Niagara Gazette

Web Extra

June 26, 2014

Mobile web siphoning revenue from U.S. cities as landlines fade

LOS ANGELES — Tweeting, Facebooking, Skyping smartphone users are costing U.S. states and cities revenue as taxes rooted in old-fashioned telephone service fail to keep up with the Internet era.

In Phoenix, Ariz., the loss of $1.3 million in telephone tax revenue translates to the cost of training and equipping 10 police officers, said Mario Paniagua, the budget and research director. In Springfield, Illinois, a $200,000 shortfall in telecommunications revenue is keeping the library from extending hours.

"I imagine at some point you'll have an app called the 'Call Your Friend' app and you won't be using the phone network at all," said Max Behlke, the manager of state-federal relations for the National Conference of State Legislatures in Washington. "It is a concern for states and localities because this has been one of the most reliable revenue streams they have. Phone service is almost as much a necessity as food."

Just as they created new business models for retail sales, taxi service, short-term accommodations and watching movies and listening to music, smartphones and the Internet are changing how people dial each other up. Tax-dependent governments, still struggling to recover from the 18-month recession that ended five years ago, find themselves seeking to compensate for a once-reliable source of money.

Unlike voice calls, which face levies either on landline or mobile networks, data use can't be taxed under federal law. And that's where the growth is. Mobile Internet use more than doubled last year from 2012 to 3.2 trillion megabytes, according to a report released this month by CTIA-The Wireless Association, an industry trade group.

While voice use over cellular networks rose 14 percent, multimedia-messaging soared 29 percent, according to the trade group. Text messaging, which uses the same mechanism as voice calls and is also taxed, fell 13 percent.

"It's not that people are talking less," said Scott Mackey, a partner at KSE Partners LLC, a lobbying and public- relations firm in Montpelier, Vermont, that represents the cellular industry. "It's that people are talking less on the public switched network. Down the road, voice is going to become another application on your Internet service."

The pace of change has outstripped tax structures created for an era in which telephone service meant a trusty rotary-dial Western Electric 500 plugged into the wall. Phone companies in the U.S. had 140.9 million phone lines at the end of 2012, down from 161.8 million five years earlier, according to Bloomberg Industries.

In Illinois, taxes on telecommunications fell to $572 million for the year ended June 30, down $98 million from 2011, according to the state Department of Revenue. In Arizona, Phoenix's revenue from phone-call taxes slid 7.2 percent in the past year.

Officials there are looking for ways to close a shortfall in next year's budget created in part by the city council's lowering of a grocery tax as well as the $1.3 million drop in telecommunication revenue, Paniagua said.

"We're not talking about a huge amount of money, but it puts a further strain on our budget," he said.

In Springfield, the capital of Illinois, taxes on telecommunications provide $3.1 million of the $4.5 million budget for the main library. They fell $200,000 behind the mark for the year that ended Feb. 28, said William McCarty, the city's budget director.

So the library, which cut hours during the recession, stays open only until 6 p.m. on Thursdays and Fridays and 5 p.m. on weekends, he said.

"Even to just maintain the services that we have, we have to dip into the general fund," he said.

The Illinois state government, collecting 15 percent less in telecommunications revenue than two years earlier, has recouped the loss through higher taxes on cigarettes and liquor, said Susan Hofer, a spokeswoman for the Revenue Department.

Florida's telecommunications-tax revenue fell 6 percent between 2011 and 2013, according to its Revenue Department. In Seattle, telephone taxes have declined since 2002 because of a "lackluster" economy, industry consolidation and competition from non-taxed Internet voice services, the city said in its 2014 budget. Telecommunications tax revenue dropped 3.7 percent between 2011 and 2012.

Software that replicates the function of phone calls has been beyond the reach of state and local tax collectors since President Bill Clinton signed the Internet Tax Freedom Act of 1998.

Now, users of Microsoft's Skype, the most popular so- called voice-over-Internet application, spend more than 2 billion minutes a day connecting with one another, said Ali Dwiggins of Waggener Edstrom Communications, a spokeswoman for the company. Apple has a similar application, FaceTime, used 15 million to 20 million times a day, the company said in February. Text messaging is being eroded by free Internet-based alternatives such as Facebook's WhatsApp, a service that it acquired in February for $19 billion.

Internet-based calls have better sound quality and flexibility to add video and data, said John McGlory, 23. He answered a call to his Phoenix-based information technology consulting business, Metro Ventures, with an application that adds a second line to mobile phones, tablets and computers, called Line2. Plus, they're cheaper.

Cities and states have no business taxing calls or other functions on the Internet, he said.

"The Internet isn't a right, but I almost see it that way," McGlory said. "You are not using any city equipment or facilities."

Mackey, the cellular industry representative, said cities and states need to wean themselves from dependence on chatty phone customers.

"Thirty, 40 and 50 years ago, they were able to grant franchises on local telecom services and collect revenue from them," he said. "This is no longer a good way to tax in the 21st century."

1
Text Only | Photo Reprints
Web Extra
  • Gojira Japanese fans speak on the evolution of 'Godzilla'

    Japanese fans want it known: The radiation-breathing, skyscraper-stomping monster they call "Gojira" was born right here in Japan, 60 years ago.

    July 27, 2014 1 Photo

  • Bryan Yes! WWE's Daniel Bryan catches suspected burglar

    A former WWE champion known as Daniel Bryan chased two burglary suspects he saw exiting his Phoenix home this week and subdued one until officers arrived, investigators said.

    July 27, 2014 1 Photo

  • taylor.armerding.jpg AMERDING: Inequality crisis shot with factual problems, hypocrisy

    President Obama, various media and political liberals say inequality, of all things, is the defining issue of our times. Yet this message is delivered by multimillionaires and a president who jets from tee time to stump speech on the taxpayer's dime.
     

    July 27, 2014 1 Photo

  • Almost half of America's obese youth don't know they're obese

    The good news is that after decades of furious growth, obesity rates finally seem to be leveling off in the U.S.. The bad news is that America's youth still appear to be dangerously unaware of the problem.

    July 27, 2014

  • Can plants hear? Study finds that vibrations prompt some to boost their defenses

    They have no specialized structure to perceive sound as we do, but a new study has found that plants can discern the sound of predators through tiny vibrations of their leaves - and beef up their defenses in response.

    July 27, 2014

  • cleaning supplies Don't judge mothers with messy homes

    I was building shelves in my garage when a neighbor girl, one of my 4-year-old daughter's friends, approached me and said, "I just saw in your house. It's pretty dirty. Norah's mommy needs to clean more."

    July 26, 2014 1 Photo

  • Russia's war on McDonald's takes aim at the Filet-o-Fish

    Russia said earlier this week that it had no intention of answering Western sanctions by making it harder for Western companies to conduct business in Russia.
    But all bets are off, apparently, when you threaten the Russian waistline.

    July 26, 2014

  • How spy agencies keep their 'toys' from law enforcement

    A little over a decade ago, federal prosecutors used keystroke logging software to steal the encryption password of an alleged New Jersey mobster, Nicodemo Scarfo Jr., so they could get evidence from his computer to be used at his trial.

    July 26, 2014

  • Brother sues W.Va. senator over business loan

    U.S. Sen. Joe Manchin's brother claims he's owed $1.7 million that he loaned to keep a family carpet out of bankruptcy in the 1980s.

    July 26, 2014

  • NIA iPad pals art 1 120613 Has the iPad lost its swag?

    The company reported this week that sales of its sleek, pricey tablet were down 19 percent from last quarter and 9 percent year-over-year. CEO Tim Cook tried to reassure investors that Apple's new partnership with IBM to sell its devices to IBM's corporate customers will help make iPads ubiquitous in the workplace. "This isn't something that worries us," he said of the iPad sales decline. But the numbers are disappointing no matter how you spin them.

    July 25, 2014 1 Photo

Featured Ads
House Ads
AP Video
13 Struck by Lightning on Calif. Beach Baseball Hall of Famers Inducted Israel, Hamas Trade Fire Despite Truce in Gaza Italy's Nibali Set to Win First Tour De France Raw: Shipwrecked Concordia Completes Last Voyage Raw: Sea Turtle Hatchlings Emerge From Nest Raw: Massive Dust Storm Covers Phoenix 12-hour Cease-fire in Gaza Fighting Begins Raw: Bolivian Dancers Attempt to Break Record Raw: Israel, Palestine Supporters Rally in US Raw: Air Algerie Flight 5017 Wreckage Virginia Governor Tours Tornado Aftermath Judge Faces Heat Over Offer to Help Migrant Kids Kangaroo Goes Missing in Oklahoma More M17 Bodies Return, Sanctions on Russia Grow Raw: Deadly Tornado Hits Virginia Campground Ohio State Marching Band Chief Fired After Probe Raw: Big Rig Stuck in Illinois Swamp
Opinion
House Ads
Night & Day
Twitter News
Follow us on twitter
Hyperlocal Search
Premier Guide
Find a business

Walking Fingers
Maps, Menus, Store hours, Coupons, and more...
Premier Guide
Front page