C&P Telephone of Maryland would pay $10 million less i state taxes under a gubernatorial commission plan that would raise $800 million in taxes overall.
The tax break has raised some state legislators' eyebrows in light of the commission's other recommendations for tax increases that some believe will hurt middle-income Marylanders.
"It's a major, major tax break for C&P," said state Sen. Laurence Levitan, D-Montgomery, chairman of the Senate Budget and Taxation Committee. His committee received a briefing yesterday by R. Robert Linowes, chairman of the Maryland Commission on State Taxes and Tax Structure.
"Should you give that substantial a tax break to C&P?" Levitan asked.
C&P provides local telephone service in Maryland, as well as long-distance service for calls within the state.
Linowes said the commission believed that taxes on telecommunications firms such as C&P should be revamped in the interest of fairness.
The current method for taxing telecommunications companies was developed during a time when telephone service was a monopoly business. Because of the growing competitiveness of long-distance and local telephone services, telecommunications firms should be taxed like other businesses, the commission report says.
The commission made three recommended changes in taxes on telecommunication firms: repealing the 2 percent gross receipts tax, which competitive businesses in Maryland don't pay; increasing their corporate income taxes; and expanding the 5 percent state sales tax to apply to business telephone service and probably to facsimile services.
The combined effect of these changes, which apply to other companies as well as C&P, would be a net revenue increase for the state of $8 million.
For C&P, however, it would mean a net tax savings of $10 million, a C&P spokesman said.
Levitan said state legislators have wrestled unsuccessfully in the past with proposals to restructure state telecommunications taxes. "One of the reasons we couldn't come up with a firm plan was because of the break C&P would get," he said.
It is "hard to say what impact" the $10 million tax break for C&P will have on its customers, said Peter B. White, C&P's government relations director. The Public Service Commission would likely take that into consideration when reviewing C&P rates, he said.
Many lawmakers are concerned that several of the Linowes commission's proposals, if adopted by the General Assembly, would hurt middle-income consumers. Other commission recommendations include higher income taxes on wealthier Marylanders; charging sales taxes on cigarettes, dry cleaning, car repairs and other now-exempt services; and charging a 2 percent annual personal property tax on cars and boats.
The Schaefer administration has indicated it supports the Linowes package and is expected to announce it will sponsor legislation implementing it, possibly as early as today.
C&P supports the Linowes recommendations, which would help make it more competitive with other long distance telephone companies