Mo. Bill Would End Telecom Tax Lawsuits

Published May 1, 2007

A bill that would put an end to a pending class-action lawsuit by municipalities against telecommunications companies has been introduced in the Missouri legislature.

The untitled S.B. 209, introduced by state Sen. John Griesheimer (R-Washington) in February, would prohibit litigation over business license taxes and would standardize the definitions for taxes imposed by municipalities on telecommunications companies.

The law would replace the various business license taxes telecommunications companies pay now in Missouri with a gross receipts tax not to exceed 5 percent. That is lower than the rates many municipalities currently charge.

The gross receipts tax would apply to both landline and wireless phone services. The state would collect the tax and distribute the revenues to municipalities–unlike the previous business license taxes, which the municipalities collected directly. As mandated by the Missouri constitution, the proposal would be revenue-neutral.

Earlier Law Struck Down

Similar legislation took effect in August 2005 but was found to be unconstitutional by the Missouri Supreme Court. The law had exempted two cities–Jefferson City and Clayton–from its restrictions, in violation of the constitutional prohibition against “special laws.”

S.B. 209 avoids this disqualification because it would apply to all municipalities that collect business license taxes from telecommunications companies.

$600 Million at Stake

The bill targets a lingering court case against Missouri wireless companies over payment of back taxes.

In May 2004, the city of Springfield, joined by several other local governments around the state, filed suit against Sprint Spectrum L.P. and other telecommunications companies for payment of up to $600 million in back taxes on wireless phone services. The companies argue that the taxes, which were imposed in the 1940s and 1950s, should be applied only to landline services.

Nancy Yendes, an assistant city attorney for the city of Springfield, argued against S.B. 209 in an article for the February 11 Springfield News-Leader. Yendes wrote the bill would forgive past taxes and lower the rates of future taxes, to the benefit of profitable telecommunications companies that could afford to pay more. According to Yendes, “[t]he message is that the rule of law no longer applies to big corporations.”

A follow-up Springfield News-Leader editorial suggested as an alternative measure that the state of Missouri and the telecommunications companies each contribute $200 million to a fund to pay for damage caused by natural disasters.

Would Simplify System

Supporters of the legislation say it would cap the municipal taxes Missouri consumers pay on their phone bills. Also, they say, it would simplify the complex business license tax system, which has caused uncertainty and contention.

“I see the bill I’ve introduced as a starting point,” Griesheimer said in a phone interview. “This has been a legal nightmare for 10 years, with hard feelings on both sides. We have to come to a resolution and end the wasteful litigation.”

The proposal has also been introduced in the Missouri House by state Rep. Shannon Cooper (R-Clinton) as H.B. 165.

Sarah Brodsky ([email protected]) is a research assistant at the Show-Me Institute based in St. Louis.

For more information …

Shannon Cooper, “Proposal helps cities by establishing fair tax on land lines, wireless phones moving forward” Springfield News-Leader, February 11, 2007,