Last year, a Joint Subcommittee of the Virginia General Assembly examined the tax treatment of the interstate toll service revenue of telephone companies (Virginia telephone company revenue from interstate calls) and submitted comprehensive legislation to the Virginia General Assembly (House Document No. 4, 1979 Session). As a result, legislation was enacted to increase the base of the franchise tax (also known as gross receipts tax) to include the proportionate part of interstate revenue attributable to Virginia from interstate long-distance telephone calls originating or terminating within this State. This legislation also reduced the franchise tax rates proportionately with the increased base reducing the tax in 1984 and thereafter from 2% to 1.3%. In addition, the legislation required the State Corporation Commission, during its rate review for all utilities, to establish rates and charges which reflect all savings realized by such companies from the recordation tax reduction and the franchise tax reduction enacted by the General Assembly.

During the course of last year's study, the Joint Subcommittee received considerable testimony regarding the increasing competition to the publicly regulated telephone companies from telephone companies which are entering the industry but which operate with little or no public regulation. The Subcommittee found that these companies appear to receive preferential treatment vis-a-vis the publicly regulated telephone companies. The Joint Subcommittee viewed this as a serious problem, but one which was beyond the scope of its charge.

This year's study, pursuant to House Joint Resolution No. 324, resulted from a recommendation of last year's Subcommittee to examine the taxation of publicly regulated telephone companies vis-a-vis private communications firms to insure that the taxation structures applicable to all the firms in each of these industries are equitable.