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State Asks Judge to Dismiss Cell Suit

Posted on: Wednesday, 7 December 2005, 00:00 CST

By Beth Musgrave, The Lexington Herald-Leader, Ky.

Dec. 6--The state wants a federal judge to dismiss a lawsuit filed by five of the country's largest cellular phone companies over the implementation of a new tax set to take effect Jan. 1.

Lawyers with the Finance and Administration Cabinet argue that the five cellular phone giants -- Cingular, Verizon, T-Mobile, Sprint and Nextel -- cannot sue in U.S. District Court because a federal law says disputes about state taxes must be litigated in state court. Lawyers for the state also argue that the cell phone giants' motion for an injunction to stop the tax is without merit.

The telecommunications giants filed the lawsuit in November, asking a federal judge to issue an injunction against the tax -- a 1.3 percent tax on all gross revenue -- which was passed last year as part of a sweeping overhaul of the state's tax code.

The tax is expected to pump more than $111 million into state coffers over the next three fiscal years.

The cellular phone companies have no beef with the tax. They want a federal judge to strike a provision in the new law that prohibits the companies from passing the cost of the tax on to customers in the form of a line item on monthly bills. The cell phone companies say they will be forced to raise rates if they can't itemize the new tax on a customer's cell phone bill. According to a Federal Communications Commission ruling, only the federal government can regulate cellular phone rates, they say. The state is violating the companies' First Amendment right to free speech by imposing a "muzzle" provision that prohibits the companies from passing on the tax to customers.

But the state, in its motion filed Friday in federal court in Frankfort, says the cell phone companies can still put flyers and other information in their bills to explain the increase in rates; it just can't itemize the tax on customer bills.

The state also argues that the crux of the cellular phone companies' case, a Federal Communications Commission order that prohibits states from regulating rates, is flawed. That order is being challenged in a similar case in the U.S. 11th Circuit Court of Appeals. The court of appeals has not issued a decision in that case.

This is the second federal lawsuit challenging portions of the new telecommunications tax passed in March. Two television satellite companies sued the state in May, challenging a 5.4 percent tax that they say unfairly benefits cable operators and hurts satellite operators. That lawsuit is ongoing.

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Copyright (c) 2005, The Lexington Herald-Leader, Ky.

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BLS, T, VZ, DT, DTE, S,

Source: Lexington Herald-Leader (Lexington, Ky.)

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