SENATE BILL REPORT

ESB 5990

BYSenators Johnson, Moore and McCaslin

Limiting taxes on resale of network telephone service.

Senate Committee on Governmental Operations

Senate Hearing Date(s):February 28, 1989

Majority Report:  Do pass.

      Signed by Senators McCaslin, Chairman; Thorsness, Vice Chairman; Conner, Pullen, Sutherland.

Senate Staff:Desley Brooks (786-7443); Eugene Green (786-7405)

                  March 17, 1989

AS PASSED SENATE, MARCH 13, 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, and the long distance company's taxable income includes 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&O 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:

Cities, code cities and towns may impose tax on 100 percent of the total gross revenue derived from intrastate toll service, but they may not impose a fee or tax upon that portion of network telephone service which represents a charge to another telephone company.

Appropriation:    none

Revenue:    none

Fiscal Note:      requested February 22, 1989

Senate Committee - Testified: Mark Greenberg, Enhanced Telemanagement (pro); Cindy Jepsen, Enhanced Telemanagement (pro); Richard Newman, City of Tacoma (con); Stan Finkelstein, AWC (con)