Missouri Court Weighs Wireless Tax Proposal

Published October 1, 2007

A Missouri court reportedly is close to a decision on whether the state is entitled to some $500 million in taxes from wireless phone service providers.

The case pits AT&T against 22 Missouri cities and is one of several suits between wireless carriers and Missouri municipalities that form a larger legal dispute dating back to 2001. The cities argue wireless carriers are legally liable for a utilities licensing tax that is paid by the state’s landline telecom companies. The cellular companies claim they are not utilities as defined by Missouri law and should be exempt.

At stake is an estimated $500 million in taxes, plus interest and penalties that could add hundreds of millions of dollars to the bill, according to The Wall Street Journal, which referenced the Missouri Municipal League as its source.

With an eye toward using wireless services as a potential tax target, state legislatures across the country are watching to see how the case plays out.

Ruling Is Pending

At press time, a ruling was pending from St. Louis County Circuit Court Judge Bernhardt Drumm Jr. on a motion for summary judgment in the AT&T suit. On September 12 Drumm was scheduled to decide whether the case merits class-action status. If it does, it would automatically include more than 200 other municipalities.

“Wireless calls to traditional telephones still travel over landlines,” John Mulligan, attorney for University City, told Chad Garrison, a blogger for the St. Louis Riverfront Times. “Why then should one phone technology not pay the tax when the other does?”

Wireless companies say their customers are overtaxed as it is.

“Our customers are tired of having state and local governments treating them like ATM machines, so we are fighting on their behalf,” John Taylor, a Sprint spokesman, told The Wall Street Journal. He noted the average Sprint customer pays 17 percent of his or her bill in taxes.

A May 2007 study of telecom taxes published by The Heartland Institute, which surveyed 59 U.S. cities, found the average tax rate on wireless services was 11.78 percent. The tax rates ranged from 21.35 percent in Omaha, Nebraska to 3.62 percent in Carson City, Nevada. The wireless tax rate in Kansas City, Missouri, the only Show-Me State city examined in the Heartland study, was 10.14 percent.

Steven Titch ([email protected]) is senior fellow for IT and telecom policy at The Heartland Institute and managing editor of IT&T News.

For more information …

David Tuerck, Paul Bachman, Steven Titch, and John Rutledge, “Taxes and Fees on Communication Services,” Heartland Policy Study No. 113, May 31, 2007: http://www.heartland.org/Article.cfm?artId=21102