Going Online To Make Phone Call Could Cost State In Tax Money

Instead of phone lines or cell towers, calls from about 100 North Carolina State University employees travel over the Internet.

"They want a thing that's like an appliance and now, it's becoming more and more appliance-like," said John Streck, director of networking research and development at N.C. State.

Since Voice Over IP is more reliable and a computer is no longer needed, Streck said Voice Over IP has gone mainstream, complete with dial tone. For a flat rate of about $40 a month, consumers get unlimited calling to anyone with a phone, not just computer users.

With the low-cost advantages come challenges for state and local governments.

"The raw transport of voice is not the cash cow it was before," Streck said.

Currently, North Carolina collects well over $300 million a year in taxes from phone calls. Ellis Hankins, of the League of Municipalities, said Voice Over IP could threaten that money.

"Telecommunications tax is a major revenue source for our municipalities," he said.

Hankins argues a bill now pending in the US Senate would not only extend the moratorium on taxing the internet, but it could also block states from taxing phone calls online.

"Whether it's over the Internet or by the old ways, the service ought to be taxable," he said.

There have been various court battles in other states over taxing online phone calls. The Department of Revenue is watching closely. Several major communications companies are now marketing Voice Over IP. All you need is cable service or DSL.

The Internet and cell phones are replacing traditional landlines. According to In-state/MDR, 14 percent of people do not have a hard-line phone opting for cell service only. Another 26 percent said they would switch to cell service if offered better deals.

Research expect the number of people using cell phones only to double by 2008 to about 30 percent and industry analysts predict Voice Over IP revenues will increase by 300 percent in the next three years.