CHICAGO, Dec. 17 (UPI) -- Local taxes are demonstrably driving up the cost of wireless phone usage for consumers, in some cases adding 20 percent to monthly bills.
With this much at stake, the major mobile-phone-service purveyors -- Verizon Wireless, T-Mobile, Sprint and Cingular -- have begun battling local government agencies, arguing that the taxation, or at least some of it, may be illegal.
The tax cases are working their way through local government administrative agencies, but telecom experts told UPI's Wireless World they expect the contentious issue to make its way into the courts soon and, perhaps within the next year or so, lead to a mobile-phone tax mutiny.
"The telecom industry is the industry most burdened with taxation, and a lot of it is confusing," said Jon Abolins, an attorney and senior vice president of operations at Taxware, a software and services firm in Salem, Mass. "Just take a look at your local bill."
Wireless carriers this week challenged local telecom taxes in two jurisdictions in Maryland, after they grew tired of looking at increased charges there for the last 18 months.
The carriers filed briefs with the City of Baltimore and with Montgomery County, Md., challenging the local taxes assessed on telecom users since July 2003. They requested that the money be refunded.
The companies said the charges during that time totaled $14.8 million, with the bulk of the taxes being levied by Montgomery County, in suburban Washington D.C. If the challenge is successful, the jurisdictions must return the money to consumers.
"This is the first in a series of steps toward the wireless telephone industry challenging the taxes in court locally and nationwide," said a spokeswoman for Nixon Peabody LLP, one of the law firms handling the case for the wireless consortium. "We believe litigation will be required and absolutely expect our request to be denied."
The carriers allege that the local telecom taxes are illegal for a number of reasons. They are levied on any wireless phone that has a billing address within the jurisdiction, whether or not the service is actually used there. The carriers also argue that the local governments have exceeded their legal authority to tax.
"This is an issue with national implications for the wireless industry," said Kenneth Silverberg, the attorney heading the case for Nixon Peabody, which represents Verizon, Sprint, and the other carriers. "Local taxing authorities around the country should not view wireless phone companies as easy targets for raising revenues. They are not going to sit idly by and allow the wireless industry and its customers to be unfairly charged for all the government services charged to all the citizens."
While the lawyers were bringing their briefs to tax officials in Maryland, an industry trade association was taking the issue to the court of public opinion. In a scene reminiscent of Microsoft Corp.'s attempts to generate consumer sentiment against the government's antitrust cases of the 1990s, the CTIA, the international association for the telecommunications industry, based in Washington, D.C., issued a statement warning that excessive taxes and regulations were going to harm technological innovation in the wireless industry.
"We know there are millions of consumers who like their innovative wireless products and services and don't want unnecessary laws and regulations and excessive taxes and fees to slow down their development," said Steve Largent, chief executive officer of CTIA, in a statement e-mailed earlier this week to Wireless World and other news outlets.
The campaign got the attention of some state politicians right away.
"After they came out and raised a ruckus about excessive state regulation and taxes on wireless services, a couple of governors and senior state politicians met with industry folks to reach some kind of consensus in Washington," said Rob Jackson, a leading telecom industry attorney with Reed Smith LLP in its Washington office. "One of those in this was Governor Mark Warner (D-Va). He's been on the leading edge of telecom policy. He wants the states and local governments to get their acts together, before Congress or the courts do something about the issue."
The seeds of controversy were cultivated back in 1993 when President Bill Clinton's tax increase package was passed by the Congress. The measure dictated that states could not regulate the entrance or exit of wireless carriers from the local market, because that was the job of the Federal Communications Commission.
"It's a complicated issue," Jackson said.
During the last decade, experts told Wireless World, state and local governments aggressively interpreted the rules to mean they could tax wireless carriers, even though they could not regulate them.
"I wouldn't say it is price regulation -- these taxes -- but it crowds the line," Jackson said.
The lawyers said if the state governments specified who was -- or was not -- subject to taxation in their respective districts, the problems would be somewhat alleviated.
"You don't want the situation, which you have now, of charging a Baltimore tax on people who are not Baltimore residents," Abolins said.
Sales professionals who have offices in Baltimore and who use wireless PDAs -- such as the XV6600 from UTStarcom, operating on the Verizon network -- on the road, and not in the city, receive bills that tax them as if they were using the services there. That kind of situation is unfair in today's mobile wireless world, the telecom companies argue.
These cases could take four to five years to make it all the way to the U.S. Supreme Court, experts said.
"The last case about state taxation and telecom made it to the Supreme Court before mobile phones were popular," Abolins concluded. "The technology has definitely advanced beyond that stage."
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Wireless World is a weekly series by UPI examining the technological, cultural and economic implications of mobile technologies, by Gene J. Koprowski, who covers technology for UPI Science News. E-mail: [email protected]
