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Alexandria to Tax Cell Phones as Other Revenue Drops

By Robert MacMillan
Special to The Washington Post
Thursday, June 16, 2005

Using a cell phone is Alexandria is about to become more expensive -- $3 a month more expensive.

The City Council approved a new tax on cell phones as part of the fiscal 2006 budget. It will help make up some of the money that the city will lose after the real estate tax rate was lowered in order to provide relief to homeowners. Residents will see the new charge on their cell phone bills starting in September.

The tax will bring in an estimated $1.7 million in fiscal 2006, city officials said, about one-third of 1 percent of the city's $468 million budget. Residents will pay $3 a month on cell phone bills of more than $30, while those on lower-cost plans will be charged 10 percent of their monthly bill.

Other measures passed to offset the real estate tax cut include a 20-cent increase in cigarette sales tax and a new entertainment surcharge on items such as movie tickets.

Taxing the growing number of cell phone users should help offset the losses created by a reduction in the real estate tax rate, Mayor William D. Euille (D) said.

"I was just sitting in my car at the intersection. I looked around at 15 or 20 other cars, and everybody had a cell phone," said Euille, who estimates that he spends more than $100 a month on cell service.

Barry Murphy, a 46-year-old realty agent and Alexandria homeowner, said the tax amounts to about a latte a month for him. He carries two cell phones -- one that runs on Cingular's network and another on the Verizon Wireless network-- and uses whichever one gets better reception in a given part of town.

"I don't mind paying some taxes as long as [we get] more value" from the city, said Murphy, who pays several hundred dollars a month in cell phone bills.

But some residents said $3 could make the difference between being able to afford a cell phone and going without.

Tawanda Moore said she works 25 hours a week at the Fuddruckers restaurant on Duke Street for $7.50 an hour. She said the tax will make it difficult for her to buy a cell phone.

"There are other ways for [the government] to get their money," said Moore, 33.

For years, Alexandria has relied on a dependable 25 percent tax on local phone service, bringing in an average of $7.50 per phone line every month. But the revenue stream has been drying up as more residents drop their regular phone service for a cell phone-only lifestyle. There were about 113,000 residential and business land lines in operation in the city as of July 2004, a drop from more than 120,000 two years earlier, according to Bruce Johnson, director of the city's Office of Management and Budget.

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.

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