WASHINGTON-The Virginia legislature could be on the verge of passing an unprecedented statewide flat tax on wireless and other communications services, a move the mobile-phone industry hopes will be emulated by other states that have a patchwork of telecom levies.
On Tuesday, GOP Delegate Samuel Nixon Jr.-author of the across-the-board 5-percent communications tax-plans to present the measure to the Senate Finance Committee. The House of Delegates passed the measure in late January by a 62-to-35 margin.
“Virginia’s current system of taxing telecommunications services is based on a post-World War II model,” Nixon said in a phone interview.
Nixon said the existing system of taxes has grown over the years and become cumbersome. Moreover, Nixon said the state’s tax regime has not kept up with new communications technologies. “You have a complete imbalance in the system.”
The Nixon bill is expected to lower wireless taxes for Virginia subscribers.
“We see this as a way to end wireless discrimination, and therefore support it,” said Joe Farren, a spokesman for CTIA, the wireless industry association.
CTIA and its members aggressively oppose what they consider inequitable tax treatment, taking the fight to state legislatures and courts around the country. Cellular carriers have filed lawsuits in Maryland and other states. A few weeks ago CTIA President Steve Largent testified before a South Dakota legislative panel that was considering a bill that to repeal the state’s gross receipts tax.
Meanwhile, Illinois state Sen. Steven Rauschenberger (R), who is also president of the National Conference of State Legislators, is laying the foundation to again pursue a state telecom flat-tax bill in 2007. Rauschenberger said he hopes to pass a telecom flat tax on par with the state’s 6.5 percent general sales tax.
Because the Nixon bill is broad-based-covering wireless and wireline phone service, paging, Voice over Internet Protocol service, cable and satellite TV-it has attracted criticism from rural lawmakers whose satellite TV constituents likely would see their bills rise.
Under the existing system, local governments collect wireless and other telecom taxes. The Nixon bill is revenue neutral and would have the state collect the new communications tax-approximately $425 million annually-and distribute the proceeds to cities and towns based on a formula crafted by the Virginia Municipal League and the Virginia Association of Counties.
A similar bill sponsored by Nixon and Sen. Jay O’Brien (R) died in the Senate last year.
So what has changed?
Nixon said state lawmakers better understand the legislation this time around. Indeed, he said lawmakers expected to oppose the 5-percent flat tax will do so not because they believe it is bad policy, but rather because of pressure from local constituents.
With the current legislative session rapidly nearing its March 11 end, state lawmakers are expected to move swiftly on pending bills. As such, Nixon said his telecom tax reform bill could go to the Senate floor later this week if it wins passage in the Senate Finance Committee.
Though he is not a sponsor of this year’s communications flat-tax bill, O’Brien is calling on the Virginia legislature to approve Nixon’s telecom tax reform legislation.
“Virginia has the highest telecommunications tax rate in the U.S. Virginia’s combined state and local tax rate is more than twice the national average, at nearly 30 percent,” O’Brien said in a letter to the editor in a Virginia newspaper. “Additionally, rates vary from jurisdiction and even between providers of the same or similar services, resulting in consumer confusion and difficulty of administration.
“Some opponents of the effort have countered that this bill is a wolf in sheep’s clothing, a furtive attempt to raise taxes on certain areas of telecommunications. Let me make this clear, I am not raising taxes by supporting the bill. … Telecommunications is changing so rapidly that the government is failing to keep up with the advances. No longer are the phone, Internet, cable and satellite companies only providing limited `traditional’ services. … To truly maintain a level playing field to foster healthy competition, capping all telecommunications taxes at 5 percent is a reasonable, and revenue neutral, solution.”
O’Brien said the Nixon telecom tax reform measure will not lead to a tax on Internet commerce. He warned that failure to pass the bill this year could require the telecom flat tax to go higher to achieve the same result and still remain revenue neutral.
