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

July 25, 2002

The joint subcommittee held its second meeting in Richmond. The chairman opened the meeting with remarks concerning tax philosophy and gave directions to the interested parties. Then the staff provided in-depth reports on the telecommunications tax systems in Florida and North Carolina, two states that recently have made substantial changes in such systems. The meeting ended after a brief discussion of where the committee should go from here.

Tax Philosophy

Chairman Bryant started the meeting by asking the representatives from the telecommunications industry, the Virginia Municipal League and the Virginia Association of Counties to meet and work jointly on suggestions of how to improve the current telecommunications tax system. He encouraged the parties to meet as soon as possible in order to report to the subcommittee at its next meeting.

Next, there was a brief discussion, with each subcommittee member explaining his or her concerns regarding the current telecommunications taxation system. Some of the issues mentioned were:

  • Does the entire system need to be revised or do we only need to simplify the process for the industry and customers?
  • What about the satellite industry and phone cards that are not included in the current system?
  • How do we deal with the hodgepodge of tax rates/fees without reducing the localities' revenues?
  • Should any of the telecommunications taxes/fees be imposed?
  • Does the current system favor and, therefore, harm one telecommunications industry over another? If so, how can that be fixed?

Finally, the chairman reported to the subcommittee members that the deadline for their recommendations, which are to be made to the Joint Subcommittee Studying the State Tax Code (HJR 60), had been extended from August 1, 2002, to September 30, 2002.

Florida and North Carolina

Both Florida and North Carolina made significant changes to their respective telecommunications tax systems within the last year. Florida had been working on its changes for about six years while North Carolina took about two years to finalize its new system.


Florida's new telecommunications tax law was adopted in the 2000 and 2001 sessions and became effective October 1, 2001. The new law combines seven different state and local taxes/fees and replaces them with a two-tiered tax system composed of a state tax and a local option sales tax on communications services that originate and terminate in Florida, or that originate or terminate in Florida and are billed to a Florida address. Communications services include all forms of telecommunications plus cable television and direct-to-home satellite service.

The telecommunications services subject to the communications services tax (CST) include (i) land-line telephone services, (ii) long distance telephone services (interstate and intrastate), (iii) wireless telephone services, (iv) cable television services, (v) direct broadcast satellite services, (vi) facsimile services, (vii) pager services, (viii) Internet access when not separately stated on the consumer's bill for services, and (ix) prepaid phone cards. There is a state rate of 9.17 percent and a maximum local rate of 5.1 percent. These rates are supposed to create revenue neutrality.

The Department of Revenue will administer the state and local CST. Each provider files a single monthly return accompanied by a single payment for the state and local taxes. The department then distributes the local portion to the jurisdictions that levied them. Any audits will also be conducted by the department, which is authorized to retain for administrative expenses a portion of the local CST revenues.

North Carolina

North Carolina began its process in 2000 and enacted legislation in 2001 that became effective January 1, 2002. Under North Carolina's old law, there were two state taxes (gross receipts franchise tax and sales tax) imposed at three different rates. Under its new law, there is one tax imposed at one rate—a 6 percent state sales tax. The new tax is imposed on (i) wireless and wireline, (ii) local and long distance (interstate and intrastate), and (iii) public coin-operated pay phones. Prepaid phone cards are taxed as tangible personal property, subject to a 4 percent state and 2.5 or 3 percent local sales tax. The new system will continue to be administered at the state level, as it was before. Retailers need only file one tax return, may be subject to one audit annually, and collect the tax based on one rate.

The overall purpose of the reforms in both Florida and North Carolina was to simplify the collections of the tax. While neither state's former telecommunications tax system was identical to Virginia's, the process each state went through and the end results may provide some guidance to the interested parties in Virginia as well as the joint subcommittee.

Future Meetings

The interested parties were again encouraged to meet and work toward a solution acceptable to all involved and to be presented to the joint subcommittee. The next meeting of the joint subcommittee is scheduled for September 6, 2002, in House Room C of the General Assembly Building.


The Hon. L. Preston Bryant, Jr.

For information, contact:

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


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