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

September 27, 2002
Richmond

During its third and final meeting of the year, the joint subcommittee heard presentations by representatives of the telecommunications industry, the Virginia Municipal League, and the Virginia Association of Counties. Representatives of these groups have been working together for the last few months trying to develop a solution that all the parties can support. Also, the staff gave an update on the work of the joint subcommittee appointed to study and revise the Virginia tax code (HJR 60) to which this subcommittee has been directed to report.

Staff Review

Staff reviewed the work of the HJR 60 joint subcommittee that is studying the state tax code. That subcommittee has been meeting for the past two years and has collected volumes of information about the state tax code. During 2001, it gathered background regarding state and local taxes and delineated their issues. This past year, the issues were divided between two task forces consisting of subcommittee members. They examined income tax, sales and use tax, estate tax, BPOL (business, professional, occupational license) tax, property tax and a number of administrative issues. The members agreed earlier this year that whatever they recommend they are striving for revenue neutrality.

This and other reasons led the members of the HJR 60 joint subcommittee to decide to extend the study for another year in order to see what will happen with the economy over a longer period. With the state's budget shortfall of at least $1.5 billion, concern about adding to that shortfall led to the decision to wait one more year before making sweeping changes in the state tax code. The joint subcommittee may have minor recommendations this year but expects the bulk to be made next year.

Interested Parties' Reports

The joint subcommittee next heard from a representative of the telecommunications industry who has been working not only with other members of the industry but also with local government representatives. The industry identifies from the beginning three major objectives:

1. Reduce/simplify tax administration;
2. Lower overall rate of tax as a percentage of the bill; and
3. Keep local governments whole (and possibly improve revenues through growth).

The initial proposal, made on August 14, 2002, by the telecommunications industry (including the Virginia Telecommunications Industry Association, Verizon, Sprint, Cingular and the Virginia Cable Telecommunications Association) during a work session included:

• Single statewide tax rate applied to all taxable services appearing as a single line item on the bill;
• Single line tax consolidating the following five currently billed taxes:
  • Local Consumer Utility Tax (LCUT),
  • Local Gross Receipts Tax (BPOL)—only portion above 0.5 percent currently billed to customers, where applicable,
  • E-911 (unclear whether applicable to wireless),
  • Virginia Relay Fee (state tax),
  • Cable Franchise Fee;
• Tax collected by all companies providing communications services;
• Tax collections remitted to one administration point for redistribution to localities; and
• Single tax rate and redistribution to be revenue neutral to localities.

The telecommunications group ran into problems with the local government representatives as well as among themselves. The task of reconfigur-ing the telecommunications tax system is not as simple a task as all hoped it would be. The group has made great strides but still has hurdles to overcome.

The local government representatives expressed concern about agreeing to changes in the telecommunications tax without knowing what the HJR 60 group plans to do with other local taxes. The interested parties are still working towards a telecommunications plan that accomplishes their goals and works for all.

Conclusion

The joint subcommittee finally discussed what it could and should do regarding telecommunication taxes. Because the HJR 60 joint subcommittee has decided to continue its work for an additional year and because the interested parties need more time to work on their proposal, this joint subcommittee decided to report its progress thus far to the HJR 60 group and seek another year to continue to develop a telecommunications tax system that reflects the goals of all the interested parties.

Chairman:

The Hon. L. Preston Bryant, Jr.

For information, contact:

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

THE RECORD

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