Was fixed interconnected VoIP service over a private managed network subject to Georgia sales tax under the provisions addressed in 2013?

Plain-English summary

The fixed interconnected VoIP service was not taxable under the Georgia provisions analyzed. Customers could call and receive calls from conventional telephone numbers, but their communications were converted to internet protocol and routed through the provider's private managed network before delivery to or receipt from the public switched telephone network.

The service was fixed rather than nomadic, supported 911 and relay services, and used customer equipment that converted between analog and internet protocol. Even so, the Department concluded that it was not local exchange telephone service, the communications category then identified as taxable.

Common questions

Q: Did connection to the public telephone network make the service taxable?

A: No. The ruling focused on the internet-protocol conversion and private-network routing that distinguished it from local exchange service.

Q: Did the provider's fixed service location change the result?

A: No. Fixed location allowed call situs identification, but the service classification remained nontaxable VoIP.

Citations and references

• O.C.G.A. § 48-8-2(31)(F)-(G) -- taxable local telephone service
• Ga. Comp. R. & Regs. r. 560-12-2-.24, -.76 -- communications services
• O.C.G.A. § 46-5-222(a) -- state regulation of VoIP rates and terms

Source

• Landing page: Georgia Sales & Use Tax Letter Rulings
• Original PDF: LR SUT-2013-16

Original ruling text

State of Georgia
Douglas J. MacGinnitie
Commissioner

Department of Revenue

Frank M. O’Connell
Director

Administrative Division – Office of Tax Policy
Suite 15107
1800 Century Blvd., N.E.
Atlanta, Georgia 30345-3205
(404) 417-6649
September 16, 2013

Georgia Letter Ruling SUT No. 2013-09-16-01 Communications

This letter is in response to your ruling request concerning the application of Georgia sales and use tax to
your client’s interconnected Voice over Internet Protocol services.
Facts
Taxpayer provides voice services in Georgia and it does so using an interconnected Voice over Internet
Protocol (“VoIP”) technology.
There are several different varieties of VoIP services available to consumers. These VoIP services
include: (1) “peer-to-peer” VoIP services; (2) nomadic interconnected VoIP services; and (3) fixed
interconnected VoIP services. A relevant discussion of each follows.
Peer-to-Peer VoIP Services
“Peer-to-peer” VoIP services permit users who have downloaded the provider’s “client” software or
application to communicate exclusively with each other. These services may take the form of voicecapable “chat” or instant messaging applications, or may take the form of voice-dedicated applications
(no chat or instant messaging incorporated). These services are typically accessed through an Internet
access service (e.g., Wi-Fi, broadband cable modem, DSL, FTTH or wireless data card service) that may
or may not be supplied by the VoIP provider. These services typically do not offer customers the ability
to complete calls to North American Number Plan (“NANP”) telephone numbers that are assigned to
users of interconnected VoIP and plain old telephone service (“POTS”).
“Peer-to-peer” VoIP service providers typically do not assign customers a telephone number in the NANP
format (e.g., (AAA) BBB-CCCC format representing area code (“A”) exchange (“B”) and line number
(“C”)). The nature of these VoIP services is “nomadic”, meaning the user may use the software on a
mobile computing device anywhere that device may be located and over any Internet connection.
Typically there is no restriction on where the user can use the software, so the customer can originate
calls at virtually any location where he or she can access the Internet. Federal law does not require “peerto-peer” VoIP services to offer 911 emergency dialing or telecommunications relay services (“TRS”, i.e.,

September 16, 2013
Page 2 of 5

“711” for the hearing impaired). “Peer-to-peer” VoIP services are generally not provided over a managed
network maintained by the provider of the service leaving it unable to monitor and ensure call quality
(quality of service); instead, these services are delivered over the public Internet and therefore may be
subject to degradation of quality of the voice communication. “Peer-to-peer” VoIP services have been
classified by the Federal Communications Commission (“FCC”) as information services.
Some providers of “peer-to-peer” VoIP also offer additional VoIP services, which allow calls to
telephone numbers on the public switched telephone network (“PSTN”). These services typically do not
assign NANP telephone numbers to the VoIP customers. Normally, these services are also nomadic in
nature, like (non-interconnected) “peer-to-peer” VoIP services, allowing the customer to originate calls
from any location where they obtain an Internet connection. 911 emergency services and TRS services are
typically not offered by “peer-to-peer” VoIP providers.
Nomadic Interconnected VoIP Service
Nomadic Interconnected VoIP service providers offer services that are often considered a replacement for
traditional landline telephone service. Customers are assigned NANP telephone numbers and may make
calls to (or receive calls from) the PSTN using either a software application or a VoIP adapter device
(customer premises equipment). Like “peer-to-peer” services, nomadic interconnected VoIP services are
generally not provided over a privately managed network maintained by the provider of the services;
instead, these services are delivered over the public Internet and therefore may be subject to degradation
of quality in the voice communication. This type of VoIP service can be accessed from any broadband
connection and the physical location of the customer need not remain fixed (hence the “nomadic” label).
911 emergency services must be provided to users. However, providers may place the onus on the
customer to notify the provider of the customer’s “new” location should the customer use the service (and
any devices) at a location different from that which was originally or previously registered with the
provider. Likewise, 711 access must be provided.
Fixed Interconnected VoIP Service
Lastly, fixed interconnected VoIP service providers also offer services that are considered a replacement
for traditional landline telephone service. Customers are assigned NANP telephone numbers and may
make calls to (or receive calls from) the PSTN using a VoIP adapter device (customer premises
equipment). However, fixed interconnected VoIP service typically can only be accessed or utilized from a
non-portable location; the service is not “nomadic” in nature. These VoIP services are generally provided
over a managed network maintained by the provider of the service to ensure call quality (quality of
service). These services are typically not delivered over the public Internet; rather, they are provided over
a privately managed network (and therefore, are less prone to degradation of quality in the voice
communication). Federal law or FCC orders require that 911 and TRS services are provided to customers,
but customers are often contractually required to use the service from a fixed location so that 911service
is not compromised. In other words, 911 service specifically, and regular calling generally, may not
function properly if the service is used from a location other than that established in service provider
systems at the time service is installed.

An Equal Opportunity Employer

September 16, 2013
Page 3 of 5

Taxpayer’s VoIP Service
Taxpayer’s voice service is a fixed interconnected VoIP service. Taxpayer’s customers have full ability to
make and receive calls to and from NANP telephone numbers on the PSTN and to access emergency 911
and TRS services. Taxpayer’s interconnected VoIP service is provided over a privately-managed network
maintained by Taxpayer and other affiliates of the Company. Unlike typical peer-to-peer or nomadic
interconnected VoIP providers that route calls over the “public” Internet, calls from Taxpayer’s customers
traverse Taxpayer’s privately-managed network and do not traverse the public Internet.
Internet access service from the Company is not required to use Taxpayer’s VoIP service, but compatible
customer premises equipment, known as an embedded Multimedia Terminal Adapter (eMTA) is required.
The eMTA is provided to Taxpayer’s customers at no additional charge and cannot be purchased from a
consumer electronics vendor. To utilize Taxpayer’s VoIP services, customers connect their inside wiring
(or directly connect their handset) to the eMTA. The eMTA formats outgoing calls from an analog signal
into Internet protocol, and formats incoming calls from Internet protocol into an analog electrical signal
for the handset.
Calls to another Taxpayer customer may remain wholly on the Taxpayer network. Calls to a customer on
the PSTN are converted to a format that is compatible for hand off to an interconnecting carrier on the
PSTN, as further described below. Calls to other VoIP customers may transit through the PSTN, or may
be handed off in Internet protocol to a directly interconnected VoIP provider. Calls from Taxpayer’s
customers are initiated as analog signals which are then converted, and enter Taxpayer’s network, in
Internet protocol. Calls to Taxpayer’s customers are converted from internet protocol to analog. Taxpayer
customers also have the ability to make calls to other VoIP customers, and some of those calls stay IP all
the way.
Traditional landline telephone service providers (utilizing the PSTN) interconnect and carry calls in a
protocol called Time Division Multiplexing (“TDM”). Therefore, to allow Taxpayer customers to place
and receive calls to and from PSTN users, Taxpayer’s network converts both outgoing and incoming calls
from the PSTN, accepting calls in TDM at the interconnection point and converting the calls using
Taxpayer hardware and software to Internet protocol for delivery to Taxpayer VoIP customers.
Taxpayer’s VoIP customers are not able to move their service equipment to another location outside of a
limited area. Prior to receiving service, Taxpayer’s customers are required to acknowledge this restriction
either in writing or verbally as recorded by an independent third party vendor. Based upon the fixed
service location of its VoIP customers, Taxpayer is able to determine the origin of its customers’ VoIP
calls and the service address from which its customers originate calls.
In sum, the relevant aspects of Taxpayer’s VoIP service are as follows:





Taxpayer’s VoIP service can exchange traffic with the PSTN;
Taxpayer’s VoIP service is not nomadic, either technically or by customer terms of service; thus
Taxpayer can identify the location of the origination/termination of a Taxpayer customer’s phone
call;
Taxpayer situses all emergency 911 and TRS services and fees associated with its VoIP services
to the fixed service location;
Taxpayer’s VoIP service does not require Internet access at the origination or termination point to
access the service;

An Equal Opportunity Employer

September 16, 2013
Page 4 of 5



Taxpayer’s VoIP service is comparable in quality and reliability to traditional landline telephone
service.

Issue
Is Taxpayer’s sale of fixed interconnected VoIP service subject to Georgia sales and use tax?
Analysis
In Georgia, sales tax is imposed on the retail sale, rental storage, use, or consumption of tangible personal
property and on certain enumerated services.1 A taxable Georgia retail sale includes “the sale of . . . local
telephone services . . . when made to any purchaser for purposes other than resale.”2 O.C.G.A. § 48-82(31) further defines taxable “retail sale” to include:
(F) Charges, which applied to sales of telephone service, made for local exchange
telephone service, except coin operated telephone service, except as otherwise provided
in subparagraph (G) of this paragraph;
(G) If the price is attributable to products that are taxable and products that are
nontaxable, the portion of the price attributable to the nontaxable products may be subject
to tax unless the provider can identify by reasonable and verifiable standards such portion
from its books and records that are kept in the regular course of business for other
purposes, including, but not limited to, nontax purposes. If the price is attributable to
products that are subject to tax at different tax rates, the total price may be treated as
attributable to the products subject to tax at the highest tax rate unless the provider can
identify by reasonable and verifiable standards the portion of the price attributable to the
products subject to tax at the lower rate from the provider's books and records that are
kept in the regular course of business for other purposes, including, but not limited to,
nontax purposes.3
Ga. Comp. R. & Regs. r. 560-12-2-.24 provides that sales tax applies to charges made for local exchange
telephone services, for cellular telephone services, and for the amount of guaranteed charges for semipublic coin-box telephone services; sales tax does not apply to any communication service not
specifically listed.4
O.C.G.A. § 46-5-222(a) restricts Georgia from imposing “any requirement or regulation relating to the
setting of rates or terms and conditions for the offering of broadband service, VoIP, or wireless service.”5
This statute does not independently eliminate the State’s ability to tax sales of VoIP service. Instead, this
statute merely limits Georgia’s ability to shape or control the substantive rates or terms of service offered
by VoIP providers. However, the sales tax statutes and regulations cited above only provide that local
exchange telephone service is subject to the Georgia sales and use tax. VoIP service is not local exchange
telephone service as contemplated under O.C.G.A. § 48-8-2(31).

1

O.C.G.A. § 48-8-30(a).
O.C.G.A. § 48-8-2(31).
3
O.C.G.A. § 48-8-2(31).
4
Ga. Comp. R. & Regs. r. 560-12-2-.24.
5
O.C.G.A. § 46-5-222(a).
2

An Equal Opportunity Employer

September 16, 2013
Page 5 of 5

Ruling
Georgia sales tax does not apply to the sale of interconnected VoIP technology services (described above)
provided by Taxpayer. All calls made or received through Taxpayer’s VoIP services route through a
private internet network prior to delivery or receipt. Moreover, VoIP is not local exchange service
because its communications protocol is initiated through the internet prior to delivery to or receipt from
the PSTN. As a result, the service provided is not subject to Georgia sales tax under O.C.G.A. § 48-82(31), Ga. Comp. R. & Regs. r. 560-12-2-.24, or Ga. Comp. R. & Regs. r. 560-12-2-.76.
The opinions expressed in this ruling are based upon the information contained in your request and
limited to the specific transactions in question. Should the circumstances regarding the transactions
change, or differ materially from those represented, then this ruling may become invalid. In addition,
please be advised that subsequent statutory or administrative rule changes or judicial interpretations of the
Statutes or Rules upon which this advice is based may subject similar future transactions to a different tax
treatment than those expressed in this response.

An Equal Opportunity Employer