HJR 209: State and Local Taxation of the Telecommunications Industry and Its Customers

June 28, 2002
Richmond

Background and Organization

The joint subcommittee’s charge is to "examine state and local taxes imposed on the telecommunications industry and its customers to ensure that the taxes...are fair and equitable to all elements of the...industry, and its customers, and are relatively easy to administer and collect." Any changes that the joint subcommittee proposes are to be as revenue neutral as possible, while allowing for future revenue growth and preserving the ability of local governments that have chosen not to impose some of the telecommunications taxes to impose such taxes in the future.

Staff Overview

Staff presented a review of the state and local taxes and fees currently allowed to be imposed on the telecommunications industry and its customers. At the state level, they include the corporate income tax, the minimum tax on telecommunications firms, and the relay center assessment. Local taxes include the local consumer utility tax, the local utility license (gross receipts) tax, the E-911 system tax, the public rights-of-way use fee, and the video programming excise tax.

Not all of the taxes and fees are imposed by localities. For example, the public rights-of-way use fee is only authorized in localities where the public streets and roads are maintained by the Virginia Department of Transportation. Also, the local utility license tax is not imposed in all localities.

Telecommunications Overview

The joint subcommittee heard from a representative of the telecommunications industry. Several national organizations (National Conference of State Legislatures, National Association of Counties, National League of Cities, Multistate Tax Commission, American Legislative Exchange Council and National Governors’ Association) as well as major telecommunications companies have been working on the issue of telecommunications taxation. According to testimony, Virginia has the highest combined (state and local) average telecommunications tax rate in the country; about three percent in state taxes and 25 percent in local taxes for a total average of 28 percent. The tax burden varies between competing communications companies. For example, long distance, satellite and paging companies do not pay any of the local telecommunications-related taxes, while wireline, wireless, and cable television companies do.

The telecommunications industry supports tax simplification through a reduction in the compliance burden, consolidation of the taxes, and state administration of all telecommunications taxes. Two options for achieving this goal are the North Carolina plan and the Florida plan. The North Carolina plan calls for one transaction tax and rate, one tax return, a state-administered tax audit, nationwide uniform sourcing, nationwide uniform definitions, and 120 days lead time to implement the tax base and rate changes. North Carolina has gone from a sales tax on local exchanges (3 percent), a gross receipts tax on local exchanges (3.22 percent) and a sales tax on toll calls (6.5 percent) to a communication services tax at a 6 percent rate.

The second option is based on Florida’s plan. It provides a state transaction tax, an optional local tax, uniform state and local tax base, uniform state and local exemptions, a single tax return with the state distributing the revenue, a unified state tax audit, and a state-administered uniform address database. Florida has gone from a variety of sales taxes, gross receipts tax, utility taxes, franchise fees and permit fees to a statewide communications services tax (6.8 percent rate) and a local option tax (up to 6 percent).

Next Meeting

The joint subcommittee next heard general comments from interested parties attending the meeting. Staff was asked to gather more information about the North Carolina and Florida plans to present at the next meeting, which will be held in Richmond on July 25th at 10:00 a.m. The joint subcommittee is directed in its joint resolution to make any recommendations concerning the telecommunications taxes to the Joint Subcommittee Studying the State Tax Code (HJR 60) by August 2002.

Chairman:

The Hon. L. Preston Bryant, Jr.

For information, contact:

Joan E. Putney
John A. Garka
Division of Legislative Services

THE RECORD