For years, industry groups have complained about the confusion surrounding tax collection for wireless calls. Now, legislation recently introduced in both houses of Congress could simplify the complex world of wireless telecommunications taxation.
States impose sales taxes and other surcharges on telephone services using the Two Out of Three rule, defined in the Illinois court case of Goldberg v. Sweet. That ruling allows a state to tax wireline calls that either originate or terminate within that state, if those calls are also charged to an in-state service address.
But industry groups say the rule doesn’t work for mobile calls, because such "calls on the run" can originate and terminate far from a user’s service address.
U.S. Senate Bill 1755, The Mobile Telecommunications Sourcing Act (MTSA), was introduced last October and seeks to simplify taxation of telecommunication services. If passed, MTSA would simplify mobile taxing authority by pegging jurisdiction to the customer’s Place of Primary Use— a home or office. The Place of Primary Use address would dictate jurisdiction for state and local taxes, including taxes on roaming charges.
The legislation is the culmination of a three-year cooperative effort between CTIA and wireless carriers, who joined forces with the National Governors’ Association, the National League of Cities, the Federation of Tax Administrators, and the Multi-state Tax Commission to hammer out differences.
"MTSA represents an historic agreement between state and local governments and the wireless industry to bring sanity to the way wireless telecommunications services are taxed," says Sen. Sam Brownback (R-Kan.). "As long as we have had wireless telecommunications in this country, we have had a taxation system that is incredibly complex for carriers and costly for consumers."
According to a summary of the bill, MTSA would provide consumers with simpler bills, reduce chances for double taxation, preserve state and local authority to tax wireless services, and simplify and reduce tax administration costs for carriers and state and local governments.
At the same time, MTSA would not impose any new taxes, reduce tax obligations for the wireless industry; change state and local authority to tax wireless telecommunications, or require state and local governments to help pay for the bill.
MTSA - as well as the House version of the bill, The Wireless Telecommunications Sourcing and Privacy Act, (HR 3849) - seek to level the "blaming" field. Under the present system of taxation, wireless carriers fear the risk of class-action lawsuits and multiple audits stemming from improper collection and remittance of taxes on wireless calls. Carriers now tax wireless calls as if they originate from the customer’s billing address, rather than the jurisdiction where calls occur. Industry sources say assigning calls to jurisdictions where calls occur would be difficult and expensive. Wireless carriers also worry about liability from improper assignment of a particular address to a particular tax jurisdiction. The passage of the two bills would calm these fears.
"This bill hits a trifecta—it is a win for consumers, a win for state and local governments and a win for the wireless industry," said Tom Wheeler, president and CEO of CTIA.
No major opposition to the bills has yet materialized, but that could change once committee hearings on the measures begin sometime later this year.
1Milton Zall is a free-lance writer based in Silver Spring, Md. He specializes in taxes, investments and business issues. He can be reached at 301- 649-6044 or via email at miltzall@pop.dn.net
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