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Snapchat and Skype Are Starving States of Cash

As people ditch phone calls for online services, revenue plummets

From 2012 to 2013, mobile Internet use in the U.S. more than doubled, to 3.2 trillion megabytes. Multimedia messaging jumped 29 percent. These numbers, reported in June by the trade group CTIA–The Wireless Association, are bad news for states, which reap hundreds of millions of dollars each year taxing landlines that people are using less and less or ditching altogether. At the end of 2012 there were 140.9 million phone lines in the U.S., down from 161.8 million five years earlier, according to Bloomberg Industries.

Unlike a home phone call, Internet data use can’t be taxed under federal law. Services such as Skype, which let users bypass cellular networks and make calls online, have been outside the reach of state and local tax collectors since President Bill Clinton signed the Internet Tax Freedom Act of 1998, intended to spur Web innovation. Hundreds of millions of Tweeting, Snapchatting, and Skyping smartphone users have made relics of tax provisions created for a time when a telephone was a clunky rotary-dial plugged into the wall.