WASHINGTON-Virginia Gov. Timothy Kaine (D) last week signed into law landmark legislation creating the nation’s first flat tax on wireless and other communications services in the state, a huge breakthrough during tax season that industry wants emulated around the county.
The Virginia legislation, championed by Del. Samuel Nixon (R), caps the communications tax at 5 percent. The mobile-phone industry, facing what it considers discriminatory state and local taxes throughout the nation, supports the flat-tax approach.
“Virginia’s lawmakers have set an example for the rest of the country, bringing the commonwealth’s communications tax system up to speed with today’s competitive marketplace,” said Robert W. Woltz Jr., president of Verizon Virginia. “This simplified communications tax system will benefit citizens by overhauling one of the most regressive taxes in Virginia, replacing it with a fair, equitable system that doesn’t discriminate among the various methods competitors use to deliver communications services.”
The new Virginia communications flat tax goes into effect Jan. 1.
The wireless tax issue is playing out throughout the country, as cities and states re-examine tax regimes based on a monopoly landline telephone market disrupted by cell phones and other technologies increasingly substituted for traditional wireline phones. A less-generous explanation of the wireless-tax upheaval is that cell-phone levies constitute a steady, lucrative revenue source for state and local governments in need of money. Meanwhile, speculation is mounting that the Internal Revenue Service will repeal the federal excise tax, after losing yet another battle in federal appeals court. The tax was first implemented in the Spanish-American War.
The wireless industry has lobbied unsuccessfully to kill the tax since the late 1990s, coming close in the waning days of the Clinton administration. Despite industry and legislative backing for the tax’s elimination, it’s a tough sell because the tax is not earmarked and can be used to reduce the federal deficit. At one point lawmakers considered raising the tax to 4 percent.
“If the government has in fact decided to abandon their defense of the 3-percent federal excise tax and is moving toward a full repeal and taxpayer refund, I congratulate and applaud their decision,” said CTIA President Steve Largent. “This would represent a significant and much-needed tax cut for wireless users in America, and I encourage the federal government to move quickly in this direction.”
Back at the state level, in a case awaiting a ruling by the Missouri Supreme Court, cities and states are on opposite sides on the wireless tax question.
In May 2005, Gov. Matt Blunt (R) signed into law legislation effectively allowing wireless taxes to be raised to a maximum 3 percent and terminating a slew of lawsuits filed by municipalities to collect back taxes from cell-phone operators. Local governments sued to challenge the law. Missouri’s high court heard oral argument April 6.
“The authority of municipalities to levy gross receipts taxes on the provision of the cellular telephone service is beyond legitimate question,” said a group headed by the National League of Cities in a friend-of-the-court brief.
Cities argued there is nothing novel about the imposition of gross receipts taxes on telecom firms. “The only thing `new’ this case presents is the means by which companies like the defendants provide that telephone service,” cities stated.
States, wireless carriers and other telecom carriers disagreed.
In its brief, the National Conference of State Legislatures argued the 2005 Missouri law “does not encroach on the executive power of municipalities to tax, as municipalities are mere creatures of the state with no inherent powers.”
Wireless companies told the state’s high court the Missouri statute “serves a public purpose by ending litigation that is detrimental to the state’s economic well-being and establishing uniformity and certainty in the taxation of telecommunications companies.”
Late last week, Verizon Wireless issued a press release highlighting several hot spots on wireless tax front. The No. 2 mobile-phone operator said it backs legislation in Florida that would lower the state communications services tax from 9.17 percent to 6 percent.
Elsewhere, the wireless industry is lobbying to have the Pennsylvania legislature repeal double taxation of wireless services. Currently, cellular subscribers pay a 5-percent gross receipts tax on top of a 6-percent state sales tax in Pennsylvania.
There is an effort afoot in South Dakota to erect a ballot initiative allowing citizens to vote on a repeal of the 4-percent gross receipts tax. Consumers pay that tax as well as a 4-percent state sales tax.
In Oregon, industry is fighting to defeat efforts of some cities to selectively tax wireless services.
D.C. Reporter Heather Forsgren Weaver contributed to this report.
