IOWA CITY, Iowa (AP) - Companies that provide Internet-based phone service must be taxed the same as traditional telephone companies, the Iowa Supreme Court ruled Friday.
Voice over Internet Protocol providers operate “telephone lines” even though their calls are initially transmitted through broadband networks, the court ruled 6-0. The ruling means they are subject to annual state property tax assessments on telephone companies, which are calculated based on the size of their service networks.
The ruling comes amid an ongoing debate on whether VoIP should be regulated differently than other phone service. Verizon and AT&T have been lobbying Iowa lawmakers to deregulate VoIP, saying it would spur investment in technology and services that customers want. Critics say the move would give an unfair advantage to VoIP providers and undermine consumer protections.
Friday’s ruling came in response to a challenge from Cable One, Inc., a Phoenix-based company that provides cable and Internet service in the Sioux City area. The Iowa Department of Revenue began taxing Cable One as a telephone company in 2008 after its VoIP service began. Cable One challenged its 2008 and 2009 assessments, which totaled $1.5 million.
Cable One, which has 720,000 customers in 19 states, argued it should be exempt from the Iowa telephone tax because it does not operate a telephone line as spelled out in the law. It said its network of cables was intended and mostly used for delivering cable television and Internet services.
Until Friday, every judge that reviewed the case had ruled in Cable One’s favor.
Upholding an administrative law judge’s ruling, the Iowa State Board of Tax Review found there was a “substantial difference” between traditional telephone and VoIP and the law wasn’t written broadly enough to apply taxes to the new technology. A district judge upheld that ruling, noting that Cable One had to contract with a telephone company to connect calls to the public telephone network.
But in an opinion written by Justice Edward Mansfield, the high court reached back 130 years in its own history as it overturned those decisions.
Mansfield noted that the original tax law dated to 1878 - as the telephone was being invented - and applied only to telegraph lines. The Iowa Supreme Court ruled in 1885 that the law also applied to telephone lines, saying they were similar technologies used to communicate through wires even if the signals were transmitted differently. The court issued a similar decision the following year.
“The foregoing cases support the view that the definition of ‘telephone line’ adapts with changing technology, so long as there is a line and a comparable service is being provided,” Mansfield wrote. “Cable One operates a transmission system to carry voice signals from one fixed location to another over a series of wires; therefore, it operates a telephone line.”
He said the decision was also “bolstered by Cable One’s own marketing material,” noting that the company told customers that its phone service was similar to a traditional landline.
Cable One did not immediately react to the ruling.
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