HELENA – The state Revenue Department director warned Thursday that changes in how telecommunications companies are being taxed, partly through court decisions, shifts more of the property tax burden to homeowners and small business owners.
Director Dan Bucks outlined the impact of some recent court decisions to the Legislature’s Revenue and Transportation Interim Committee.
He discussed a recent case in which District Judge Kathy Seeley of Helena ruled for Alltel Communications and against the department. Bucks said the department is not appealing that decision.
However, he said this decision will further narrow the base of the state’s retail telecommunications excise tax and will “increasingly affect negatively the replacement revenues that were being counted on.”
The court ruled that the retail telecommunications excise tax and the pre-1997 telephone law don’t apply to prepaid wireless customers, a Revenue Department summary of the decision said. It also ruled that the federal Internet Tax Freedom Act prevents the state from taxing the sale of digital products to be downloaded when it doesn’t tax the sale of similar digital products through other outlets.
No one from Alltel spoke at the committee, but Nancy Schlepp, president of the Montana Taxpayers Association, read some key highlights of Seeley’s decision in support of the telecom company.
Bucks said the decision highlights a number of trends in the telecommunications industry, where companies now offer cable television, phone service and Internet.
The Legislature no longer can rely on past understandings with the telecommunications industry as a basis for long-term tax policy because of mergers, acquisitions and new entrants into the field, he said.
Because the telecommunications industry is a national industry, it pursues its tax goals nationally before Congress and in court, Bucks said.
“There has been and will be a lot at stake in terms of major tax shifts from this industry to homeowners and commercial business owners,” Bucks said. “It will narrow the tax base for local governments.”
The Revenue Department estimated that the property tax shift caused by moving telecommunications property from one class to another would amount to $18.6 million more in taxes for residential and $6.9 million more for commercial businesses in fiscal 2012.
From tax year 2000 to 2011, this cumulatively would cost $904 per homeowner and $1,455 per Main Street business owner, Bucks said.
Senate Majority Leader Jeff Essmann, R-Billings, said those figures don’t take into account the savings consumers have realized through greater telecommunications competition.
“The benefit of the competition has far outweighed the little bit of tax shift that has occurred here,” Essmann said.
Bucks disagreed, saying: “The issue is one of fairness and who pays the taxes. The benefits of costs savings (through competition) occurred nationwide. They weren’t specific to Montana.”
In another case, Bucks said the department will appeal to the Montana Supreme Court a ruling by District Judge Susan Watters of Billings in favor of Bresnan Communications, now called Optimum, and against the Revenue Department.
Watters ruled earlier this month that the department incorrectly put all of its cable television and telephone company business in one classification for purposes of taxation. That effectively doubled some of the company’s property taxes, the Billings Gazette reported. As a result of that decision, 29 Montana counties owe at least $5.6 million to Bresnan.
Bucks said the Bresnan case isn’t over because the department is appealing the District Court decision.
In response, Allison Waters, director of media relations for Optimum/Cablevision, said in a statement:
“The District Court clearly ruled that the Montana Department of Revenue cannot indiscriminately and unfairly raise taxes on businesses, and we are confident this judgment will be upheld on appeal. We are proud to be in Montana, where we are creating jobs and making significant investments. We will continue to work to promote a fair environment that encourages business growth.”