HD37 - Taxation of Public Service Corporations
Executive Summary: The joint subcommittee has spent the last three years examining the way in which Virginia taxes its public service corporations. The joint subcommittee has also examined the tax burden imposed by Virginia, as compared to our neighboring and other southern states, as well as the environment in which our public service corporations operate. This year its efforts were focused on the telecommunications area. At the subcommittee's request, the State Corporation Commission (SCC) has examined the extent of competition in the telecommunications area. The SCC's study concluded that approximately two-thirds of all the revenue generated by companies in the telecommunications sector are derived from areas which are subject to competition. They concluded that three out of four categories of telecommunications companies (inter-exchange carriers, resellers, and cellular telephone companies)have 100% of their revenue in these areas which are subject to competition. The SCC reported that local telephone companies generate approximately one-third of their revenue from areas which are subject to competition. After considering the extent of competition in the area, the unusually high tax burden imposed on public service corporations in Virginia, and the trend of some other states to switch to a corporate income tax on the telecommunications industry due to their competitive nature, the joint subcommittee makes the following recommendations: 1. Effective tax year 1990, repeal the current state gross receipts and pole line taxes imposed on all telephone and telegraph companies and impose the Virginia Corporate Income Tax. 2. Although total state taxes would not be greatly affected by this change, different segments of the industry would be impacted in very different ways. To cushion the impact upon those firms which would experience a dramatic increase or decrease in their tax liability, the following phase-in approach is recommended. Those Firms Actually Paying the Require Firms To Corporate Income Tax Would Pay At Least Receive The Following Credit 1990 1.2% of gross receipts 80% x (Corporate Income Tax - 1.3% of gross receipts) 1991 1.1% of gross receipts 70% x (Corporate Income Tax - 1.3% of gross receipts) 1992 1.0% of gross receipts 60% x (Corporate Income Tax - 1.3% of gross receipts) 1993 0.9% of gross receipts 50% x (Corporate Income Tax - 1.3% of gross receipts) 1994 0.8% of gross receipts 50% x (Corporate Income Tax - 1.3% of gross receipts) 1995 0.7% of gross receipts 40% x (Corporate Income Tax - 1.3% of gross receipts) 1996 0.6% of gross receipts 30% x (Corporate Income Tax - 1.3% of gross receipts) 1997 0.5% of gross receipts 30% x (Corporate Income Tax - 1.3% of gross receipts) 1998 0.5% of gross receipts 20% x (Corporate Income Tax - 1.3% of gross receipts) 1999 0.5% of gross receipts 10% x (Corporate Income Tax - 1.3% of gross receipts) 3. To ensure that some state tax is paid by firms, regardless of profitability from one year to another, and to ensure that cooperatives pay at least some tax to the Commonwealth, a minimum tax of 0.5% of gross receipts is imposed on all telephone and telegraph companies. 4. The joint subcommittee recommends that the state gross receipts tax rollback, which was adopted by the 1976 Session and which is currently in the statute, be allowed to continue so -that by tax year 1989 the state tax on power companies equals 2% of gross receipts. 5. Continue the study for one additional year to examine the local consumer utility tax and the extent of competition in the electric power industry. The joint subcommittee believes that the telecommunications industry should be treated like all other companies which are subject to competition. Clearly, each year brings new changes and increased competition in the telecommunications area, and the subcommittee has recognized that it is unfair to penalize the public service corporations which are in the telecommunications area by imposing a gross receipts tax on them, while allowing other companies that compete with these telecommunications companies to be subject to a corporate income tax. The subcommittee believes that the time has come to bring equity into the field of telecommunications taxation by imposing a corporate net income tax so that all the competing companies are paying the same tax. Although the Commonwealth would not be financially impacted by a switch from a gross receipts tax to a corporate income tax, different segments of the industry would be impacted differently. For example, the long distance carriers would receive a tax reduction while the local telephone companies would generally pay more under the income tax as compared to the gross receipts tax at 1.3%. Some companies, however, would experience a significant tax increase or decrease. In an attempt to reduce the impact on these firms, as well as to ensure the Commonwealth does not lose any revenue under this proposal, the subcommittee is recommending that the corporate income tax be phased in over a number of years. Finally, the joint subcommittee is requesting an additional year of study to examine the local consumer utility tax, as well as the extent of competition in the electric power industry. |
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