By Larry Jones
July 28, 2008

Legislation was introduced on July 10 in the Senate that would restrict state and local governments from imposing a new discriminatory tax on mobile wireless communications services, mobile service providers, or mobile service property for five years. The so called Mobile Wireless Tax Fairness Act (S. 3429) was introduced by Senators Ron Wyden (OR) and Olympia Snowe (ME) and is very similar to a proposal (the Cell Phone Tax Moratorium Act, S. 166), introduced by Senator John McCain (AZ) last year.

Under the proposed legislation, state and local governments would be prohibited from imposing: (1) a new tax on a mobile wireless communications service that is not generally imposed or imposed at a lower rate on other types of services; (2) a new tax on a mobile service provider that is not generally imposed or imposed at a lower rate on other persons engaged in other types of businesses; and (3) a new tax on mobile service property that is not imposed or is generally imposed at a lower rate on other types of commercial property.

If enacted this proposal would significantly restrict the ability of state and local governments to impose special taxes on mobile services. Currently many state and local governments have special telecommunications taxes (in some cases taxes on mobile services) in place. These taxes are typically set at a different rate than the generally imposed state and local sales tax for other services. For example, a local government may not impose a tax on mobile wireless telephones but tax traditional telephone wire line services at six percent. And it may generally impose a local sales tax for most other services at two percent. Under the proposed legislation, if the local government wanted to extend the telephone tax to mobile wireless telephone services, it would be considered discriminatory and therefore prohibited. Consequently, many local governments would lose enormous amounts of revenue if this bill is enacted.

The Conference and other state and local groups strongly oppose S. 3429. In a 2006 study entitled “Local Government Perspective on Telecommunications Taxes” it was clearly demonstrated that the argument being advanced by telecommunications companies that the industry is being subjected to unfair discriminatory taxes is seriously flawed. Representatives of the telecommunications industry claim they’re paying significantly higher taxes. However, there is strong evidence in the study that telecommunications companies pay significantly lower corporate income taxes than other businesses and about the same as other businesses in real property taxes. Also, much of what they claim to be taxes are in fact user fees and charges for cutting up streets, installing cables and other uses of the public rights of way.

The proposed legislation has been referred to the Senate Commerce, Science, and Technology Committee. So far no action has been scheduled. Mayors and other state and local leaders are strongly encouraged to contact their Senators and urge them to oppose S. 3429.