Sunday, March 26, 2000
Flat telcom tax stirs up fight
Some parts of bill confusing
BY PATRICK CROWLEY
The Cincinnati Enquirer
FRANKFORT — It's known here simply as “the telecommunications tax,” and while some of its provisions are difficult to decipher, its impact is easy to understand.
The tax on telecommunications services such as phone calls, pagers and subscription TV programming is the sticking point in a nasty fight between members of the Democratic-controlled House and the Republican majority in the state Senate.
The Democrats want to change the existing telecommunications tax system — which includes various local taxes from many communities — to a statewide flat tax of 7 percent. The Republicans want to maintain the current system of local taxes.
Gov. Paul Patton, the tax plan's biggest proponent, says the flat tax would raise about $180 million in new money over the next two years. He has said it is a way to raise money for education and for hundreds of community improvement projects and social services around the state.
It is also a way to close a loophole and bring equity to an industry where some services, such as cable television, are taxed but others, including satellite TV, are not, proponents say.
Republicans in the Senate, as well as many in the House, oppose the plan because they are adamantly opposed to any new taxes or tax increases at the state level.
The telecommunications industry not only backs the tax but has actively lobbied for its passage.
“We feel that it's a more equitable billing situation for all of our customers,” said Joe Geraci, Cincinnati Bell's Frankfort lobbyist. “The telephone bill now is so complicated for people to understand and read that this would make it a whole lot easier to understand.”
The proposed tax would replace 1,400 or so local school, city and county taxes. Each monthly bill would instead bear a 7 percent flat state rate on such services as:
• Local telephone service;
• Long distance calls inside and outside the state;
• Basic cable TV packages;
• Wireless telephone service;
• Satellite television;
• Beepers and pagers.
The state would distribute the revenues to the schools, cities and other taxing bodies.
But why so much confusion over what the tax bill does?
Because with so many taxes levied on the local level, some taxes on telecommunications bills will go up while others will actually go down.
For instance, most local telephone service, wireless telephone services and in-state long distance phone calls are taxed at 9 percent. Under Mr. Patton's plan, those rates would drop to 7 percent.
However, in Northern Kentucky, the cities of Elsmere, Erlanger, Covington, Bellevue, Dayton, Newport, Silver Grove and Southgate levy a 6 percent tax. For rate-payers in those areas, this plan would mean a tax increase.
Meanwhile, out-of-state, long-distance calling is not taxed at all in Kentucky. Nor are satellite TV services or pagers. Under Mr. Patton's plan, all would be taxed at 7 percent.
Cable television is taxed at from 3 percent to 6 percent.
Why is the telecommunications industry agreeing to a tax increase?
“They want a level playing field,” Mr. Patton said Friday. “Some of them are taxed now, but some of them aren't. That's not any way to do business, and they want equity in the system.”
A number of organizations have endorsed the tax, including the Kentucky League of Cities, the Kentucky School Boards Association, the Ken tucky Association of Counties and the Kentucky Chamber of Commerce.
The plan has also been endorsed by the American Legislative Exchange Council, a national association of Republican state lawmakers.
“First and foremost a tax should be neutral in its treatment of similar goods,” Duane Parde, the council's executive director, said in a March 14 letter to Kentucky lawmakers.
But Republicans say while they see the merits of the bill, Kentucky residents may not.
“The message I am getting from back home is clear,” said Sen. Jack Westwood, R-
Erlanger, a member of the Senate Budget Committee.
“They don't want any new taxes, and this is a new tax, pure and simple.”
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