Cable Group to FCC: Reclassification of Broadband Could Mean Higher ISP Taxes

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By Brandon Ross

Dec. 3 — A major cable industry group added its voice to Title II opponents’ concerns that reclassification of broadband Internet as a common carrier service would impose new Internet service provider (ISP) taxes on companies and fee hikes on consumers, echoing recent tax-increase concerns over the Universal Service Fund and reclassification.

Broadband providers could be hit with a range of state tax fees to include property taxes, transaction-based taxes and net income, franchise and gross receipt taxes if the Federal Communications Commission reclassifies broadband services under Title II of the Communications Act of 1934, the National Cable and Telecommunications Association said in a letter to the agency.

The letter, addressed to FCC General Counsel Jonathan Sallet, focused on cable broadband providers, but could apply to other broadband providers as well, the association said.

“Most states currently tax broadband service providers in the same or similar manner as other general businesses,” the Dec. 3 NCTA letter said. “Reclassifying broadband service as a regulated telecommunications service may subject cable operators that provide broadband and their customers to materially higher taxes and fees.”

The letter comes just days after a Progressive Policy Institute (PPI) report was released, which estimated a possible $17 billion hike in new broadband user fees that could be sparked by Title II reclassification of broadband services.

“Our letter was not a response to the PPI report but it is complimentary in that both suggest significant tax increases for consumers if broadband services are classified as Title II,” Brian Dietz, the NCTA's vice president of communications and digital strategy, told Bloomberg BNA in a Dec. 3 e-mail.

State Taxes Higher Than Local

State taxes on telecommunications providers are generally higher than local taxes on broadband, the NCTA said.

“Several states ‘centrally assess' the property of telecommunications companies, utilities, and common carriers,” the letter said. “Centrally assessed taxpayers often pay tax on the value of their intangible property and often at a higher rate than locally assessed property. Consequently, in almost all cases, central assessment leads to a significantly higher tax when compared to local assessment.”

Broadband providers could be faced with state taxes and fees on the Universal Service Fund, telecommunications service relay fees, emergency communications fees, public utility commission fees and other fees unique to each state, the NCTA said.

Net income, franchise and gross receipt taxes could also go up for broadband providers if the FCC reclassifies the services under Title II, the NCTA said.

Title II Doesn't ‘Trigger' New Taxes

If the FCC reclassifies broadband Internet under Title II, it doesn't mean new taxes are an inevitability, consumer advocacy groups said.

“Even NCTA can't confidently state that these things are automatic, since they're not,” John Bergmayer, senior staff attorney for Public Knowledge, told Bloomberg BNA in a Dec. 3 e-mail. “Each state has different laws and many have had no difficulty exempting communications services from various regulatory requirements.”

“Title II reclassification doesn't somehow ‘trigger' anything unexpected,” Bergmayer said.

In a Dec. 3 e-mailed statement, Matt Wood, policy director for the consumer group Free Press, said that the cable industry keeps searching for “scare tactics” and that it just kept catching “red herrings.”

“For example, just looking at the District of Columbia law that the NCTA letter cites, the tax applies to toll telephone services—not to any and all telecom services,” Wood said.

Congress could eliminate the potential for state and local taxes by amending or reauthorizing the Internet Tax Freedom Act, Wood said. The FCC could “melt away” the chance for those taxes if it treats broadband as an interstate service, he said.

To contact the reporter on this story: Brandon Ross in Washington at bross@bna.com

To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com

Text of the NCTA letter is at http://op.bna.com/der.nsf/r?Open=ksas-9rfvef.