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VoIP Services Beat Regulation--For Now

Minnesota ruling keeps states from taxing VoIP calls, but courts are still mulling service fees.

In a November 2004 ruling, the FCC found DigitalVoice to be an Internet service and not a conventional phone service. But those differences may not hold true for other VoIP providers. The FCC also found that voice over the Internet could not be "cost effectively" separated into interstate and intrastate communications, which would make it possible for states to tax in-state calls. But if a cost-effective method arises, a tax may follow.

Federal courts in New York and California are still pondering a state tax on VoIP services over Internet. It's likely they'll follow the Minnesota decisions, but there is a lot of ground to cover. States may still tax Internet phone businesses, and the FCC has yet to decide whether Internet phone services are subject to fees by other carriers to complete calls, universal service fees to subsidize rural carriers and emergency 911 service fees.

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