Alexandria to Tax Cell Phones as Other Revenue Drops

Federal Communications Commission statistics show a similar change nationwide -- a 6 percent drop in U.S. land lines from 2000 to 2004. Four percent of U.S. households say they have cut the cord altogether in favor of cell phones, but that number could swell to 12 percent by next year, according to a report released in May by Cambridge, Mass.-based Forrester Research Inc.

In another indication of an accelerating shift from hard-wired phones to mobile handsets, there were 173.2 million active phone lines as of the end of 2004, while cell phone companies counted 178.2 million users, according to IDC, a research firm also based in Cambridge.

"Obviously, a lot of people have figured out that they have two phones in their life and they both serve the same purpose," said Kevin Burden, a telecommunications analyst with IDC.

Fairfax, Loudoun, Prince William and Spotsylvania counties already have cell phone taxes. In Maryland, however, cell phone taxes sparked an ongoing multimillion-dollar lawsuit by four cellular service providers against Montgomery County and the city of Baltimore. Montgomery County collects a $2 monthly tax on cell usage, while Baltimore collects $3.50 per month for each phone. Cell phone companies argue that the fees amount to an illegal sales tax.

Montgomery County expects to raise more tax dollars from cell phones than from land lines in 2005, the first time this has happened, said Robert Hagedoorn, chief of the county's Treasury Division.

Verizon Wireless is one of the companies suing Baltimore and Montgomery County, along with Cingular, Sprint and T-Mobile. It also sued Pennsylvania to force the state to repeal a 5 percent gross-receipts tax on cell phone use. That lawsuit is also pending.

Verizon officials say they do not plan to sue Alexandria or any other Virginia jurisdiction because the state has a law in place that allows local cell phone taxes, said Annabelle Canning, assistant general counsel for tax policy for Verizon Wireless.

Instead, the cell phone industry will try to persuade the Virginia General Assembly to approve legislation next year that would require all telecommunications services to be taxed the same way throughout the state.

A similar effort to set a straight 5 percent state tax failed earlier this year after satellite companies such as DirecTV started a letter-writing campaign, urging customers to write their representatives and ask them to oppose what the companies said would be a new tax on their service.

The Virginia effort highlights a debate about how different services should be taxed when technological advances allow people to communicate through a variety of devices. For example, people who use cell phones, BlackBerrys and land-line phones will be taxed in Alexandria, but not people who use increasingly popular Internet-based phone services such as Vonage, because calls made over the Internet are protected by a seven-year-old nationwide ban on Internet access taxes.

Robert MacMillan is a staff writer for washingtonpost.com. He writes the Web site's Random Access column, available at http://www.washingtonpost.com/technology.