Cable television companies and wireless phone providers are raising objections about a proposal to change the way they’re taxed. They raised the only objections Tuesday as lawmakers reviewed more than 100 pages of possible changes to North Carolina tax laws.
“This will have a fundamental change in the way the wireless companies are taxed,” Raleigh lobbyist Bob Kaylor told the legislature’s Revenue Laws Study Committee. Kaylor represents the Alltel and Verizon wireless companies. “It will have an impact of increasing the tax we pay by as much as 100 percent – in some instances, millions of dollars.”
Kaylor objected to a proposal to shift his companies’ property tax appraisals from county governments to state governments. “We don’t think there’s a problem with the way our tax is figured because we’re located in a specific county,” he said. “We’re not aware that the counties have any problems. We are very much opposed to this legislation.”
The proposal would affect all telecommunications companies, cable companies, and tower companies. Broadcasters and cable companies also oppose the idea, according to lobbyist Wade Hargrove. “Neither is defined for other purposes of the law as a public service company,” Hargrove said. “They do not have the same benefits under the law — the rights to condemnation of property, and the rights of public service companies have in other provisions of the law. We respectfully submit that this is ill-advised.
“We respectfully request on behalf of the radio and television stations of this state and cable television companies of this state that you defer action on this matter until some future time when the full implications can be assessed,” he added.
The change could lead to a “dramatic increase” in state revenue, said Sen. Dan Clodfelter, D-Mecklenburg. He called on staff to fine-tune a report that leaves revenue projections vague. “I don’t think that’s an adequate response,” Clodfelter said. “As the bill moves forward, we ought to do the same kind of data collection we just did on the video service competition, and get with the various companies and the counties. See if you can give us some range of estimates on this.”
Clodfelter also questioned the reasoning behind the change. “Why would we tax them as public service companies if we don’t regulate them as public service companies?”
A state tax official explained that the idea was designed to treat companies equally. “We feel like there’s really not any difference between the wireless carriers, the cable companies now, compared to an AT&T, BellSouth, and other local-exchange and long-distance carriers,” said Bill Wilkes, assistant director of the N.C. Department of Revenue’s Property Tax Division.
Traditional phone companies continue to lose customers, Wilkes added. “As they come in to meet with us, they continue saying that the percentage of customers continues to go down because of competition from wireless and cable companies,” he said. “So we feel like to create equity within the state, we would like to have these centrally assessed.”
The idea started with local tax assessors. “Most of us simply just don’t understand the wireless business,” said William “Pete” Rodda, tax assessor for Forsyth County. “We don’t have expertise in that area, and as a result we’re not always sure that the listings we’re receiving are accurate.”
Rodda represents county tax assessors and collectors from across the state. “I can tell you firsthand that Forsyth County is confused, and we’re having difficulty dealing with this particular type of property,” he said. “We just feel as an association that it makes more sense to go to our experts at the Property Tax Division and ask for their assistance with this type of assessment. We think it will result in more uniform assessments statewide.”
Rodda contends the change is not designed as a “revenue grab.” Wilkes says the change would not affect local television and radio broadcasters. “We have no interest in picking up radio and television broadcasting companies — just cable, wireless, and tower companies.”
The plan raised some eyebrows among lawmakers. “My experience with financial appraisals is that they’re mostly subjective, rather than objective,” said Rep. Danny McComas, R-New Hanover. “I can get you three financial institutions that can give three different values on the same company. Are we not inviting litigation down the road?”
A committee co-chairman wanted more information. “I think it would be helpful if at least the members of this committee during the short session, if we receive a little more information on the fiscal impact, and also on the other states that have made the decision to go this way,” said Rep. Paul Luebke, D-Durham. “We’re lacking data here in terms of being able to move forward.”
Luebke’s co-chairman, Sen. John Kerr, D-Wayne, agreed. “Any time you start changing tax codes, I think you need to get everyone that’s interested involved,” Kerr said. “That’s what we’re trying to do on the first item we had today.”
That first item was one that has drawn intense scrutiny from cable, satellite, and telephone companies since 2005. It’s called the Video Services Competition Act. It’s designed to level the playing field for companies that want to offer video to customers throughout North Carolina.
The study committee will recommend to lawmakers this month that they drop local cable franchise taxes and replace those taxes with a 7 percent state tax on video program offerings. Local governments would still get a portion of the proceeds from the new tax, and the bill would also preserve existing public services guaranteed in local franchise agreements.
Rep. Becky Carney, D-Mecklenburg, thanked legislative staff members who drafted the bill for working with various players in the debate. “I think what we’ve got is a good working draft that has covered quite a bit here.”
The plan drew little comment Tuesday, but legislative leaders know the bill still faces plenty of debate. “We have, I guess, passed this threshold,” Kerr said. “We’re all here to work with the involved parties. I think we’ve come a long way, but it is a problem that’s going to have to be addressed at some point.
“Most other states are moving to address it,” he added. “The federal government might be doing something, but we need to have our own plan.”
Mitch Kokai is associate editor of Carolina Journal.