Fee-free phones worry Provo

PROVO — Rep. Chris Cannon's current push in Washington, D.C., to keep Internet telephone services free from local taxes could eventually shrink Provo city's budget.

Provo residents are looking forward to consolidated — and relatively cheap — Internet, cable and phone service over a planned citywide fiber-optic network.

Local phone customers currently pay combined local taxes of about 7.25 percent on land-line phone services, which translated to more than $825,000 in tax revenue last year.

Total tax revenue for Provo was about $22 million. If Cannon succeeds in nixing state and local taxes on Internet-based telephone services, that revenue would be lost.

According to City Treasurer Dave Croft, Provo currently plans to tax the Internet telephone services provided over the new fiber-optic network — called iProvo — in the same manner that it currently taxes land-line phone services.

"If you have phone service in conjunction with (iProvo), it would be the same taxes that you would receive if you went through Qwest or anything else," Croft said.

The voice services, called VoIP — Voice over Internet Protocol— that will be provided over iProvo are not subject to federal taxes because they are considered information services. In a House subcommittee hearing in July, Cannon raised concern about state taxation of VoIP, as well.

"I call into question whether VoIP should be subject to state taxation," said Cannon, who is chairman of the House Judiciary Subcommittee on Commercial and Administrative Law. "Prompt action is necessary to promote rather than undermine the development of this technology."

Provo City Council member Dave Knecht wasn't thrilled at the prospect of lost tax revenue.

"Depending on how many people actually signed up and used (VoIP), it could have an impact," Knecht said.

"If you can't recover fees using that mechanism, cities are forced to raise property taxes to balance their budget."

But Cannon, who represents Utah's 3rd Congressional District, which covers most of Utah County, sees VoIP services as the future industry standard, and said cities will lose revenue even if local taxes stay in place.

"We've had sort of a revolution recently, which has included a reduction of the cost of access," he said. "The cost of sending voice information is minuscule compared with that of a telephone call."

Cannon said that reduced cost will translate into reduced revenue for cities and states no matter what taxes are in place. He suggested local governments find new sources for revenue and challenged them to become more efficient, utilizing available technologies to their advantage.

Knecht said citizens would be surprised at how tight a ship Provo must run already.

"Provo City is running on bald tires, almost, when it comes to budget," he said.

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E-mail: mdecker@desnews.com