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April 30, 2014

RE: Verizon v. Hopewell - Status Update Ask Your Legislators to Support A-366/S-1713

Dear Mayor:

Beginning in 2008 in Hopewell Borough and eight other municipalities, and affecting dozens more municipalities in every year since, Verizon has claimed exemption from the Business Personal Property Tax (BPPT) in any municipality where the corporation unilaterally determines that it no longer supplies dial tone and access to at least 51% of the local telephone exchanges. At Hopewell’s request, Verizon’s claim had been reviewed and rejected by the Mercer County Board of Taxation in 2009. Verizon, then, instituted proceedings in the Tax Court. In the Tax Court case, which followed the Board of Taxation’s determination, Verizon also challenged the constitutionality of the BPPT.

As indicated in previous communications, Hopewell Borough disputes Verizon’s decision to cease paying the Business Personal Property Tax, based upon its interpretation of the applicable statute.  Verizon interprets the statute to provide that once it unilaterally determines that it no longer supplies dial tone and access to at least 51% of the local telephone exchanges in a municipality, payment of the tax is not required.   The League, with generous support from a number of our member municipalities, appeared as Amicus Curiae in the matter and the State intervened as a party.   

In its appeal, Verizon reiterated its position that the “51%” language in the statute exempts it from paying local business personal property taxes in those municipalities where it claims to no longer supply dial tone to a majority of the telephone market and, further, claims that, regardless of how the statute is interpreted, it is unconstitutional.  Hopewell and the League opposed Verizon’s position on the statutory interpretation issue, arguing against the self-serving interpretation that Verizon can unilaterally determine whether it is subject to the tax in a given locality.  We maintain that the statute specifically provides that those telecommunications carriers formerly subject to the New Jersey Franchise and Gross Receipts Tax Act will continue to be taxed, and that the law contains no provision for an annual “test” to determine whether the tax continues to apply. 

Despite these and other arguments raised by Hopewell and the League, after deliberating on the matter for three years, the Tax Court ultimately decided in Verizon’s favor.  The Court adopted Verizon’s position that the plain language of the Statute, i.e., the use of the present participle “providing” (as in “providing dial tone and access”) demonstrated that an annual test was required by the Statute.  The Court further found that Verizon’s construction of the Statute comported with the constitutional guarantees of equal protection and against special legislation, while the interpretation advanced by Hopewell and the League would not.

This matter, however, is still being litigated.  At the beginning of the Tax Court proceeding, the parties agreed to first address the issue of statutory interpretation to resolve the issue of whether the 51% test was required.  If the Court determined that it was not, the time and expense involved in proving that Verizon no longer provided 51% of dial tone and access-however that is ultimately interpreted - could be avoided.  Once the Tax Court decided this issue, Hopewell appealed, with the League’s support.  However, because the entire issue had not been decided by the Tax Court, the appeal was considered interlocutory; and therefore both the Appellate Division and the Supreme Court declined to hear it.  The parties still have the right to appeal the Tax Court’s decision, but not until the matter has been resolved in its entirety.

Thus, the case is now  back in Tax Court, where Verizon is in the position of being required to prove that it no longer provides “dial tone and access to 51% of the local telephone exchange”- or exchanges - in Hopewell Borough.  This case will be a battle of the experts, with widespread implications for both sides.  The parties in the case have now exchanged discovery requests but Verizon has not yet produced any information.  Thus, it has not yet indicated the basis for its claim that it no longer provides “dial tone and access to 51%” of the local telephone exchange.  Once this information is made available, it will be submitted to Hopewell’s expert for evaluation.  As of now, Hopewell’s counsel anticipates that Verizon will either produce the discovery or file a motion for a protective order within 60 days.  In the meantime, the League’s counsel remains in contact with counsel for Hopewell, providing appropriate assistance when requested.

With the delays in judicial action on this matter, and as previously stated, with more and more taxpayers being adversely affected by Verizon’s decision to exempt from BPPT payments in more and more municipalities, every year, we turned to the Legislature for help. On behalf of local officials and property taxpaying residents all around New Jersey, we want to express our gratitude to Senator Bob Smith and Assemblyman Ralph Caputo for sponsoring companion bills A-366/S-1713. We, also, thank the Assembly co-sponsors, Assemblymen Reed Gusciora, Joseph Egan and Craig Coughlin. We strongly support this initiative, which would clarify the responsibility of Verizon and other telecommunications corporations to continue to remit Business Personal Property Tax (BPPT) payments to municipalities. The bills currently await action in the Senate Community and Urban Affairs Committee and the Assembly Telecommunications and Utilities Committee.

While the Tax Court proceedings drag on, we really need to see progress on A-366 and S-1713 during the next two months. But we need your help. Please contact your State Legislators and urge them to co-sponsor this initiative. Support for these bills will provide municipalities with the assurance of property tax relief resources, without putting any further strain on the State’s limited reserves. If you have any questions, contact Jon Moran at 609-695-3481, ext. 121 or jmoran@njslom.com.

Very truly yours,

William G. Dressel, Jr.
Executive Director

 

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