By Ron Thaniel and Larry Jones
February 14, 2005

Streamlined Sales Tax Project The Streamlined Sales Tax Project is a joint state effort to modernize state and local sales and use taxes. Due to the complexity of complying with numerous state and local tax laws, out-of'state retailers (remote sellers) are not required to collect these taxes under current law. The goal of the SSTP is to make the collection process simple, easy and uniform, and provide incentives to entice remote sellers to collect state and local taxes on a voluntary basis. So far, 21 states have joined the effort and voluntary collection is set to begin on October 1, if it is certified that these states have complied with the simplification requirements.

Conference of Mayors Urban Economic Policy Committee Chair Jackson (MS) Mayor Harvey Johnson, joined by Conference Communications Task Force Chair Arvada (CO) Mayor Ken Fellman, also representing the National League of Cities, urged the National Conference of State Legislatures not to include telecommunications tax modernization in model Streamlined Sales and Use Tax legislation.

At the Biloxi (MS) meeting on January 28, Johnson told a task force executive committee that "mayors are concerned that the Task Force is considering model legislation that will require state legislatures to streamline the collection and remittance of all transactional taxes on telecommunications services."

"What this could mean is state level administration of all telecommunications taxes, including rights-of-way fees," said Johnson.

Making clear to the executive committee that rights-of-way fees are not taxes and should not be treated as such, Johnson cited long held positions of the courts on this issue.

The Supreme Court, as early as 1893, in City of St. Louis v. Western Tel., recognized that local governments have a property right in controlling all elements and benefits of rights-of-way property. Most recently this decision was ratified by the Fifth Circuit Court of Appeals in the City of Dallas v. FCC.

"The case law in this area makes it very clear that the payment of a franchise fee is not a tax but a rental fee," said Johnson.

"If it is included in the model legislation, states will have to amend their telecommunications laws to comply with the simplification requirements which could be more difficult and take considerably longer than anyone thinks," Johnson said.

Johnson urged the National Conference of State Legislatures "to continue to work with the Conference, the National Governors Association, and other state and local groups who are currently engaged in separate negotiations with representatives from the communications industry to develop recommendations on the rewrite of the 1996 Telecommunications Act."

The Conference is concerned that the National Conference of State Legislatures continues to proceed with their effort to streamline telecommunications taxes in the Streamline Sales and Use Tax model, including releasing at the Biloxi meeting, a draft document detailing legislative guidance in implementing telecommunications tax simplification provisions of the Streamlined Sales and Use Tax. State administration and collection of all state and local telecommunication taxes poses a serious problem for many cities, particularly if rights-of-way fees are included in the mix as NCSL's model legislation prescribes. While many states have years of experience collecting both state and local sales taxes, the same is not true for telecommunication taxes.

The Conference will continue to meet with the National Conference of State Legislatures on this issue and urge you to contact your state legislator and urge them to oppose the inclusion of telecommunications tax modernization in the Streamlined Sales and Use Tax model.