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Overhaul Sought on Va. Telecom Taxes

By Chris L. Jenkins
Washington Post Staff Writer
Wednesday, February 2, 2005; Page B01

RICHMOND, Feb. 1 -- Gov. Mark R. Warner and some Republican legislators are urging the General Assembly to revamp the way Virginia taxes telecommunications services in light of the new phone, cable, wireless and Internet options available to consumers.

The new tax system, which industry analysts say would be the first of its kind in the country, would replace a decades-old patchwork of local levies placed on services that Virginians use to communicate and receive information.

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With telephone service available over the Internet, phone companies preparing to offer video and cable companies selling phone service, backers of the plan say, it is time for Virginia to tax all modes of communication the same way.

The proposals before the assembly would impose a 5 percent flat tax on various communication and information technologies. That would reduce taxes on local calls, mobile services and paging, which in some cases range from 10 to 35 percent, and impose levies on monthly satellite television bills, Internet calling technology and long-distance service, which currently aren't taxed.

Warner (D), who has supported the effort not only as governor but also as chairman of the National Governors Association, led a conference in Washington with the heads of several telecommunications companies in December to discuss the need for restructuring.

"Our telecom tax issues go back to when telecommunications was basically a telephone and a regulated industry," Warner said. "There isn't one governor of either party that doesn't think we need to forge a compromise with the industry."

The Virginia proposals are in a pair of bills before the General Assembly: Senate Bill 1335, sponsored by Sen. James K. "Jay" O'Brien Jr. (R-Fairfax) and House Bill 2880 sponsored by Del. Samuel A. Nixon Jr. (R-Chesterfield).

Both measures face serious hurdles. Satellite companies have lobbied hard to defeat the bills. Because of the opposition, supporters late Tuesday night were still considering whether they would move forward on the House bill.

Supporters, who include telecommunication executives, local officials and some state lawmakers, say that as more and more households get rid of their land lines in favor of Internet or wireless communications, the state needs to make up for diminishing revenues by taxing emerging technologies.

"The notion is that we should look at taxing the services rather than the delivery of the service. That's a bold concept," said Warner, who made his multimillion-dollar fortune in the early stages of the cell phone industry. Warner's assets are held in a trust that he does not manage, said Ellen Qualls, the governor's press secretary.

"The concept all along has been: Treat us the same way," said Richard Schollmann, president of the Virginia Cable Telecommunications Association, the industry group that represents cable companies such as Comcast and Cox Communications.

The impact on consumers would depend on the kinds of telecommunication services they use: Bills would probably rise for a household that uses satellite TV and makes calls over the Internet. But a resident who uses a cell phone, watches cable and has a land line to make local calls would see a reduction, lawmakers said.

Supporters said the taxes would raise the same amount of revenue -- about $400 million annually -- that localities now receive from local taxes and franchise agreements. A new state law would not affect federal fees.

Opponents said they could support the bills only if they did not include taxes on satellite customers.

"I would be opposed to such a plan because it really treats our residents who can't get cable unfairly," said Sen. William C. Wampler Jr. (R-Bristol), chairman of the Senate Commerce and Labor Committee, which is considering the measure.

Representatives for the satellite industry, which has 700,000 customers in Virginia, said they have unjustly been brought into the proposal to generate enough revenue to match the current tax program.

"We're the only industry whose ox is being gored," said Mark Pratt, the chief lobbyist for the satellite companies, which include DirecTV and EchoStar.

The new tax structure would mandate that the state impose the taxes and then reimburse localities. Although localities generally support the proposal, they are concerned that in the transfer of money, they may not receive all of the funds they do now.


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