In addition, Pennsylvania may be close to repealing its gross receipts tax on wireless service. The measure has passed the House and has gone through the committee in the Senate. Although wireless industry observers are hopeful that it will pass the Senate, the governor has threatened to veto the legislation because he does not want to lose the revenue from this tax.
Virginia sets a good example
The NCSL has studied the issue extensively and has proposed several principles for reforming and reducing excessive and discriminatory communications taxes. “We think the states should really look at way they tax telecommunications,” says Osten. “The taxes of all providers of services should be the same; no provider should be tax free or taxed higher than others. Eventually, all taxes should be no higher than general business taxes. Collection and administration of the taxes should be simple, too, similar to what most states are doing with sales taxes right now.”
Virginia has recently passed a law some consider a model for telecommunications taxation. Previously, its local jurisdictions had set their own (usually very high) rates on telecommunications services. Under the new bill, however, all such services (wireline, wireless, satellite cable and VOIP) are subject only to the same sales tax rate that is place on other goods and services. Companies will make one payment — to the state — which will then distribute the monies collected back to the various local jurisdictions.
Federal intervention may be required
Although the Virginia statute is one the wireless industry would like to see adopted by many states, that’s not likely to happen any time soon, says Osten. “We do have a lot of opposition from local governments who don’t want to lose money. They take it as a loss of power and worry that the states won’t give them their share of the money on a timely basis.”
Local governments won’t give up easily. In Missouri, where the state legislature capped taxes on wireless at five percent, local governments have challenged the new law in court. The case is now before the Missouri Supreme Court.
The federal government may eventually have to intervene. “The industry does not have the resources to fight this on a state-by-state or local-by-local level, nor would it be efficient to do so,” says Piekarczyk. “The answer probably lies in federal legislation that would preempt states and localities from discriminatory taxation of wireless customers and the wireless industry.”
Congress might consider legislation similar to the Railroad Revitalization and Regulatory Reform Act of 1976, which protected the railroad industry against discriminatory taxation on the state and local level. The railroad bill, however, was focused narrowly on property taxation; any bill to bring relief to wireless consumers would also have to address the other myriad taxes that local jurisdictions impose. Although there is no legislation on this issue currently before Congress, a bill may be introduced later this year.
However consumers gain relief from excessive taxes on their wireless service, it will be a welcome relief, says Piekarczyk. “It’s a matter of protecting consumers’ pocketbooks. They are the ones who are not getting the advanced services and the cellular coverage they want because they can’t pay everything to everyone. There’s a cost to taxing the industry the way that governments are.”
