TACIR, Legislators Try to Determine Whether Telecommunications Tax Structure is Fair

A recent state report says the way telecommunications companies are taxed is unfair and needs changing. Legislators aren’t convinced that’s the case.

Phone companies with land lines are utilities. Those without, like wireless or long-distance firms, are not. That means property belonging to those companies is assessed for taxes using different rates and different methods.

A recent report from the Tennessee Advisory Commission on Intergovernmental Relations, or TACIR, calls the current system inequitable. Its author suggests the state either tax all telecommunications at the utility rate – an option companies are sure to fight – or consider them all to be regular businesses – meaning less property tax revenue for local governments.

Before making a decision either way, legislators want to see if the system really is unfair. Representative Mike Stewart says he needs another study that looks at the actual taxes collected before he can be sure.

“To me, you’ve got two extraordinarily different tax regimes and I personally don’t think without some expert we can compare apples to apples.”

The state currently has a fund meant to offset the disparity in tax rates between phone utilities and their competitors, but it has never collected enough money to make up the difference.

As utilities, the land-line phone companies’ property is assessed at a 50% rate. Because wireless and long distance are in the commercial and business category, their tax rates are 40 or 30%, depending on the kind of property.

In 2001, the state tried to even out that inequity without cutting into the property tax revenue collected by local governments. The state sales tax on long-distance calls went up, with that money ultimately going back to the land-line companies. In theory, that would offset the difference in property tax assessments.

In reality, that hasn’t happened. Long-distance calls made on traditional phone lines have become cheaper and fewer in number, so the sales tax on those calls pulls in less and less.

Stan Chervin studied the matter for TACIR. He says the state will always be always be playing catch-up under the current system.

“Changes in the technology, changes in consumer tastes and preferences, they’ll never stop, they’re constantly rearing their ugly heads and causing revenue problems, especially with legacy kind of tax structures.”

In his report, Chervin acknowledges that neither option for changing the tax code is “painless.”

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