Bill to Ban on New State Cellphone Taxes Draws Fire

Other subcommittee Democrats disagreed. Rep. Melvin Watt, D-N.C., called the bill’s sweep too broad. “I am not an advocate of discriminatory taxes. My question is how do you define discriminatory.” Rep. William Delahunt, D-Mass., asked witnesses promoting the bill where states and localities could make up the shortfall.

Increase property and sales taxes instead, said Robert Atkinson, the president of the Information Technology and Innovation Foundation. Atkinson supports the bill, which would ban any future state and local taxes on the cellphone industry. A similar Senate measure, S-1192, was introduced by Senator Ron Wyden, D-Ore., with six cosponsors, from both parties. “Imposing discriminatory taxes on wireless services is in essence taxing one of the major engines of U.S. innovation and economic growth,” Atkinson said. He said economic studies support the contention that taxes on the industry are discriminatory.

Indiana state Rep. Mara Reardon, a Democrat, said the bill offers a “measured approach” to tax policy. “Any federal legislation that places parameters on a state’s ability to tax is something that I believe should be done sparingly, judiciously and most importantly, does no harm. I believe HR-1521 meets these criteria.”

But some groups said the bill isn’t needed, because the wireless industry is prospering and additional taxation won’t hinder innovation or growth. Relieving the industry of local tax costs “is unlikely to change investment choices and may simply serve to convert into carrier profits those funds that would otherwise have accrued to localities in this critical economic environment,” Joanne Hovis said on behalf of the National Association of Telecommunications Officers and Advisors and other groups representing state and local governments.

“I am a longtime advocate for the need for greater broadband … the need for attention to this issue is enormous,” Hovis said. “Growth has been explosive” where carriers have chosen to deploy networks, she said. The legislation is not timely, she said, and should await the results of a proceeding currently underway at the FCC to create a national broadband plan. Congress ordered the plan created as part of stimulus legislation is passed in February. Part of the plan’s mission is to evaluate contentions that taxes and other expenses could impact broadband deployment. Comments are pouring in and the subcommittee “would be wise to wait to see the expert agency’s conclusions before proceeding with this legislation,” Hovis said.

“My poorest constituents are more likely to have only a cell phone as opposed to having both a land line phone and a cell phone,” said Florida state Rep. Joseph Gibbons, a Democrat who supports the bill. “Taxation should not punish disproportionally those who can least afford it.” Taxing wireless services at the same estimated 20 percent rate as the so-called sin taxes put on alcohol and tobacco “makes absolutely no sense,” Gibbons said.

“The fact remains that the current level of state and local taxation of telecommunications services is misguided and directly counter to economic prosperity and continued deployment of advanced mobile services across the country,” he said. Gibbons said he takes “seriously” any federal intervention into state taxing authority, but believes the bill “walks that fine line of when federal intervention makes sense.”

These debates belong at the state and local level, said Don Stapley, speaking on behalf of the National Association of Counties, U.S. Conference of Mayors and National League of Cities. State and local governments must balance their budgets, he said, a task not easy in the current financial climate. “Local taxing autonomy is crucial … without federal intervention,” Stapley said. Because the bill preempts state and local tax authority, it creates a bad precedent that could lead other industries to seek similar special federal protection, he said.

Not all jurisdictions depend on identical revenue sources, Stapley said, noting that some states have an income tax and some tax food, and as a result, some localities “may necessarily have to tax wireless services at a higher level than others.” If Congress passes the cell tax bill, it would “force those jurisdictions to rely even more heavily on other types of taxes, thereby shifting the tax burden to those in the community less able to tolerate it.

The Federation of Tax Administrators opposes the bill because it would “unreasonably circumscribe the authority of the states to enforce their tax laws as to wireless communications providers.” If passed, the group predicted the bill would prompt “significant” litigation, result in preferential tax treatment of cellphone service providers, increase taxes on individuals to make up for the reduced taxes paid by cellphone service providers and violate the “fundamental principles of Federalism by restricting state and local government authority to develop tax structures that reflect the needs of their communities.”

A markup of the bill is likely, subcommittee members said, but there’s nothing on the schedule yet. The measure has 112 co-sponsors and received similar support in the last Congress.