The D.C. Council's Committee on Finance and Revenue approved yesterday a gross-receipts tax on long-distance telephone service that would generate $20 million to help fund the fiscal 1987 budget.
The full council is expected to take an initial vote today on the measure, which is a compromise reached earlier this month by council members and Mayor Marion Barry to eliminate the need for the mayor's proposed $17.9 million income tax increase.
After yesterday's committee vote, Delano E. Lewis, a vice president of the Chesapeake and Potomac Telephone Co., said the bill would cause his company to lose a personal property tax exemption that would cost C&P $7 million to $10 million.
C&P, which pays a gross-receipts tax on revenue generated from local telephone service, has been exempt from all personal property tax. But if the measure is adopted, the company would lose its exemption for revenue generated from access charges paid by long-distance carriers, and other company revenue not subject to the gross-receipts tax.
Council member John Wilson (D-Ward 2), chairman of the finance committee, predicted that the cost to C&P would be closer to $5 million to $6 million. Wilson said the bill is one of the most technically complicated measures that his committee has ever handled and stressed that the final version, which contained numerous amendments, is a compromise aimed at making the tax palatable to businesses without placing a burden on consumers.
During a public hearing last month, long-distance carriers argued that the gross-receipts tax should apply only to monopolies and other regulated businesses and that a sales tax would be a more acceptable method of taxing telecommunications services.
Wilson, however, said the committee rejected a sales tax because it would impose an unfair burden on residents of the District, which affords sales tax exemptions to the federal government and the diplomatic community.
The tax measure approved by the committee yesterday is aimed at corporate users and individuals who use long-distance services heavily. Although there is a potential for passing the increases on to consumers, the Office of the D.C. People's Counsel has said that such action is unlikely because long-distance companies are competing to win customers by providing low-cost service.
Under the proposal, the District would receive a $20 million revenue gain over the estimated $60 million in gross-receipts tax for fiscal 1987, which ends Sept. 30. The Barry administration estimates that beginning in fiscal 1988, the annual revenue gain to the District would be $18.5 million.
Wilson said the city had to impose the tax because of a 1986 court ruling that reduced C&P's tax liability. The ruling by the D.C. Court of Appeals cost the city $23.6 million in gross-receipts tax that C&P had been required to pay on revenue from access charges paid to C&P by long-distance carriers.
As a result of the ruling, the District had to refund $14.7 million in gross-receipts tax collected in 1984 and 1985 and was not allowed to collect about $8.9 million the following year.