New Jersey Telecommunications Act of 1997
In the mid 1990’s, the federal government enacted certain laws which opened up the local telephone market to competition and simultaneously ended the monopoly held by Bell Telephone companies (aka the Baby Bells) and their successors in that market. At the time, States had various statutory schemes in which municipal property taxes were levied on these monopolies for certain of their properties located in each municipality; such as poles, wirelines, cables etc.
As a result of the changes due to the new federal laws, the States needed to adjust their existing statutory schemes. New Jersey’s response was the enactment of the “New Jersey Telecommunications Act of 1997.”
The Act imposed the Business Personal Property Tax on any telecommunications carrier providing dial tone and access to 51% of lines within the local telephone exchange. For the ensuing ten years, the three telecommunication carriers that met that definition were assessed and paid this tax.
Local Exchange Carriers (CLECs)
The three carriers that met the definition in 1997 were Verizon, CenturyLink and Warwick. They are still operating today and operate under the nomenclature of Incumbent Local Exchange Carriers (ILECs). Competitors of the three ILECs are known as competitive local exchange carriers (CLECs). There are over 150 CLECs operating in New Jersey. CLECs access, for a fee, the infrastructure owned by the ILECs. The Tax applies equally to all ILECs because they own and will always own the infrastructure they use and make available to the CLECs.
Verizon v. Hopewell
Tax Year 2009
In 2008, Verizon notified five municipalities that they would appeal the applicability of the BPPT to their personal property located in those municipalities for the 2009 tax year. Eleven years after enactment of the 51% threshold, Verizon claimed for the first time the tax was to be calculated annually, and they had calculated they were providing something less than 51% in the Hopewell local exchange. Hopewell Borough Council and the Tax Accessor disagreed with Verizon’s interpretation of the law.
The Litigation: Verizon v. Hopewell
In 2009, the Mercer County Board of Taxation affirmed the Borough’s assessment. On appeal, the Tax Court ruled in favor of Verizon’s interpretation of the statute. The Tax Court decision opined that if they were to rule in favor of the Borough’s interpretation of the, “in perpetuity” standard, they would rule that standard unconstitutional special legislation. The constitutional question was not before the Court. The Court explained they did not accept the legal opinion of the Office of Legislative Services and the legal opinion of the Attorney General because they were not offered contemporaneous to the 1997 enactment. The Court adopted Verizon’s interpretation even though it too was not offered contemporaneous to the 1997 enactment.
The Borough appealed the decision to the appellate level. In 2012, in a curious decision, the Appellate Court remanded the Verizon appeal of the case involving the Borough for trial using the annual assessment standard and reserved its decision on the broader issue of which method should the tax be assessed 51% annually, or once, and then in perpetuity.
The Appellate Court’s decision to remand for trial precipitated discovery and trial. For the ensuing five years, the trial consumed scarce judicial resources, tax payer funds as well as rate payer funds. At the onset of discovery, Verizon communicated to the Court and the Borough that if they were not successful they would appeal. During discovery and trial, Verizon made numerous objections most with little or no merit which the Court appropriately denied but because of the “vow to appeal’ the Court was compelled to weigh each objection carefully and explain the denial. This tactic extended the trial unnecessarily at great expense to the Borough. It began to become clear Verizon’s tactic was to deplete Borough resources to a point where the Borough would either walk away or settle under terms favorable to Verizon.
This could have been avoided if the Appellate Court had first resolved the broader issue, re: which assessment method was controlling. If the Court had ruled in favor of the Borough on this issue, a trial would not have been necessary and Verizon would not have engaged in the conduct that it did for the ensuing five years. If it had ruled in favor of Verizon, the trial would have occurred and the broader issue would have been resolved unless appealed to the Supreme Court.
Verizon used the CLEC in their calculations
During discovery and as it turns out pivotal to the outcome, it was revealed that for the specific purpose of skewing their percentage of dial tone to something less than 51% for tax year 2009, Verizon defined the Hopewell service area to include 10,000 phone lines operated by a CLEC. This definition was and is inconsistent with the definition of Verizon’s Hopewell service area that has been on file with the Board of Public Utilities (BPU) since 1993 and for many years before that. Verizon offered no explanation for this deviation. As proved to the Court, Verizon provided over 90% of the dial tone to the Hopewell service area if the 10,000 lines were not included in the service area. Using the Verizon’s altered definition, Verizon provided 48% of the dial tone. At trial, the Court encouraged the parties to settle within 30 days but specifically aimed that advice at Verizon. Verizon never made an offer. In order to be compliant to the Court’s wishes, the Borough offered to settle for Verizon paying 50% of the Borough’s legal fees. Verizon’s response was: “the only way we will settle is if you write us a check.”
Soon thereafter in January 2019, ten years after the matter began, the Court ruled in the Borough’s favor. Verizon, as they said they would do, appealed. Both the Borough and the League cross appealed to have the Court rule on the issue they reserved judgment on five years earlier - on the broader issue of which assessment method controls: the annual 51% or the 51% in perpetuity method. The appeal was briefed in May 2019 and, to date, oral arguments have not been scheduled. Consistent with Verizon’s past conduct making unwarranted objections designed to delay and increase costs, Verizon filed an objection to the League’s participation as an amicus curiae arguing they should be barred because the League is not neutral and has a position consistent with the Borough. The Court in a one word decision “denied” the motion. The Court rejected Verizon’s specious objection and by not commenting further infers it agreed with the League’s characterization of Verizon’s conduct.
Where this stands today
While this litigation was moving forward for the past 10 years, Verizon and Century Link continued to notify other municipalities that they as the ILEC no longer provided 51% of the dial tone in the municipal service area. Today, there is a minimum 127 other municipalities in the position of Hopewell Borough. There are well over 60 pending trials.