House Bill 2408: Telecommunications Property Tax Reform

House Bill 2408: Telecommunications Property Tax Reform

MAAO Presentation

Background

Current Telecommunication Property Tax Statutes Date Back to the 1920s

AT&T Breakup– Local and long distance services split– Local service was further divided by regional monopolies

Telecommunication Act of 1996 Introduces Competition to Local Phone Service

Technological Revolution– Fiber - Internet - Digital Cable - Wireless

Result

Convergence:– Telephone Companies Engaged in Internet and

Cable Television Services– Cable TV Companies Providing Telephone and

Internet Service

Industry Transformed Into An Ultra-competitive, Less Regulated, Multi-billion-dollar Enterprise

Talk About Contrast…..

Property Tax Statutory Structure Stagnant, Completely Unchanged

versus Telecommunication Industry’s Rapid and

Radical Restructuring

or, put another way

Cities and towns are using a stone-age, Fred Flintstone era Tax Structure…..

….on an Ultra-modern, George Jetson era industry

Telecomm Loophole:Statewide Impact

$3.6

$2.3

2004 2005

Assessments Down $1.31 Billion

$74

$43

2004 2005

Taxes Reduced $31 Million

Verizon Case Study

Total Value of Verizon Property: $4.08B (DTE)

Total Assessment of Verizon: 1.56B (DOR)

Over 60% of Verizon’s Property is Exempt

Exempt

$2.52 B

Taxable

$1.56 B

Impact on Remaining Taxpayers

Telecommunications Exemptions Result in Higher Residential and Business Taxes

In Boston, Telecommunications Exemptions Raised:– The Business Tax Rate by 2%– The Average Single Family Tax Bill by $185

Anatomy of a Utility Pole on a Public Way

Poles owned by electricity providers are taxed, while poles owned by telephone companies are exempt.

All wires owned by electricity providers are taxed.

Wires owned by telephone and broadband companies are exempt, while telephone partnership wires are taxed.

A New Tax, or Closing a Loophole ?

The Merriam-Webster Dictionary definition for the term “loophole”:

a means of escape; especially : an ambiguity or omission in the text through which the intent of a statute, contract, or obligation may be evaded.

Anatomy of a Loophole

Section 5 of Chapter 59 states that property owned by telecommunications companies is exempt with the exception of the following: “real estate, poles, underground conduits, wires and pipes…”.

Section 39 of Chapter 59 directs the DOR to assess “machinery, poles, wires and underground conduits, wires and pipes” nine separate times.

Why is the property exempt? Because it escaped through a loophole…

Section 18 of Chapter 59 tells assessors to whom to assess taxes. Clause 5 of this section states poles, underground conduits and pipes, together with the wires thereon or therein, laid in or erected upon private property…”

House Bill 2408

Removes Exemption for Machinery of Telephone Companies

Closes Loophole that Exempts Poles and Wires in Public Ways

Results in an Estimated $140M in New Revenue for Cities and Towns

Recap

Modern telecommunication companies exploit archaic property tax statutes to avoid property taxes

Telecomm companies reduced their assessments by $1.3 Billion this year

Over 60% of Verizon’s property is exempt Telecomm loopholes:

– reduce revenue to communities by $140 million– result in remaining residents and businesses paying more