Washington Threatens to Preempt State and Local Taxing Authority
Berger, Barrie Tabin, Government Finance Review
Despite strong opposition by state and local groups, including the GFOA, the House of Representatives approved H.R. 1002, the Wireless Tax Fairness Act of 2011, introduced by Rep. Zoe Lofgren (D-Calif.), in late October 2011 .The bill would ban new state and local taxes on wireless communications for a period of 5 years, although it would exempt taxes to support enhanced 911 emergency systems and universal service programs to provide wireless service to rural areas, as well as taxes that must be approved by voters (like those in California and Washington).Attention has now turned to the Senate, where Senator Ron Wyden (D-Oreg.) has introduced a companion measure, S. 543.
The Government Finance Officers Association, along with several other associations representing local government interests, sent a letter to both the House and Senate expressing opposition to H.R. 1002 and S. 543. (1) However, now that the bill has been approved by the House, it is important for GFOA members to contact their senators as soon as possible, educate them about the importance of local communication taxes, and urge them to oppose S. 543. While informing Senate offices about your own local communities' tax laws and revenues, GFOA members should express the following concerns with the bill.
S. 543 Would Have an Immediate Adverse Impact on State and Local Government Revenues and Essential Services. As landline subscription continues to decline rapidly and wireless subscription continues to grow exponentially, the inability of states and local governments to extend their telecommunications or utility taxes to wireless services would leave them without tools to capture that lost revenue. This would mean significant additional cuts to essential services such as police, fire, and education, which already have been hard hit by cuts in federal assistance.
S. 543 Would Single Out the Wireless Industry for Preferential Treatment. The wireless industry would enjoy special immunity from state and local taxation, and as a result, Congress will be flooded with demands from other industries (for example, the rental car and online travel industries and other sectors of the communications industry) seeking similar preemptive relief from state and local taxes.
S. 543 Shifts the State and Local Tax Burden to Individuals and Families. Businesses are generally heavier users of telecommunications and other utility-type services than residential users, meaning that S.543 would lessen businesses' tax burdens at the expense of greater tax burdens on individuals and families.
S. 543 Is a Solution to a Problem that Doesn't Exist. The wireless industry consistently inflates its state and local tax burden relative to other businesses by unfairly mixing taxes with user fees and failing to disclose that the industry pays virtually no corporate income taxes. Moreover, the wireless industry has yet to present any data indicating that state and local wireless taxes have had any adverse effect on wireless service subscriptions, revenue, or investment. Quite the contrary: The wireless industry has experienced 100 percent growth between 2006 and 2011, even as the industry complains about its state and local tax burden.
S. 543 Wouldn't Facilitate Broadband Deployment. State and local taxation of wireless services is not an obstacle to broadband deployment. Provider decisions to deploy a broadband network are purely economic. Providers target areas of deployment where they will reap the greatest return on investment--in densely populated urban areas where there will be greater penetration and higher revenues per mile of construction than in rural areas.
S. 543 Would Damage our System of Federalism. This legislation represents an unwarranted federal intrusion into the authority of state and local governments to make reasonable tax classifications, as it carves out one sector of the communications industry for favorable tax treatment and takes away an important tool for state and local governments--taxation of the wireless industry--at the expense of other taxpayers and businesses. …