suspect Chapter Two: Becoming a first-time director 'Fifty Shades of Grey': Watch the Super Sexy First Trailer Now! Reports: Ravens RB Ray Rice Suspended For 1st 2 Games Of The Season Air Algerie plane with 119 on board missing over Mali Diamond Stone, Malik Newman, Josh Jackson and others showcase talent Free Arturo - The World's Saddest Polar Bear A Look Back at Batman On Film Through The Years LeBron James -- Dropped $2k On Cupcake Apology ... Proceeds To Benefit Charity Snoop Dogg Says He Smoked Weed at the White House Raw: Fight Breaks Out in Ukraine Parliament Chris Pratt Interrupts Interview To French Braid Intern's Hair Shirtless Super Mario Balotelli Dances While Ironing - @TheBuzzeronFOX Whoa! Watch "Housewives" Star Do the Unthinkable LeBron apologizes to neighbors with cupcakes Justin Bieber In Calvin Klein Underwear Shoot Samsung Pre-Trolls The IPhone 6 With New Ad
AP Video
Judge Faces Heat Over Offer to Help Migrant Kids Kerry: No Deal Yet on 7-Day Gaza Truce Kangaroo Goes Missing in Oklahoma More M17 Bodies Return, Sanctions on Russia Grow Gaza Residents Mourn Dead Amid Airstrikes Raw: Deadly Tornado Hits Virginia Campground Ohio State Marching Band Chief Fired After Probe Raw: Big Rig Stuck in Illinois Swamp Cumberbatch Brings 'Penguins' to Comic-Con Raw: Air Algerie Crash Site in Mali Power to Be Restored After Wash. Wildfire Crashed Air Algerie Plane Found in Mali Israel Mulls Ceasefire Amid Gaza Offensive In Case of Fire, Oxygen Masks for Pets Mobile App Gives Tour of Battle of Atlanta Sites
Hyperlocal Search
Premier Guide
Find a business

Walking Fingers
Maps, Menus, Store hours, Coupons, and more...
Premier Guide
Twitter Updates
Follow us on twitter
Facebook