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When is a Cell Phone Not Really a Phone?

Posted on: Wednesday, 28 February 2007, 12:00 CST

By Jason Gertzen

Hundreds of millions of dollars are at stake in a tax dispute generating a new flurry of lawsuits between Missouri local governments and wireless phone companies.

The core of the matter sounds a bit like a semantics debate.

"The whole issue is whether a cell phone is a telephone," said Gary Markenson, executive director of the Missouri Municipal League.

Missouri cities and wireless carriers such as Sprint Nextel Corp. and Verizon Wireless are tussling over whether the companies sell telephone service. The cities say they do. The companies say they don't, classifying their technology as special radio transmissions.

The description emerging among officials, executives, state lawmakers and judges will help decide whether the companies must pay certain taxes to local governments.

The taxes would raise about $80 million to $100 million a year for cities, Markenson said. This lengthy dispute has generated a tab for unpaid back taxes and penalties that has been estimated at $300 million. Some think it is as high as $600 million.

The wireless companies pass along the taxes in the form of surcharges on consumers' monthly bills.

The Missouri General Assembly tried to resolve the situation with a 2005 law. Last summer, however, the Missouri Supreme Court rejected at least parts of the measure.

Trying again, lawmakers have a couple of pending proposals.

For now, though, many city officials are pressing the companies for the tax payments. Sprint and Verizon are paying, but they are doing so under protest. Lawsuits filed in recent weeks against Blue Springs, Independence, Kansas City and Lee's Summit represent a step in the protest process, according to a Verizon spokeswoman.

The laws the cities are using to justify the taxes were written decades before wireless technology existed, said Cheryl Bini Armbrecht, a Verizon spokeswoman.

The initial idea was that telephone companies and other utilities were compensating governments for the use of publicly owned rights of way, which were required by the companies for their poles, lines or other equipment.

Verizon contends that its wireless service is provided through radio transmissions rather than wires or fiber-optic cables. Verizon's local facilities consist predominantly of radio transmission towers that are beyond each city's limits or, to the extent they are within a city, are outside public rights of way, Verizon states in a lawsuit filed in Jackson County.

Verizon is not trying to evade paying its fair share of taxes, Armbrecht said. The company, however, will resist being an "easy mark" for local governments, she said.

"It's not fair to our customers to be burdened with this tax that doesn't apply to us," Armbrecht said.

Taxes on wireless services in Missouri are higher than the national average, said John Taylor, a Sprint spokesman. The taxes involved in the latest dispute represent a "tax grab" by municipal officials trying to fill holes in their budgets, he said.

"They know it is politically untenable to raise sales or income taxes, but they figure out they can raise the tax on wireless and leave no fingerprints," Taylor said.

Rep. Shannon Cooper said he was seeking a compromise with a proposal that would cap the taxes at 5 percent of a phone bill.

To reach Jason Gertzen, call (816) 234-4899 or send e-mail to jgertzen@kcstar.com.

Source: The Kansas City Star (Kansas City, Missouri)

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