Communications Tax Reform in New York???
New York has one of the most antiquated, complex, and inequitable tax systems in the country when it comes to taxes on communications services. Wireless customers pay almost 20% of their bills in federal, state, and local taxes and fees. New York has the fourth highest wireless taxes in the country, according to a study I wrote and published in State Tax Notes in 2008. On the other hand, direct broadcast satellite subscribers pay no taxes on their service.
A Senate Select Committee chaired by Manhattan Democrat Liz Krueger held a roundtable discussion on reforming New York’s communications taxes on Wednesday, August 12th in Albany. I presented testimony on behalf of the wireless industry requesting that the state reform its wireless taxes by lowering the burden on consumers and centralizing collection at a single agency. At a time when states are desperately trying to attract investment in broadband networks, it seems counterproductive to impose excessive taxes on customers – taxes that are particularly burdensome on customers already struggling under the weight of the recession. Obviously, a low or moderate-income consumer paying 20% of his or her wireless bill in taxes will have less money to spend on high-speed Internet access, a service that is becoming critical to participation in the 21st Century information economy.
At the NCSL annual meeting in Philadelphia, at least two panels discussed the importance of getting more Americans to subscribe to high-speed Internet Access. Connected Nation and other non-profit organizations dedicated to this mission presented some very compelling research on the educational and economic benefits that accrue to households that have a broadband connection. It seems that in many states, including New York, antiquated tax policies are working at cross purposes with economic development policies aimed at encouraging broadband rollout to underserved areas and encouraging low income households to subscriber to broadband Internet access.
Another interesting sideline at the hearing was the continuing battle between the Cable and DBS industries over the issue of “tax parity.” In New York and some other states, DBS service is not subject to state sales and use taxes while cable TV service is typically subject to local franchise fees of up to 5%. Complicating the matter is a federal law that prohibits local governments from taxing DBS service at all. As a result, DBS providers in some states have used the lack of taxes and fees as a marketing tool to attract customers. At the NY Senate roundtable, the DBS representative asked the Committee to continue the status quo while the cable industry called for “tax parity” between cable and DBS.
Any tax reform proposals that lower taxes on consumers would likely cause som erevenue losses for New York local governments, a fact that could cause significant tension between the state legislature and local governments over this issue. However, as I pointed out in response to a question, local governments are concerned with their immediate revenue needs while the legislature is responsible for ensuring that statewide economic development goals (like broadband deployment) are met. Allowing local governments to veto reform efforts could harm the state’s overall efforts to improve economic growth and job creation.
Stay tuned!
Scott Mackey
Partner, KSE LLP
