Staff Report Released after State Senate Hearing on Telecom Taxes; Acknowledges Need for Consumer Protections for Telecom Customers

As we reported on August 14th, the New York State Senate’s Select Committee on Budget and Tax Reform held a hearing on August 12th regarding the modernization of the state’s telecommunications tax system. The Staff Report of the hearing was issued on September 24th.

Witnesses at the hearing included PULP and representatives from the landline, wireless, cable, and satellite television industries. The New York State Department of Taxation and Finance and the state’s Office of Real Property Services testified as well. The primary purpose of the hearing was to address whether, after nearly 15 years, the time has come to redesign the state’s telecom tax structure, especially in light of new competitors using different technologies. PULP, whose testimony is quoted extensively in the Staff Report, added two additional issues to the mix which were incorporated into the final Staff Report, namely the need to examine surcharges in addition to taxes and the fact that the current tax policies and industry changes have led consumers to services (wireless and Voice over Internet Protocol, or VoIP) not presently covered by the state’s consumer protections for telephone service.

According to the Staff Report, the key findings from the hearing include:

(1) Tax Inequity. Providers of similar services face disparate treatment for tax and surcharge purposes. For example, cable companies do not pay property taxes on network equipment on private property, while telecommunications companies’ similarly sited equipment is subject to taxation. Also, traditional telecoms are exempt from paying property taxes on electronic attachments connected to cables in public rights-of-way, while cable companies are required to pay taxes on this similarly sited equipment. In addition, VoIP and wireless telephone service providers are not required to contribute to the Targeted Accessibility Fund of New York (which supports Lifeline discount telephone service, the relay service for the deaf, and E-911 access) while landline telephone companies must contribute.

(2) Tax Policy v. State Goals. The Staff Report found that “New York’s telecommunications tax policy runs counter to the goals of the state’s economic development and regulatory policies. High tax rates, unequal tax treatments and heavy administrative burdens threaten investment in broadband networks, which are crucial to attracting and maintaining businesses.” With the tax burden heavier on regulated utilities, the Staff Report acknowledged PULP’s concern that the “state is inadvertently steering New Yorkers toward non-regulated utilities that are not subject to the consumer protection provisions in the Telephone Fair Practice[s] Act.”

(3) Local Concerns/Federal Considerations. Industry representatives warned the Committee that the current level of tax revenue from regulated entities is not sustainable due to trends steering consumers toward services and providers that are not taxed. Such a trend will likely impact local governments significantly.

(4) Solutions & State Models. The telecom industry presenters were “largely in agreement that taxes should be based on the type of service – not the means through which it is delivered. There is also a consensus that functionally-equivalent services should be taxed the same way.” The witnesses went on to discuss developments in other states where telecom tax reform has already occurred.

The Staff Report concluded that the Select Committee will look for ways to simplify the telecommunications tax system in ways that will uniformly impose taxes based on the types of services provided rather than on their means of delivery. More details will be forthcoming after the state Department of Taxation and Finance and the Public Service Commission complete a report by October 1st on the current state of telecom taxation, as was required in the most recent state budget. Action by the Select Committee will be a strong first step to leveling the playing field between the different types of telecommunications service providers, but PULP believes this must be immediately followed by an extension of telephone consumer protections to all.

Lou Manuta