Cities, companies clash on phone tax legislation

JEFFERSON CITY, Mo. -- Municipal officials on Wednesday told a Senate committee that legislation to revise how local governments tax phone companies would cost them revenue. Industry officials, however, countered that the bill would actually expand local tax bases by specifically subjecting cellular phone providers to taxation.

State Sen. John Griesheimer, chairman of the Senate Economic Development, Tourism and Local Government Committee, acknowledged the difficulty in determining how to best serve the public's interest on the issue.

"This bill has caused me an awful lot of lost sleep and heartache," Griesheimer, R-Washington, said, only half-jokingly.

The bill would, starting on July 1, 2006, cap local taxes on phone companies at 5 percent of their gross receipts. The cap would drop to 3 percent as of Jan. 1, 2008. The measure, which cleared the House of Representatives last week on a 97-55 vote, would clarify that cellular phone companies are subject to such taxes.

State Rep. Shannon Cooper, R-Clinton, said his bill is "revenue neutral" for local governments and that those who believe otherwise are "misguided." With land-line use steadily declining in favor of cell phones, Cooper said the measures would provide cities more revenue in the long run.

"In our lifetime, we will see a time when land lines are non-existent or close to that," Cooper said.

Since companies pass on taxes to consumers, Cooper said the 50 percent of Missourians who have just land lines would pay less while the 6 percent of consumers who have just cell phones would pay more. Results would be mixed for the remaining consumers who have both.

Independence city manager Robert Heacock said the bill would cost his city substantial amounts of revenue. Independence has a 9.08 percent gross receipts tax, more than triple the eventual cap.

"No provision of this bill or any amendment to date is truly revenue neutral," said Heacock.

Heacock and officials of other cities also dismissed the notion that including cellular providers would boost local tax bases. He said those companies should be paying existing taxes but aren't.

Approximately 50 cities, including Cape Girardeau and Jackson, have sued cellular companies for back taxes under current ordinances. The bill would squash those lawsuits.

The cellular companies argue the cases are baseless as most local ordinances taxing phone service predate the existence of cell phones and therefore cannot be construed as subjecting such service to taxation. The cities disagree, saying that phone service -- whatever the form -- is still phone service.

"We would like to have a judge decide the straightforward legal issue of whether these companies are phone companies," said Patricia Hagin, the St. Louis city counselor.

As the bill is currently written, it would appear to nullify the flat fee Cape Girardeau and a few other cities charge phone companies and require such cities, if they wanted to maintain that revenue, to convert to a gross receipts tax. Several phone company lobbyists who are helping craft the bill, however, said that isn't their intent and that they would work to add an exemption for flat-tax cities.

Cape Girardeau city attorney Eric Cunningham said that with such an exemption, the city wouldn't need to change its ordinance. However, he couldn't say for certain until he sees the final version.

"The whole thing is in a state of flux," Cunningham said. "We never know where it will end up."

mpowers@semissourian.com

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