209: State and Local Taxation of the Telecommunications Industry and Its
June 28, 2002
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
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.
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).
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
The Hon. L. Preston Bryant, Jr.
For information, contact:
Joan E. Putney
John A. Garka
Division of Legislative Services
| Legislative Services | General