Missouri Court Weighs Wireless Tax

A Missouri court reportedly is close to a decision on whether the state is entitled to some $500 million in taxes from wireless phone service providers. The case pits AT&T against 22 Missouri cities, and is one of a several suits between wireless carriers and Missouri municipalities that form a larger legal dispute dating back to 2001. The cities argue wireless carriers are legally liable for a utilities licensing tax that is paid by the state’s landline telecom companies. The cellular companies claim they are not utilities as defined by Missouri and should be exempt. At stake is an estimate $500 million in taxes, plus interest and penalties that could add hundreds of millions of dollars to the bill, according to the Wall Street Journal, which referenced the Missouri Municipal League as the source. But it is questionable whether wireless service, a deregulated, competitive business that relies far less on public easements and right-of-way than landline phone networks, really qualifiy as “utilities.” But far be it from the local tax man to shy away from stretching a definition, especially as more users migrate to wireless. Here’s a snippet from Chad Garrison writing on the Stlog at the St. Louis Riverfront Times.

Moreover, as consumers have canceled their landline phones for wireless service, many cities have seen their tax base drop dramatically. Mulligan says University City collected nearly $800,000 in telecom taxes in 2000. Last year the city collected less than $500,000. Statewide, Mulligan estimates the amount of disputed or back taxes involving cell phones now reaches more than a half-billion dollars.

A ruling is pending from St. Louis County Circuit Court Judge Bernhardt Drumm Jr. on a motion for summary judgment in the AT&T lawsuit. On Sept. 12 Drumm is scheduled to decide whether the case merits class-action status. If it does, it would automatically include more than 200 other municipalities. Aren’t wireless customers are already overtaxed as it is? “Our customers are tired of having state and local governments treating them like ATM machines, so we are fighting on their behalf,” John Taylor, a Sprint spokesman, told the Wall Street Journal. He noted the average Sprint customer pays 17 percent of their bill in taxes. A May 2007 study of telecom taxes published by the Heartland Institute that surveyed 59 U.S. cities found the average tax rate on wireless services was 11.78 percent. This ranged from 21.35 percent in Omaha, Nebraska to 3.62 percent in Carson City, Nevada. The wireless tax rate in Kansas City, Missouri, the only Show-Me State city examined in the Heartland study, was 10.14 percent.