4 wireless companies demand tax refund

Levies in Baltimore City, Montgomery are called illegal

lawsuit expected

December 15, 2004|By Tricia Bishop | Tricia Bishop,SUN STAFF

Four wireless phone companies demanded yesterday that Baltimore City and Montgomery County refund $14.8 million in what the companies say are "illegal" taxes levied on cell phone users.

The formal demand - a necessary step before filing a lawsuit - makes Maryland the newest battleground in a national fight over whether financially strapped governments can apply century-old phone taxes to fast-growing newer technology.

T-Mobile, Verizon Wireless, Sprint and Cingular Wireless contend that Baltimore and Montgomery County are taxing for services outside their boundaries - neither resident on a wireless call might be physically within the jurisdiction's borders - and that the levy amounts to a sales tax, which only states are allowed to impose.

FOR THE RECORD - An article in yesterday's editions about wireless carriers requesting a $14.8 million tax refund from Baltimore City and Montgomery County incorrectly identified Verizon Wireless as the nation's largest wireless carrier. Cingular Wireless is the largest, with 30 percent of the market.
The Sun regrets the error.

Local governments say the taxes - worth millions of dollars a year - are legal and essential in their efforts to avoid budget cuts, layoffs and general tax increases.

Levies on land-line telephones have been collected since the Spanish-American War, which was financed with phone taxes, but those revenues have declined along with the number of land-line phones in service. In 2001, the number of wireless lines surpassed land lines for the first time.

More than half of all Americans have cell phones, and about 40 percent of Baltimore phones are wireless. Since implementing the $3.50 monthly line charge in Baltimore in August, the city has raised more than $2 million.

Montgomery County, which charges $2 per wireless line, has brought in nearly $13 million since August 2003 and estimates this year's wireless tax revenue to be about $15 million - $2 million more than the county will bring in from land lines. Still, the amount is small within the county's $3 billion budget.

Baltimore Mayor Martin O'Malley turned to wireless carriers to make up for a projected multimillion-dollar budget deficit, saying through a spokesman in late May that there were few alternatives for closing the gap.

Levy called logical, fair

In an interview yesterday, city spokeswoman Raquel Guillory said the tax was a "logical, fair new revenue" and built to survive complaints such as those from the carriers.

"Baltimore has been a city that depended too heavily on property taxes. The implementation of this tax is an effort to diversify our tax base," she said, adding that the measure was "crafted and implemented with the expectation that it would stand up to a legal challenge."

Timothy L. Firestine, Montgomery County's finance director, said in an interview that the tax was levied to "capture the movement away from landlines."

"The tax on wireless telephone companies is well within the authority of Montgomery County government, and we do not plan to honor the companies' request for a refund," Firestone said later in a statement. "At a time when the number of people using cell phones instead of land lines is increasing, it makes more sense than ever to apply the tax equally."

Thousands in costs

But the carriers claim the Maryland taxes damage their business and other companies and organizations within city and county limits. Depending on how many cell phone lines a corporation has, it could be paying thousands of dollars in taxes.

Wireless carriers are being "confused for the traditional regulated utility, which we're not," said Joseph Farren, a spokesman for the Cellular Telecommunications and Internet Association, an industry trade group. "We're a highly competitive and innovative industry that does not have a guaranteed customer base."

Unlike electric, utility and traditional land-line telephone companies, which often have monopolies in a geographic region, wireless telephone carriers trip over one another in the same city while competing with alternative technology as well.

"We're afraid this will cost sales" and drive consumers to consider a second land line or phone service from cable companies, said Kenneth H. Silverberg, the Washington, D.C., attorney representing the carriers.

But Baltimore's Guillory said the reasoning isn't valid.

Taxed at the same rate

"Land phones have been taxed everywhere for decades. Why should cell phone companies get special treatment?" she asked. "All the companies are being taxed at the same rate."

If the municipalities refuse to refund the money, the carriers will appeal the refusal to Maryland Tax Court and, depending upon that outcome, could file lawsuits in Baltimore and Montgomery County circuit courts - a process that could take more than a year.

"We're definitely seeing proposed local and county taxes pop up across the country and fighting them on behalf of our customers," said Lisa Ihde, a Sprint spokeswoman. "It's not fair. They can't just follow the money."

Most states have at least one municipality taxing wireless lines, and the wireless industry is banding together to fight them.

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