September 9, 2010
RE: Verizon to Claim More Personal Property Tax Exemptions.
Verizon v. Hopewell - Status Update.
CORRECTED COPY (Previous letter, in paragraph 7, below, indicated “20 more municipalities.” Correct number is “28.”)
As previously reported, before 1966, municipalities assessed and collected taxes on Business Personal Property. In that year, the Legislature made the State the collection agent for most of these taxes (while promising municipal ‘hold harmless’ funding on this). However, municipalities retained the right to tax the personal property of telephone and telegraph companies that paid the Public Utility Gross Receipts and Franchise Taxes (PUGRAFT).
Following the AT&T divestiture, the Legislature, in 1989, exempted all but ‘local exchange companies’ from the PUGRAFT, which also exempted other telecommunications companies from local personal property taxes.
In 1997, with deregulation and in anticipation of growing competition in the telecommunications (and energy) industry, the Legislature repealed the PUGRAFT, and replaced it by applying the Corporation Business Tax to the utilities. Local exchange companies, such as Verizon, which were subject to the PUGRAFT on April 1, 1997, continued to be subject to local business personal property taxes. Because of the ‘as of April 1, 1997’ standard, new entrants into the local exchange market were exempt from local personal property taxes. The legislation also changed the definition of ‘local exchange telephone company,’ inserting a ‘51% of dial tone service’ standard.
Technological changes in telecommunications have brought increased competition to the industry. In this new environment, Verizon has looked to cut its costs and ‘level the competitive playing field.’
To effect the cost cutting, Verizon has used the ‘51%’ language to claim exemption from local business personal property taxes in those municipalities where it claims to no longer supply dial tone to a majority of the telephone market.
Hopewell Borough in Mercer County has appealed Verizon’s decision not to pay the Business Personal Property Tax based upon its interpretation of the applicable statute. The matter is now pending before Judge Menyuk in the State Tax Court. The League is appearing in this matter as Amicus Curiae and the State has intervened as a party.
With oral argument on the cross-motions for summary judgment filed by Hopewell and Verizon scheduled for September 16, Verizon has advised us that, as of June 30th, 28 more municipalities have fallen below the 51% threshold. Absent a court ruling to the contrary, those municipalities will lose Verizon business personal property tax payments next year.
Appreciating the property tax consequences of its action, while attempting to ‘level the competitive playing field,” Verizon has advocated for tax reforms that would – to a great extent – ‘hold municipalities harmless’ for the loss of business personal property taxes. That alternative was discussed in an article in our February, 2009 magazine, available at http://njslom.org/magart_2009_03_pg40.html.
With legislative action on that proposal unlikely in the short-run, Verizon has now communicated its decision that it is no longer subject to the business personal property tax to numerous additional municipalities. Those affected should contact their municipal attorneys, who may feel free to confer with the League’s Counsel on this matter, Joel L. Shain, Esq., to ensure that appropriate action is taken to protect their rights.
If you have any questions on this, please contact Jon Moran at 609-695-3481, ext. 121.
Very truly yours,
Hon. Brian Wahler William G. Dressel, Jr.
Mayor, Piscataway Executive Director
Chair, NJLM Telecommunications
Policy Committee and Member, League Executive Board