City sues telephone company for Internet excise tax

Vonage insists it provides information, not telecommunication service, and is not subject to the charge

December 20, 2006|By JOHN FRITZE | JOHN FRITZE,Sun Reporter

The city of Baltimore has sued Vonage America Inc., a leading Internet phone service provider, to collect a telephone excise tax that the company has argued it does not have to pay.

Baltimore imposed a $3.50 monthly tax on telephone lines in 2004 as part of Mayor Martin O'Malley's plan to plug a budget deficit with new fees. The tax applies to cell phones and land lines. In the suit, the city argues that the tax also applies to certain Internet-based phone service offered by Vonage and other companies.

"The service that Vonage is providing clearly fits the definition of a telecommunications line," said Joshua N. Auerbach, an assistant solicitor in the city's law department.

City code defines a telecommunications line as a wired or wireless connection, identifiable by a unique telephone number, to an exchange, wireless or other telecommunications service. New Jersey-based Vonage has argued that it offers an information service, not a telecommunications service, according to the suit.

A spokeswoman for the company, Brooke Schulz, said the company will fight the lawsuit. The city asks for back taxes as well as interest and a 10 percent penalty payment. Auerbach said it is unclear how much money is at stake because it is not known how many customers the company has in Baltimore.

In July, the Maryland Tax Court ruled that Baltimore and Montgomery County did not overstep their authority by imposing the telecommunication taxes. The city's tax generated nearly $26.2 million in its first year, and officials projected $28.6 million in revenue for the 2006 fiscal year.

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