Tuesday, April 10, 2007

Telecom Tax Exemption's Time is Up

The regional president of Verizon in Massachusetts and Rhode Island, Donna Cupelo has an opinion piece in today's Boston Globe arguing against closing the tax loopholes for telecommunications companies. The way it works now is telephone companies are exempt from paying property taxes on machinery they own and telephone polls, even though cable, electric and other utilities have to pay taxes on their machinery. The exemptions were set up in 1915 to encourage widespread adoption of the telephone and now lawmakers have recently been looking at whether they make sense. In her defense of the exemption, Cupelo does not mention some of the absurdities of the current law. For example, electric companies are paying taxes on their half of the very same poles that they share with the exempt telecoms. Wires that run over private ways are taxable, while wires that run over public ways are not.

All of this comes after a June 2005 report that said Massachusetts telecommunications companies removed $1.3 billion worth of property off of the tax rolls between 2003 and 2005. That added a total of $31 million onto the burden of other local taxpayers during that time. Overall, the telecom industry was found to be avoiding $140 million worth of property taxes annually. That's money that falls not only on homeowners to pay, but also other local businesses, including other utility companies. That $140 million matches closely with the $180 million that Cupelo claims that telcom companies have "generated" for state and local economies (she declines to state exactly how). In any case, that number is much more modest once you net out the amount that telcoms are avoiding.

In Cupelo's piece, she details all the recent investment that Verizon has done and implies that closing the loopholes will but a halt to expansion. When meeting with telecom representatives, however, Governor Deval Patrick asked them about their plans to expand broadband service in Western Massachusetts. He indicated that he would be willing to make allowances in the tax code for that sort of thing. The telecom executives were then forced to admit that they had no specific plans to expand.

Cupelo also suggests that removing the telecom exemption would only help Boston at the expense of the rest of Massachusetts. The fact is, companies like Verizon have been working in recent years to get as much property off the tax rolls as possible in every community. Here are other examples from a 2005 Globe article:

In suburban Westborough, $67.6 million worth of telecom property went off the tax rolls in the last year, representing potentially $2 million in annual tax revenue, and more than $50 million in Billerica and Taunton was removed from the tax rolls.
Cupelo is also being disingenuous when she asks "where's the incentive to stay and grow in Massachusetts?" Is she honestly suggesting that telephone companies will give up and leave Massachusetts if this loophole is closed? Electric companies already pay taxes on their equipment and that has not seemed to stop them from continuing to bringing electricity to all of Massachusetts. As long as there are people in Massachusetts, there will be demand for telecommunication services. As long as there's enough demand, some company will step up to supply it. That's the magic of capitalism.

Leaving that aside, telecoms drastically reduced their taxes over the past five years with no corresponding reduction in consumer rates. They were paying much of these taxes no less than five years ago. Are we to believe that taxes they were paying as recently as 2002 are going to drive them from the state? Here's what that 2005 report said about Verizon, in particular:
Verizon Wireless, for example, shifted legal ownership of assets to a Bermuda-based corporation to get more favorable tax treatment and cut its Boston tax bill by 99 percent, to $9,307 this year [2005] from over $3 million two years ago, according to city figures.
That explains why Verizon is so upset. They can't offshore a telephone poll to Bermuda.

Cupelo also tries to scare consumers with promises of higher rates. Let's leave aside the fact that other states that have removed this loophole have not experienced a subsequent jump in rates and just note again that while the law that exempts telecom equipment from property taxes is nearly 100 years old, the exploitation of these loopholes is a relatively new phenomenon. Have you experienced a reduction in rates as phone companies saved millions in taxes over the past five years? I have not. Were telecoms suffering terribly under their tax burden before they started saving all this money? No, they were not. What we're witnessing is that telecoms have overplayed their hand. If they had not started to aggressively avoid taxes in the last five years, no one would have even heard about the telecom exemption. Instead, they have begun to exploit it at the cost to taxpayers. It's time to take it away.

Update: Mass. Liberal has more.

Update 2: I found 50 State telecom excise tax data from 2004. While this is different than property taxes, the chart shows that we are 36th out of 51 in combined state and local excise taxes on telecom. Our local excise taxes are a big fat 0%, whereas almost every other state levies some sort of local excise tax -- North Carolina's, for example is 12.36%.

Also, Blue Mass Group has the text of an ad that Verizon took out today. It largely echos the sentiments put forth in the op/ed, but the discussion that follows is worth reading.