How do carriers like MagicJack avoid all the taxes?

Posts: 2 · New Forum Member Joined: Jun 28, 2009 Posts: 2

Recall that in the early days of Vonage, there was very little tax added to the monthly fee. Now, there are a ton of taxes.

It seems some new carriers do not charge all those taxes. I wonder how they do it and what you think will happen with these carriers on that front.

Thanks.

Posts: 227 · Posted: Sun Jun 28, 2009 2:04 pm Post subject:

It's not that some carriers don't pay the tax (okay, there are probably a very few very ethically-challenged small fry who evade their taxes, and get away with it because they're very small). Carriers have been subject to a great many taxes for a hundred years or so. For most of the history of the telephone, carriers have paid the taxes and built this cost into their rate structures without itemizing them on customer bills.

Over the past 20 years or so, most carriers have begun stating a price for comparison purposes that excludes these taxes, and then adding them on as extra itemized costs on customer bills. This period roughly coincides with the advent of competition in an industry which was previously a regulated monopoly.

I subscribe to Vonage service at home for $24.95/month/line plus a bunch of taxes and fees that increase the monthly bill to about $30.00. I subscribe to Optimum Voice (offered by Cablevision) at another address for $29.95/month/line with nothing at all added to it. Bottom line, both carriers are paying the taxes, and both are charging me a price based on their costs, which include the taxes. Vonage offers a richer feature set, but for basic conversation, the two offer nearly identical service at nearly identical total billed amounts. Vonage is following the practice of AT&T, Verizon, and numerous other carriers by stating a price which excludes these amounts, and appearing to have a price advantage over some competitors. It's called marketing, and it's a part of every competitive industry. (Merchants have paid sales tax for years, but they always add it to your bill, they almost never include it in the price tag of the merchandise.)

Posts: 27 · Vonage Forum Junior Joined: Dec 16, 2008 Posts: 27

I think you are comparing apples and oranges Dave. Vonage and your cable provider would indeed be apples to apples, but the OP asked about low cost providers like Magic Jack, and another I won't mention, but it's initialls are SKYPE. These charge what you pay for one or two months with Vonage or a Cable Voip provider for a whole year of service.

I don't know about MJ, but I know Skype does not provide any 911 service and specifically advertises that is NOT a replacement for local phone service, but is simply a low cost alternative to long distance calling. If these companies were paying the same taxes as Vonage, the traditional monopoly companies, or the cable providers, there would be nothing left for the providers. They are indeed avoiding the taxes by being something other than traditional landline providers, but I certainly can't explain what puts Vonage and your cable provider on the hook (sorry for the phone pun) for the taxes and not MJ or Skype.

Posts: 15 · Vonage Forum Associate Joined: Sep 11, 2008 Posts: 15

Just about none of it (other then sales tax) are actually "taxes." None of it is "required." It's just another way of adding revenue without rasing prices of their service. What sounds better: $32.99/mo with no extra fees or $24.99/mo and when you get your first bill you'll see how many "taxes" there re.

"In the beginning" all they charged as "taxes" was, if I remember, $1.99. (I worked for them for over a year back in '05-'06). In fact, the "no extra fees because we're not a regulated phone company" was the BIG selling point of Vonage of the landlines and was always pushed in trainng. Now they are no better then the phone companies or cable companies. "Fees" and Taxes are almost 50% of my monthly charges for 2 lines.