HJR
209: State and Local Taxation of the Telecommunications Industry and Its
Customers
July 25, 2002
Richmond
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
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.
Chairman:
The Hon. L. Preston Bryant, Jr.
For information, contact:
Joan E. Putney
John A. Garka
Division of Legislative Services
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