HOUSE BILL REPORT

ESB 5990

BYSenators Johnson, Moore and McCaslin

Limiting taxes on resale of network telephone service.

House Committe on Revenue

Majority Report:  Do pass. (16)

      Signed by Representatives Wang, Chair; Pruitt, Vice Chair; Holland, Ranking Republican Member; Horn, Assistant Ranking Republican Member; Appelwick, Basich, Brumsickle, Fraser, Fuhrman, Grant, Haugen, Morris, Phillips, Rust, Silver and H. Sommers.

House Staff:Rick Wickman and Bob Longman (786-7136)

AS PASSED HOUSE APRIL 11, 1989

BACKGROUND:

Cities may impose telephone utility taxes on telecommunications companies.  With the AT&T divestiture, separate local and long distance companies emerged.  One arrangement of the divestiture was that long distance companies would pay an access charge to the local company to make interconnections. Cities impose utility taxes on both local and long distance companies for calls within the state.  Both companies pay taxes on the same access charges.  The access charge receipts are part of the local company's taxable income including long distance call tolls, which are priced so as to include the access charge.

Under statutory law, telecommunications companies are taxed based upon their classification.  Companies which are engaged in "telephone business" are subject to a gross receipts tax. Companies which are within the "competitive telephone service" exception to the definition of "telephone business" are subject to a retail B&0 tax.  It has been suggested that companies which are engaged in the business of reselling network telephone services are within the competitive telephone service definition and should be taxed at the retail B&O tax level.

SUMMARY:

A city or town is prohibited from imposing a gross receipts tax on network telephone services purchased for the purpose of resale. A city or town my impose a utility tax on final sale of network telephone services.

Fiscal Note:      Available.

House Committee ‑ Testified For:    Mark Greenburg, Enhanced Telemanagement; Stan Finkelstein, Association of Washington Cities.

House Committee - Testified Against:      None Presented.

House Committee - Testimony For:    It is unfair to tax network telephone services for resale as interpreted by some cities.  A similar double taxation of telephone access charges paid by long distance companies was removed in 1986.

House Committee - Testimony Against:      None Presented.