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Florida paves way for VoIP taxation

State lawmakers refuse to postpone enforcement of a law that could levy taxes on companies and individuals using VoIP to bypass a regular phone network.

Florida could become one of the first states in the country to tax networks running voice over Internet Protocol.

On Friday, the last day of the legislative session, the Florida House of Representatives failed to pass a bill that would have postponed the enforcement of a tax levied on businesses and individuals using substitute communications such as VoIP. The law, which has been on the books since 1985, has not been widely enforced.

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The statute was originally meant to tax businesses that bypassed the local telephone network by establishing their own communications network. While it was originally written with technologies such as satellite and microwave in mind, it could be applied to businesses carrying voice traffic over their IP data networks as well as individuals using VoIP services from companies like Vonage.

Other states, such as California and New York, have considered regulating VoIP. These states could also impose taxes on the technology. Last week, the U.S. Senate passed a bill to extend the ban on Internet taxation another four years. The bill singles out Internet access including DSL (digital subscriber line), wireless and even BlackBerry services. But it does not change whether or not states may tax VoIP services.

Because the wording of the Florida statute is so broad, some experts say it could even be applied to anyone using networked computers, two-way radio systems and intercoms. Currently, only about 10 companies have voluntarily paid the tax, which brings in roughly $600,000 a year. But if the 14 percent tax were enforced using the broad definition of "substitute communication," it could bring in more than $1 billion a year in revenue for the state.

On Friday, the Florida Senate passed a bill that would have prevented collection of the tax until 2006, and sent it to the House. But House Speaker Johnnie Byrd refused to consider it, said John Stargel, a Republican in the Florida House of Representatives.

"I don't think the speaker really understood the issues or took the time to understand what this tax will do to businesses in Florida and businesses looking to relocate here," he said. "We have now created an atmosphere of uncertainty. In a state that prides itself on being pro-business and pro-growth, it's sad that this message is being sent."

The Department of Revenue will now establish rules for the enforcement of the tax. These rules must be approved by the governor and his cabinet before the tax can be enforced, said Dave Bruns, a spokesman for the Department of Revenue.

Stargel said that the governor's office could postpone enforcement until the legislature meets again next year. But he predicted that any delay would face legal battles with local governments anxious to begin collecting the tax. Stargel said he will continue fighting against the tax, and he is confident that it will not affect a broad range of businesses. But he said that the uncertainty surrounding the tax will likely cost the state.

"I've been in-house counsel for two major companies," he said. "I know what uncertainty does. Businesses won't relocate to Florida unless they know what they can expect in taxes and they know what the business climate will be like."