Is Voice over Internet Protocol (VoIP) phone service subject to Colorado sales tax?

Plain-English summary

A provider asked whether Voice over Internet Protocol (VoIP) — phone service that converts voice into "packetized data" sent over the internet or an IP network and reassembled at the destination — is subject to Colorado sales tax.

The Department's guidance: yes. Colorado taxes the sale of intrastate telephone/telecommunications services, and the term "telecommunications" is broadly construed. Because VoIP and traditional switched-network telephone service are functionally the same service, VoIP is taxable.

The Department also rejected the argument that VoIP isn't "intrastate" just because a provider may route a Colorado-to-Colorado call over a circuit that leaves and re-enters the state. Whether a call is intrastate is determined by where it originates and where it terminates, not the route the provider chooses. (The tax reaches intrastate telephone/telegraph service furnished by public, private, mutual, cooperative, or governmental providers, except services defined as mobile telecommunications services under 4 U.S.C. § 124(7); charges for installation or repair are taxed instead under the Special Regulation on Contractors.)

What this means for you

VoIP and other telephone-service providers

If you provide VoIP to Colorado customers, the Department treats it like traditional telephone service: a taxable intrastate telecommunications service. Don't assume "it's internet, so it's not telephone." The substance — voice communication functionally identical to phone service — is what matters.

Multi-state and routing considerations

You can't avoid the intrastate tax by pointing to how packets are routed. A call that both starts and ends in Colorado is intrastate and taxable even if the data path briefly leaves the state. Look at origination and termination points, not the network path.

Accountants and tax professionals

The analysis rests on Colorado's broad telecommunications-tax definition (Department Regulation (39)26-104.1(c)(I)(a)) and the origination/termination test for intrastate service. Note the carve-outs the letter flags: mobile telecommunications services (4 U.S.C. § 124(7)) are excepted, and installation/repair charges follow the Contractors regulation rather than the telecom rule.

Common questions

Q: Is VoIP taxable in Colorado?
A: Under this guidance, yes. The Department treats VoIP as functionally the same as traditional telephone service, which is a taxable intrastate telecommunications service.

Q: Our VoIP traffic sometimes routes outside Colorado — does that make in-state calls nontaxable?
A: No. Intrastate status turns on where the call originates and terminates, not the route the provider uses. A Colorado-to-Colorado call is intrastate even if the data briefly leaves the state.

Q: Are there exceptions?
A: The letter notes that mobile telecommunications services (as defined in 4 U.S.C. § 124(7)) are excepted, and that installation or repair charges are taxed under the Special Regulation on Contractors rather than as telecommunications.

Q: Can I rely on this letter?
A: Not as a binding ruling. It's a General Information Letter — general guidance only, not binding on the Department. For a determination on your specific facts, request a private letter ruling.

Citations and references

Statutes and rules (as cited in the letter):
- § 39-22-104(c)(I), C.R.S. — telephone/telecommunications services subject to tax (citation as written in the letter)
- § 39-26-106, C.R.S. — rate of tax imposed on telecommunications
- Department Regulation (39)26-104.1(c)(I)(a) — definition of taxable telecommunications
- 4 U.S.C. § 124(7) — mobile telecommunications services (excepted)

Source

• Landing page: Colorado Sales & Use Tax Letter Rulings
• Original PDF: GIL-09-030.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

GIL-09-030
June 30, 2009
XXXXXXXXXXXXXX.
Attn: XXXXXXXXXXX
Emailed to: XXXXXXX
Re: taxability of VOIP
Dear XXXXXXXXXXXX,
You request guidance regarding whether Voice over Internet Protocol (“VoIP”) is subject to
sales tax. The Department issues general information letters and private letter rulings. A
general information letter provides a general overview of the applicable tax law, does not
provide a specific determination, and is not binding on the department. A private letter ruling is
a determination of the applicability of tax to a specific set of circumstances and is binding in the
department. A party requesting a private letter ruling must provide certain information and
remit a fee. For more information about general information letters and private letter rulings,
please refer to the Department’s regulation 24-35-103.5, C.R.S., which is available on our web
site at: www.colorado.gov/revenue/tax.
I will treat your request as one for a general information letter because the request does not
contain the information necessary for a private letter ruling. You may resubmit this request as a
request for a private letter ruling.
Issue
Are charges for VoIP subject to sales tax?
Discussion
VoIP is a service that enables subscribers to send and receive telephone messages using the
internet. Voice messages are converted into a “packetized data” format delivered over a data
network such as the public Internet or a privately operated IP network and reassembled into a
voice message at the destination.
Colorado imposes sales tax on the sale of telecommunications services. §39-22-104(c)(I),
C.R.S. Specifically, this tax is levied on “telephone … services, whether furnished by public or
private corporations or enterprises for all intrastate telephone … services.”
Telecommunications is broadly construed. Department regulation (39)26-104.1(c)(I)(a) defines
telecommunications to include, but is not limited to,

GIL 09-030
June 30, 2009
Page 2
On or after August 1, 2002, all telephone and telegraph services except those services
defined as mobile telecommunications services under 4 United States Code section
124(7), which are intrastate telephone and telegraph service are subject to the tax
imposed by C.R.S. 39-26-106, whether furnished by public, private, mutual, cooperative,
or governmental corporations or agencies. The term “service” includes but is not limited
to additional listings, joint-user service, non-talking circuits, leased circuits and facilities,
local exchange service (whether on a flat or measured basis), information charges,
service connection charges, and any other charges assessed or passed on to the
consumer with the exception of charges for installation or repair which are taxed
according to the Special Regulation on Contractors. Telephone service is taxable
whether either local or toll calls are made or telegrams are sent from telephone pay
stations.
VoIP and telephone service provided over a traditional switched network are functionally the
same service. We are aware that there is some argument that VoIP does not constitute
intrastate service because a VoIP provider may route a VoIP call that originates and terminates
in Colorado over a circuit that may leave and re-enter the state. Intrastate telecommunication
is typically understood and defined by considering where the call originates and where it
terminates. The route by which the provider chooses to provide the call does not determine
whether the call is an intrastate call.
Miscellaneous
Enclosed is a redacted version of this ruling. Pursuant to statute and regulation, this redacted
version of the ruling will be made public within 60 days of the date of this letter. Please let me
know in writing within that 60 day period whether you have any suggestions or concerns about
this redacted version of the ruling.

Sincerely,

Office of Tax Policy
Colorado Department of Revenue

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