State weighs new tax on cell phones

JEFFERSON CITY, Mo. -- Taking a break from setting up her new restaurant, Amy Barrett is talking on her phone as she's heading out to get pizza for her helpers.

Like many people these days, Barrett's cell phone travels wherever she goes. In Barrett's case, it's the only way to reach her. She disconnected her traditional land-line phone seven months ago and transferred her home phone number to her mobile phone.

Barrett's decision meant a loss of money for her hometown of Columbia, which taxes traditional phone companies but not wireless phone providers.

Partly because of people like Barrett, Missouri lawmakers are proposing to overhaul the way local governments tax telephone companies. Cities would be forced to lower taxes on land-line phones and allowed to impose new taxes on wireless phones.

Because about half of Americans now have both a wireless and land-line phone, supporters of the legislation argue that many people would see little overall change in their phone taxes.

Those with only traditional phones would see a tax decrease.

But taxes would rise for the estimated 6 percent of people who -- like Barrett -- have gone entirely wireless.

The legislation passed the House last week on 128-28 vote and is pending in the Senate.

The wireless telephone industry is financing a statewide advertising campaign in support of the bill, which also would invalidate lawsuits by dozens of cities seeking to collect disputed back taxes from the wireless companies.

City officials, meanwhile, are mounting a vigorous lobbying effort against the bill, fearing the tax caps would limit their future revenue while the lawsuit prohibition would deny them a chance to tap into millions of dollars in back taxes.

Sponsoring Rep. Shannon Cooper, R-Clinton, contends the bill is good for everyone.

Consumers and phone companies both benefit by the limits on local taxes, "and in two years, municipalities will thank us for passing this bill that allows them to broaden their tax base to make up for the declining revenue in telecommunication taxes they are experiencing today," Cooper said.

About 240 of Missouri's 1,000 cities tax telephone companies, nearly all of them relying on ordinances written before cell phones became common. The ordinances impose gross receipts taxes on companies providing such things as "local exchanges" or "telephone services."

After a 1999 appeals court decision placed cell phone providers in the category of "telephone companies" for a separate tax charged in Sunset Hills, there has been an increase in cities also trying to collect local gross receipts taxes from cell phone companies.

Some wireless phone companies have paid some cities' taxes, depending on the language of their local ordinances. But many cell phone companies have refused on grounds their mobility disqualifies them from city ordinances tailored for phone business conducted within a city. Others have argued that cell phones are a type of radio transmission -- not a phone service as defined under the old ordinances.

Sprint Corp., for example, is paying local cell phone taxes in Jefferson City and Clayton but generally opposing them elsewhere, said Doug Galloway, Sprint's director of governmental affairs. That's because Jefferson City specifically included mobile phones in its law adopted before a 1980 constitutional amendment requiring public votes on tax increases. Clayton voters approved their local tax on wireless phones.

The legislation "is good for consumers in a variety of ways," Galloway asserts.

City phone taxes, which currently range up to about 10 percent, would be rolled back to whatever lower level would generate the same amount of city revenue when the tax is also applied to cell phones. By July 2006, that rate could be no more than 5 percent. By January 2008, it could be no higher than 3 percent, according to the House-passed legislation.

Because of that cap, Independence city manager Robert Heacock says his city could lose more than $1 million a year. Independence currently levies a 9.08 percent tax on phone companies and is a plaintiff in a lawsuit seeking to tax cell phone companies under its current ordinance.

Bill supporters discount concerns of city financial woes because they assume the growing cell phone market will make up for the lost land-line taxes.

Figures provided by the wireless telephone industry project their revenue to rise 10 percent annually over the next decade while revenue for wire-line phones falls about 3 percent annually.

But Maryland-based telecommunications consultant Doug Dawson, in a report paid for by the city of Springfield, projects wireless phone revenue to grow by 6 percent this year and by steadily smaller amounts in future years.

"If the revenue trends are more like my predictions, then municipalities in Missouri stand to lose a significant amount of revenue," Dawson concludes.

In Columbia, where Barrett lives, the current 7 percent tax on land-line phones generates about $1 million a year, said assistant city counselor Susan Crigler. The city has been waiting on the outcome of municipalities' litigation before levying the tax on cell phone companies. It is concerned revenue would fall under the legislation, Crigler said.

But Barrett expressed skepticism about the legislation because the city would be getting more of her money. She said the new tax structure penalizes people who keep up with technology.

"It kind of smells like one of those things where, 'Oh, here's where a bunch of money is, let's do that," Barrett said in an interview over her cell phone.

The phone bill is HB209.