Va. Mulls Statewide Flat Tax For Communication Services

By Chris L. Jenkins
Washington Post Staff Writer
Tuesday, January 24, 2006

RICHMOND, Jan. 23 -- A House of Delegates panel passed a bill Monday that would change how Virginia taxes phone, cable, wireless and Internet services in light of the new ways telecommunication services are offered to consumers.

The proposed tax system would replace what supporters of the bill call an antiquated mix of local levies.

The bill would create a flat 5 percent tax statewide on a range of technologies and would impose taxes on monthly satellite television bills, Internet calling technology and long-distance service, which currently are not taxed.

It would eliminate the taxes imposed by each locality, which in some cases reach 30 percent on local calls, mobile services and paging. It also would eliminate cable franchising fees.

"Fifty years ago, the only way to communicate with others was with a plain old telephone line," said Del. Samuel A. Nixon (R-Chesterfield), the bill's chief sponsor. "Technology has evolved, but our taxing policies have not."

"It's fair, it's balanced and adheres to the principles of taxes being as low as possible and broadly applied as possible," Nixon added. He cited statistics from the Council on State Taxation, a Washington research group, that found that Virginia has the highest telecommunication taxes in the country.

The measure, which passed the Finance Committee by a vote of 15 to 7, is expected to come before the full chamber this week. The bill then must pass the Senate and be signed by Gov. Timothy M. Kaine (D) to become law.

This is the second time in as many years that state officials have tried to alter the state's telecommunication tax structure. Last year, Nixon offered the same bill, but it was quickly revised to merely study the impact of the taxes after intense lobbying from the satellite industry, which opposes the bill again this year.

Supporters said the taxes would raise the same amount of revenue -- about $425 million annually -- that localities now receive from local taxes and franchise agreements. The Virginia tax department said at the hearing Monday that it cannot predict exactly how much money would be raised from the new system. A new state law would not affect federal fees.

The impact on consumers would depend on the type of telecommunication services they use and where they live. Fairfax County residents with land lines, long-distance service, cell phones and cable TV would pay an average of $5.35 less a month, according to an analysis done for a group of telecommunication companies supporting the measure.

But a resident of Clarke County who has a land line, long-distance service, a cell phone and satellite TV would pay $1.44 a month more if the measure were approved, according to the analysis.

Representatives of the satellite industry said they had not seen the results of the analysis and could not comment on its findings. But they pointed out that the analysis does not include increases on Internet calls and satellite radio.

Virginia is the only state actively trying to address how to tax emerging technologies, according to industry analysts.

Satellite companies and several rural lawmakers are lobbying as they did last year to defeat the bill because, they said, consumers in rural areas rely more on satellite television than do people in areas served by cable. Even though cable bills would decrease in some rural counties, they would increase in others, according to the analysis.

"This is harmful to rural areas," said Del. Ben L. Cline (R-Rockbridge). Referring to taxes on Internet phone calls, he added: "The Internet is a savior to rural areas like mine, and this would have a major impact."

Mark C. Pratt, who represents DirecTV, said the average customer's bill would increase about $3 a month because of the tax. He added that some businesses -- in particular call centers, which often are in rural areas -- also would be hurt, because many of those areas have taxes that are lower than the proposed 5 percent tax called for by the legislation.

Several legislators who voted against the bill in committee said they were still weighing its impact on their districts.

"The trick for me is figuring out whether there's a net gain or a net loss for my district," said Del. Jeffrey M. Frederick (R-Prince William), who voted against the measure.

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