Verizon Exec Delivers Tough Message to Mayors on Telecom Taxes

Published March 1, 2005

Verizon Executive Vice President Tom Tauke on January 18 urged the U.S. Conference of Mayors, meeting in Washington, DC, to work with telecom companies to lower taxes the industry faces, with an eye toward boosting the economy. Tauke said the current tax environment is inequitable and can’t survive the transition to a Voice over Internet Protocol (VoIP) world.

The president of the group, Akron Mayor Donald Plusquellic, said some of the mayors may have been “offended” by Tauke’s strong comments.

The controversy comes as work begins by a conference task force that will look at telecom issues, including taxing authority, management of right of way, social obligations, and compensation for service. The group plans to complete a report before the conference’s annual meeting in June.

System “Outmoded, Cumbersome”

“I must tell you, one of the real roadblocks on the path to the broadband future is an outmoded, cumbersome, and ultimately unworkable system of state and local taxation that’s at odds with today’s technological and competitive realities,” Tauke told a standing-room-only session.

“So the first problem we face is that the taxes in today’s world are just too high. … The second problem is that, even within what you would broadly call the ‘communications industry,’ the same service is taxed differently, depending on who provides the service.”

Tauke said as Verizon starts to offer video it will likely see the same problem it does in more traditional phone service. Tauke questioned whether local phone taxes can survive as the industry converts to VoIP.

“If I can buy my VoIP phone in Iowa, get a Virginia area code, take my phone to New York, and call my business partner in Texas, how do you impose a ‘local’ tax anyway?” he asked. “The tax system is breaking. … It won’t work, and as we move to the IP world we need a change.”

Tauke noted many telecom taxes stem from the monopoly era, and that local governments naturally want them to continue as a reliable revenue source. “It’s hard to touch a system that yields $20 billion in revenues to state and local governments,” he acknowledged.

Taxes Discourage Investment

But, Tauke argued, without significant change, much of the revenue will disappear anyway. “It puts $20 billion at risk over the long run, because it discourages investment in the very technologies that will stimulate job growth, attract high-tech businesses, and stimulate the creation of new economic activity,” he said.

“Finally, within a few years, the move to IP will make it virtually impossible for many of you to collect significant portions of the tax,” he noted.

Mayors Take Offense

Tauke’s comments were controversial, the group’s current president said.

“Many mayors may have been offended by some of his comments today because of what he very pointedly said about high taxes,” Plusquellic said during a press conference. “[Tauke] mentioned other phrases that might appear to be controversial.”

Plusquellic said mayors “understand the real competition that’s out there” and “we want our companies to be successful.”

Plusquellic said he wasn’t offended by the comments. He said mayors want to solicit all points of view as they write their report.

“I happen to believe that we have good corporate citizens in our country and that they will work together,” he said. “I have some confidence that we’ll be able to work with the governors, the county association … to craft something that will deal with that common ground” with industry.

Further Issues Raised

Responding to Tauke during the session, Plusquellic joked he had an answer to the dilemma posed about how to tax a call made on a VoIP phone in one state using an area code from another.

“Tom, there’s a simple answer,” he said in comments that produced applause. “You just let them tax everywhere. How hard is that?”

Dearborn Mayor Michael Guido, chairman of the task force, raised another issue, emphasizing the significance to the mayors of “the battle” with industry over rights of way. “It’s about your ability to be compensated for the use of public right of way,” Guido said. “Industry is defining this as a tax, and it’s not a tax.”

Howard Buskirk ([email protected]) is senior editor at Communications Daily, a publication of Warren Communications News. This article originally appeared in the January 19, 2005 issue of Communications Daily. Reprinted with permission from Warren Communications News, Inc., 2115 Ward Court NW, Washington, DC 20037.