The Supreme Court agreed yesterday to decide if a 5 percent state tax on interstate telephone calls violates the Constitution's commerce clause.
The justices will hear arguments during this term in two appeals, one brought by two residents of Illinois and the other by GTE Sprint, of an Illinois Supreme Court ruling that upholds the state's Telecommunications Excise Tax Act.
The law at issue imposes a 5 percent tax on "the act or privilege of originating ...receiving" interstate telecommunications in Illinois.
The tax, which results in about $10 million a month in revenues for the state, applies to all calls charged to an Illinois service address, regardless of where the calls are billed or paid.
Seeking high court review, lawyers for those challenging the law said, "There is no question that the tax challenged in this case is levied directly on interstate commerce and is totally unapportioned: Illinois taxes the entire value of an interstate activity whose value is not -- and by definition cannot be -- attributed solely to Illinois.
"Contrary to the lower court's view, other states can and do tax this interstate commerce, subjecting such commerce to multiple taxation," they said.
Lawyers for the state defended the law, which they said merely applies to economic activity that occurs within the state's borders.
"The act is based on the taxpayer's activity in Illinois. The act does not impose a tax on a party outside of Illinois," they said.
In other actions the court:
Let stand a ruling that limits the power of communities to regulate cable television and raises doubts about the constitutionality of a key federal law governing cable operations.
The court, citing a lack of jurisdiction, turned away an appeal by two California cities barred from enforcing public access and other rules challenged by a cable operator.
The court's action, which appears to have been based on narrow procedural grounds, leaves open the possibility of a subsequent appeal.
Agreed to decide whether states may tax any income from oil and natural gas extracted from the Outer Continental Shelf.
The court said it will hear an appeal by Shell Oil Co. challenging an Iowa tax.
The state tax is designed to be imposed on that portion of a company's income derived from doing business in Iowa.
Shell Oil said it was improper for state officials to include any revenue from offshore gas and oil in determining the company's taxable income.