Utilities Watch

Two state legislative telecommunications study committees recently issued reports on a couple of thorny telecom tax issues.

In one, the committee recommended extending the exemption from property taxes on telephone poles and conduits for an additional four years to 2010 — a recommendation that must go before the full Legislature. The second committee recommended further study of the issue of whether Internet services should be subject to the 7 percent communications services tax, or CST — a tax collected directly from telecommunications services customers by providers and remitted to the state.

The legislation recommended by these committees promises to be contentious during the 2005 legislative session, during which state and local revenues are likely to be an important issue, and while changes may be taking place at the federal level as well with regard to taxation and regulation of telecommunications services.

The Study Committee for Issues Related to the Property Tax Exemption for Wooden Poles and Conduits included Rep. Kurt Roessner of Exeter, chair, and Reps. Russell Ingram of Salem and Susan Almy of Lebanon, as well as Sens. Bob Odell of Lempster, Robert Boyce of Alton Bay and Lou D’Allesandro of Manchester.

The telephone pole issue has been studied and debated by the Legislature a number of times in recent years, with the Legislature giving short-term extensions on the exemption to buy more time to study the issue. The current exemption for telephone poles and conduits is scheduled to expire on July 1, 2006. This latest study committee recommends extending the exemption through July 1, 2010.

As the committee noted in its report, when the Legislature enacted the CST in 1990, it repealed the personal property tax that had been levied on New Hampshire telephone companies. Since then, poles and conduits have been reclassified from personal property to real property, and in 1998 legislation was enacted that provided an exemption from any real estate taxes for these poles and conduits for telephone companies.

The report references an estimate that the tax would cost Verizon about $3 million annually. Should Verizon become subject to a real estate tax on poles and conduits it would be entitled to recover that expense from ratepayers.

In addition to extending the exemption for four more years, the committee recommended that the state not share revenues derived from the CST with local communities because the impact on communities would be relatively small, while the loss to the state would be quite large and the level of the CST is subject to change because of the inability to tax voice over Internet protocol communication services, which threaten to erode the public switched network.

The committee also recommended yet another study in 2005 to examine regulatory practices as they pertain to basic telephone services and competitive services offered by telcos, innovative regulatory approaches used in other jurisdictions, and preserving the public good derived from a declining industry.

The Study Committee to Examine the Feasibility of Unbundling Communications Services Charges included a similar membership to the Pole and Conduit Tax Study Committee: Representative Roessner as chair, and Reps. Almy and Mary Griffin of Windham, and Sens. Odell, Boyce and D’Allesandro.

The committee report recommends that the language included in RSA 82-A:4-b, VI pertaining to the exclusion of non-taxable components of bundled packages through a provider’s books and records be applied to all communications services, not just mobile telecommunications services. The committee also recommended that another study committee be undertaken to specifically examine the application of the CST to the provision of Internet services.

The panel also recommended that the House Science and Technology Committee or the Telecom Oversight Committee be charged with overseeing the evolving situation regarding VOIP.

The committee noted that the state receives over $65 million in tax revenue annually from the CST and that since the tax was first enacted in 1990 the industry has undergone dramatic change, including the convergence of technologies and growth in wireless and the Internet, making uniform and consistent application of the CST increasingly difficult.

The committee also recognized the need to unbundle communications services to remove from taxation those services that are not included in the definition of communications services, but which may have been taxed when included in the overall bundle of services.

In order to address a concern from the industry about the inability to customize bills state by state, however, the committee voted to seek legislation that would make it clear that where taxable and nontaxable services are not separately listed on the bill, they will be subject to the tax unless the provider can identify charges that are not subject to the tax from its books and records.

The committee further noted uncertainty concerning some existing services against which the tax is being assessed, and some mistakes in the application of the CST, and noted that the Department of Revenue Administration will investigate these and report to the House Ways and Means Committee.

Doug Patch, former chairman of the New Hampshire Public Utilities Commission, is with the Concord law firm of Orr and Reno.