City of Portland Sends Letters
to Senators Smith and Wyden
to express their concerns about HR 49/S 150
September 5, 2003
Senator Gordon Smith
404 Russell Office Building
Washington DC 20510
Senator Ron Wyden
516 Hart Senate Office Building
Washington DC 20510
Dear Senator Smith and Senator
Wyden:
The City of Portland is writing
to express our concerns with S. 150, the "Internet Tax Non-Discrimination
Act." We fear that the language of S. 150 will deprive municipalities
of billions of dollars in tax and fee revenues in the years ahead
and, in the meantime, will result in litigation and confusion. It
has been our experience that some in-dustry participants will use
the language of S. 150 to avoid paying local telecommunications
and utility taxes, as well as franchise fees and rights-of-way fees
owed on infrastructure deployed in the public rights-of-way.
As currently worded, S. 150 poses
a direct threat to two traditional, yet separate and distinct, municipal
powers. These powers must be preserved. Municipal budgets are already
strapped by the recession, reduced federal and state budgets, and
the demands of homeland security. Local governments can not afford
to be hamstrung still further to the point where vital municipal
services are curtailed or eliminated altogether.
The first traditional municipal
power that S. 150 threatens is the ability of local governments
to impose telecommunications taxes or to apply local utility taxes
to the provision of telecommunications services. Municipalities
in many states are authorized to impose such taxes, and many municipalities
currently rely on such taxes as a critical part of their budget.
Now, by expanding the scope of the Internet tax moratorium to include
telecommunications services to the extent they are used to access
the Internet, S. 150 could immunize the bulk of all future telecommunications
services from local telecommunications and utility taxes. That would
not only starve local budgets; it also would be highly regressive
and unfair: Poorer residents who lack a computer or can afford only
plain old telephone service would continue to be subject to local
taxes, while businesses and wealthier residents with computers,
who can substitute e-mail and future technologies like voice-over-Internet-protocol
for dialtone service, would be immune from local taxes.
The second traditional municipal
power that S. 150 threatens is the ability of local governments
to impose franchise fees as “rent” for use of public
rights-of-way on companies, such as telecommunications and cable
service providers that use public property for private profit. Over
one hundred years of court-supported municipal rights are at stake
here. In 1893, the Supreme Court clarified that right-of-way fees
are not taxes but payments in the form of rent. City of St.
Louis v. Western Union Tel. Co., 148 US 92, 99, 13
S.Ct. 485, 488 (1893). Ironically, the Supreme Court was then considering
whether the federal government could require local governments to
allow telegraph companies access to the public right-of-way without
compensation. Leaping to more recent history, the 5th Circuit in
City of Dallas v. FCC, 118 F. 3d 393 (5th Cir.
1997) cited the holding of St Louis when it found that
a franchise fee is not a tax, but an expense of doing business that
is essentially a form of rent. For Portland and other Oregon cities,
a long-standing Oregon law allows municipalities to impose a 7%
fee on incumbent local telecommunications service providers as compensation
for use of local rights-of-way. Oregon cities exercise their home
rule constitutional authority to compensation from competitive telecommunications
carriers for use of local right-of-way.
Federal legislation requiring local
governments to allow private use of public property such as the
right-of-way, free from local fees and charges, could be viewed
as constitutionally suspect. Such legislation might constitute a
federal taking of local government property without compensation,
or federal commandeering of local government property to implement
a federal regulatory program. Please consider these concerns in
developing a program that achieves federal goals without railroading
local governments.
The City is prepared to work with
you to:
- Clarify that in adopting S. 150 and its House counterpart (H.R.
49), the Congress does not intend to interfere with or in any
way limit the imposition or collection of any municipal telecommunications
taxes or utility taxes applicable to telecommunications, nor with
any municipal rights-of-way fees nor gross percentage fees col-lected
in lieu of right-of-way fees.
- Clarify that S. 150 does not preempt the imposition or collection
of excise taxes of general applicability (in-cluding telecommunications
and utility taxes) on services that employ telecommunications,
cellular or cable television facilities, even if those services
offer access to the Internet.
Without these clarifications, the
adverse financial impact of S. 150 on local governments will be
immense: the loss of billions of dollars in telecommunications fees
and taxes in the years ahead for cities across the nation -- fees
and taxes that have been consistently upheld in court...and upheld
in Oregon courts as recently as 2002. In Portland and other cities
in Oregon, you can count the loss to already-strained municipal
budgets in the millions of dollars, with direct hits on the General
Fund.
Municipalities in Oregon and elsewhere
have long imposed gross receipt-based fees on telecommunications,
cable TV and other providers’ use of local rights-of-way for
private profit, and many municipalities across the nation have imposed
gross receipts-based taxes on the provision of telecommunications
serv-ice or utility services, including telecommunications and cable
TV services. Federal preemption of these rights, whether intended
or not, will result in immediate financial loss to Oregon cities,
and the size of that loss will literally mushroom in the future
as more communications shift to broadband, Internet-based technologies.
We are confident this is not the legacy you intend or desire. We
are offering to work with you in any way we can to avoid such an
unfortunate result.
Sincerely,
Mayor Vera Katz
City of Portland, Oregon
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