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Re: Pricing Comparison, was: Vonage's Citron Says VoIP...

Michael D. Sullivan (userid@camsul.example.invalid)
Mon, 07 Mar 2005 05:27:50 GMT

In article <d0g581$2hhc$>,

> Regulated telcos don't pay taxes. Only their customers pay taxes.
> Some of those taxes are itemized on the bill, and some are just buried
> in the rates, but one way or another, every dime of tax paid by the
> telco comes ultimately from the ratepayers.

Regulated telcos are in fact liable for, and do pay taxes of many
different kinds, some or all of which are ultimately recovered from
ratepayers. There are also taxes that are imposed directly on the end
user of telecommunications, which are merely collected by the telco. An
example of the latter is the federal telecommunications excise tax,
which is levied on the end user directly by federal law, but is
collected and remitted to the government by the telco. This is very
different from the taxes and tax-like fees and charges that are imposed
directly on the telco, but which are ultimately recovered from the end

For example, the Federal USF charge is assessed on the carrier based
on its end-user interstate telecom revenues; it must be paid by the
carrier, whether or not the carrier can recover it from its customer,
either as a line item or as a hidden component of its rates.
Likewise, there are state taxes and fees, such as gross receipts
taxes, state USF fees, 911 charges, sales taxes, intrastate
telecommunications excise taxes, etc. These are typically levied
directly on the telco, but the telco passes them through to the
customer one way or another. And then there are income taxes, state
and federal, levied on the telco and paid by it, but taken into
account as a cost of doing business when setting rates.

While it's true that, ultimately, all of the taxes on telcos ultimately
come out of the pockets of their customers, either directly or
indirectly, that is also true of every other business. What is unique
about the telecom industry is that the state and federal governments
have latched onto telecom as a cash cow, imposing thousands of separate
taxes across the country above and beyond the normal income, property,
and sales taxes that are imposed on other businesses. There is
absolutely no justification for imposing all of these costs on telecom
providers, and their customers, alone, other than the fact that they are
sitting ducks.

One reason why telecom companies tend to pass these taxes and fees
through as line items, rather than absorb them as a cost of doing
business, is because they are imposed arbitrarily and are subject to
frequent change, so they can't in many instances be internalized into
the cost of doing business like income and property taxes. Stores
pass through the sales tax as a line item on your register receipt for
the same reason. Doing this makes consumers aware that the
government, and not the carrier, is responsible for much of the total
cost (up to 1/3, or even more) of telecommunications services. Did
you know that your telephone bill is inflated by 10% or so in order to
subsidize rural telephone companies, many of which are highly

That's what the federal USF charge does, in part. Thank Ted Stevens
for this subsidy, not your carrier. People in rural areas pay less
than urban customers for telephone service because the urban
subscribers pay a huge subsidy to the rural telcos, all in the name of
supporting universal service in high cost areas. Likewise, states
impose a 911 surcharge on telecom providers, which is passed through
to the customer. In some cases, states have used the funds collected,
which were supposed to subsidize the cost of upgrading 911 dispatching
facilities, to redecorate police stations while leaving 911 service
unimproved. Why should telcos and their subscribers pay for
redecorating police stations, or even for upgrading other areas' 911
centers, when these are general government public welfare
expenditures? The answer is that it's easier to levy taxes on telecom
than to raise income taxes.

Michael D. Sullivan
Bethesda, MD, USA
Replace "example.invalid" with ".com".

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