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Communications Tax Reform

WHEREAS, until 1984, telephone service was a highly regulated service generally subject to tax under statutes applicable to "public utilities"; and

WHEREAS, such taxes in the form of gross receipts, franchise and other industry-specific taxes were passed on to consumers as part of the regulatory rate setting process; and

WHEREAS, convergence and technology have radically expanded communication services, blurring distinctions between telephone and Internet service in some instances; between cable, wireless, satellite, and wireline; between long distance and local service and between telephone and other forms of communications and information services;

WHEREAS, the elimination of boundaries, new technologies and increased convergence and competition in  the communications industry makes it critical to simplify and reform state and local taxes to ensure a level playing field, to enhance economic development, and to avoid discrimination; and

WHEREAS, the combination of state and local taxes and fees imposes significant administrative costs on communications companies, most of which operate in multiple states and localities, and offer multiple services through a variety of technologies; and

WHEREAS, this administrative burden forces such companies to incur substantial expenditures to satisfy compliance and systems requirements, resulting in higher costs of service for consumers without any corresponding benefit to state or local governments; and

WHEREAS, state and local tax burdens on communications companies and their customers are significantly above those imposed on most other types of industries and services; and

WHEREAS, taxes on communications services are regressive, applying a discriminatory tax regime to communications services, only adds to the “High Cost of Being Poor”  for low income Americans; and

WHEREAS, many government officials have worked to develop programs that bridge the so-called “digital divide,”  only to raise taxes on those very same communications services that may be three to five times higher than the general sales tax, thus punishing the people they are trying to assist; and

WHEREAS, a recent study by the Heartland Institute shows that the average American household would save approximately $125.76 a year if taxes on communications services were no higher than the general sales tax; and

WHEREAS, imposing these higher tax burdens on communication services provided by some telecommunications and communications providers while imposing lower and even no tax burdens on similar services sold by non-traditional providers places governments in the position of picking winners and losers in the marketplace; and

WHEREAS, enhanced access to advanced communication services provides important economic, safety, and social benefits to citizens and businesses in the new, global economy; and

WHEREAS, high administrative costs and tax burdens imposed on the communication service industry create an impediment to entry for new service providers, disincentives to deploy infrastructure and increase the cost to consumers of access to advanced communications services.

NOW, THEREFORE BE IT RESOLVED THAT, the National Conference of State Legislatures encourages states to work together with local governments and providers in their efforts to simplify and modernize state and local taxes on communication services based upon the following principles:

1. Tax Efficiency: State and local taxes and fees imposed on communications services should be substantially simplified and modernized to minimize confusion and ease the burden of administration on taxpayers and governments.
   
2. Competitive Neutrality: State and local transaction taxes and fees imposed on communications services should be applied uniformly and in a competitively neutral manner upon all providers of communication services, without regard to the historic classification or regulatory treatment of the entity.
   
3. Tax Equity: Under a uniform, competitively neutral system, industry-specific telecommunications taxes are no longer justified.
   
4. Tax Fairness: With the blurring of distinctions between various services and technologies, state and local governments must strive to set tax burdens on communications services, property and providers that are no greater than those tax burdens imposed on other competitive services and the general business community.
   
5. Local Government Impacts: States need to include provisions to mitigate potential local government revenue impacts associated with communication tax reform.
   
6. Economic Development: States need to simplify, reform and modernize state and local telecommunications tax systems to foster competition, encourage economic development, reduce impediments to entry, and ensure access to advanced communications infrastructure and services throughout the states. 
   
7. State Sovereignty: NCSL will continue to oppose any federal action, other than prohibition of  taxes on Internet access,  or oversight role which preempts the sovereign and Constitutional right of the states to determine their own tax policies in all areas, including telecommunications and communication services.

Unanimously adopted by the NCSL Executive Committee Task Force on State and Local Taxation of Telecommunications and Electronic Commerce on Sunday, August 5, 2007.

Unanimously adopted by the NCSL Executive Committee on Monday, August 6, 2007.