Maryland Legislature Seeks Communications Tax Overhaul
A Maryland communications tax bill (HB-563) that’s expected to be signed by Gov. Martin O'Malley is only the start of an effort. Under the bill, a tax commission would be created to review telecom tax and submit findings and recommendations before June 30, 2013. A telecom tax restructuring bill would then be considered during the 2014 legislative session. While localities urged preserving their tax authorities, telecom companies sought a new tax framework that would lower tax rates and encourage investment in broadband infrastructure, county and company officials said.
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The possible fiscal effects of the tax commission findings couldn’t be coming at a worse time, said the Maryland Association of Counties. It claimed local governments have lost about $1.8 billion in state support since fiscal year 2010. Currently, five jurisdictions impose local telecom taxes generating $143 million in revenue, and all but five jurisdictions impose a cable franchise fee, generating $63.4 million in revenue. While supporting the bill to review tax policy, “the possibility of more revenue loss is a grave concern,” the county group said. The legislature had expanded tax commission representation from counties to four members upon the group’s request. Other commission members include two members of the Maryland Municipal League and one representative of each of the following companies: local exchange, interexchange, cable TV, wireless and satellite.
The tax commission would address inconsistencies in telecom tax in the state and identify ways to tax more efficiently, said co-sponsor Del. Samuel Rosenberg (D). State government officials believe more money can be raised by taxing the telecom industry more efficiently, co-sponsor Delegate Jon Cardin (D) said. Verizon seeks a modernized telecom tax structure that’s “completely neutral,” lowers tax fees and encourages broadband deployment, a company spokeswoman said.
Some jurisdictions in the state like the city of Baltimore have the highest telecom tax rates in the nation, according to Scott Mackey, a consultant at KSE Partners. His clients include telcos like AT&T, Sprint Nextel, T-Mobile and Verizon Wireless. Most of the state and local taxes and fees on telecom services were adopted before the expansion of services and the emergence of competition, he said. Under the current system, consumers could be paying different tax rates for the same service, depending on which company is providing that service, he said. He cited Virginia’s telecom tax reform bill which became effective 2007. It created a new statewide communications service tax levied at the same 5 percent tax rate as the combined state-local sales and use tax rate. He said a modest cost-based, state-administered right-of-way fee was imposed on telecom and cable providers. He claimed local governments in Virginia have received more tax revenue under the new structure than before.
It’s important that any new telecom tax structure would preserve local taxing authority, said Mitsuko Herrera, cable and broadband administrator of Montgomery County, Md. It’s also critical that any new tax structure would ensure right-of-way compensation, she said. Regulators and legislators should also be cautious in providing tax breaks for companies that might not offer the service across the state, she said.