Governor Deval L. Patrick's office has estimated that eliminating the "telecom tax loophole" would bring in $78 million annually.
(Janet Knott/Globe Staff/File 2004)
In a precedent-setting decision, a state board ruled yesterday that Verizon must pay taxes on poles and wires over public ways - a decision that could bring an estimated $78 million tax boost to cities and towns.
"This is huge, especially as communities are struggling with their budgets," said Ron Rakow, Boston's commissioner of assessing.
"The fact the telephone companies are going to start paying those taxes is going to start taking some pressure off the taxpayers - both residential and commercial."
The decision by the Appellate Tax Board, which is almost certain to be appealed, accomplishes a key goal of the Municipal Partnership Act, which Governor Deval L. Patrick proposed last year to diversify revenue to municipalities throughout the state.
In the past, Verizon has paid taxes on its poles and wires that dangle over private property, but not over public property. According to briefings filed in the suit, Verizon estimated that somewhere between $2 billion and $2.4 billion in poles and wires were exempted from taxation each year.
Rakow calculated the potential tax increase using filings with the Federal Communications Commission and estimated that over $50 million would flow into municipal coffers. The governor's office has estimated that eliminating the "telecom tax loophole" would bring in $78 million.
The Department of Revenue said in a statement that the order "would also have the effect of treating such property as taxable when it is owned by other telephone companies as well as by cable companies and other affected taxpayers," although it was unclear yesterday which specific companies would be affected.
"In terms of when cities and towns will be able to realize this money, we would be gathering information literally over the next week or two from Verizon and other companies," said Navjeet Bal, the commissioner of the De partment of Revenue. The department issues its central assessments in May, and changes would be reflected in tax bills for fiscal year 2009.
Verizon spokesman Phil Santoro said in an e-mail that the company was reviewing the order and reviewing options.
The order also means that more than a dozen cities and towns that have filed appeals over the past few years could reap retroactive taxes.
The tax board will determine how much Verizon could be paying in back taxes in proceedings scheduled to begin at the end of March.
The city of Boston, for instance, has brought an appeal against Verizon for four years. According to Rakow's preliminary calculations, taxing the new property could more than double Verizon's tax bill, adding $7.5 million each year.
"To give an idea, that's going to be more than double their tax bill in the city of Boston," Rakow said. "Last year, they paid $4.6 million - they were only really paying [taxes] on underground wires in the city, but the majority of city's infrastructure is still above ground on the lovely poles that line our streets."
The latest decision is the most recent move by a state board that is working to make sense of esoteric telecom tax law that was drafted nearly a century ago, to encourage the buildout of phone networks.
A previous decision by the board ruled that Verizon Wireless was not a phone company and did not qualify for certain tax exemptions. That meant that the Department of Revenue's central assessment of some wireless companies' taxable assets leaped. For instance, Verizon Wireless had $4.1 million in taxable assets in fiscal year 2007, but $492.8 million in fiscal year 2008, according to a central assessment.
The wireless order is under appeal and will be heard at the state Supreme Judicial Court on Thursday.
Carolyn Y. Johnson can be reached at cjohnson@globe.com.
© Copyright 2008 Globe Newspaper Company.
