Restructuring could mean C&P windfall

February 01, 1991|By M. Dion Thompson | M. Dion Thompson,Annapolis Bureau of The Sun

ANNAPOLIS -- The chairman of the Senate Budget and Taxation Committee said yesterday he is concerned that a recommended restructuring of the state's taxes collected from telecommunications operations could mean a windfall of more than $30 million for the C&P Telephone Co. and other telephone companies that operate in Maryland.

The break would come from elimination of the 2 per cent gross receipts tax now paid by telecommunications operations to the tune of $33 million, almost $20 million of which comes from C&P. "It's a major tax break for a company," said Sen. Laurence Levitan, D-Montgomery.

But R. Robert Linowes, whose commission recommended the tax restructuring, noted that under his proposed revisions, the telecommunications operators' corporate income tax revenue would rise by almost $4 million and the imposition of a 5 1/2 per cent sales tax on business users would generate another $40 million, for a net increase of about $7 million in tax revenues generated by the industry.

Moreover, he said, any tax break for the phone companies most likely would be offset by a subsequent reduction in the phone rates ordered by the Public Service Commission.

John Glynn, people's counsel to the PSC, agreed the companies most likely would have to reduce their phone rates.

"From my perspective, if they pay less taxes, they'd have to reduce rates comparably," he said. "So, to the company there wouldn't be a windfall."

The state Department of Fiscal Services, the budget arm of the General Assembly, estimated that telecommunications companies such as C&P, MCI and U.S. Sprint would reap huge tax benefits under the Linowes commission's plan by eliminating the gross receipts tax levied on the companies.

That idea troubles Sen. Levitan, who said he wondered how the tax break became part of the Linowes commission's recommendations.

"I assume that the telephone company had been working somewhere behind the scenes, and it was being carried on in the Linowes commission pool," he said. "Somehow along the line this must have been given to them. That's just speculation."

Mr. Linowes said the commission based its recommendations on a 1989 report prepared by the federally funded U.S. Advisory Commission of Intergovernmental Relations. That report examined Maryland's taxing of the telecommunications industry in light of changes since the breakup of AT&T.

"There was no contact at all with telephone companies on anybody's part," said Mr. Linowes.

The advisory commission's report stated that the taxing policy in regard to phone companies was outdated and inequitably applied.

"The discussion of the commission was really quite simple," said Philip M. Dearborn, executive director of the Linowes commission. "They believe all telephone companies should be treated fairly. They didn't get into who benefits. It was a uniformity question."

According to the advisory commission's report in 1989, during an 18-month period, 10 states revised their taxing of phone companies by eliminating the gross receipts tax. It is an idea that should be applied in Maryland.

"Philosophically we like it because it acknowledges in the tax structure that we are like all other telecommunications providers," said Peter B. White, C&P's government relations director. "We aren't here rubbing our hands and smiling. We will be tickled to death if we can have the outcome of having that tax structure be a level playing field."

But Bruce C. Bereano, a lobbyist who represents MCI, said the restructuring must be closely watched to ensure that no company ends up with a competitive edge.

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