The Honorable Cynthia Stone Creem, Chair
The Honorable John J. Binienda, Chair
Committee on Revenue
State House, Room 34
Boston, MA 02133

Dear Senator Creem, Representative Binienda, and Distinguished Members of the Committee,

On behalf of the cities and towns of the Commonwealth, the Massachusetts Municipal Association would like to express its very strong support for House Bill 2408, an Act Relative to the Taxation of Telecommunications Companies. This legislation is necessary to eliminate new and long-standing loopholes in obsolete property tax laws that are enabling telecommunications companies to avoid their fair share of local taxation.

The recent aggressive use of outdated tax provisions has resulted in a shift in tax burden from these profitable businesses to residential and other business taxpayers in cities and towns all across the state. Through reclassification, lease-back arrangements, and changing their form of ownership, we estimate that telecommunications companies were successful in removing $1.3 billion in valuation from local tax rolls this year, shifting $31 million onto the shoulders of other local taxpayers. The shift is a particular burden to low- and fixed-income homeowners. It is also an economic burden to other businesses that must pay a portion of the tax levy that telecommunications companies are escaping.

Overall, the telecommunications industry in Massachusetts is avoiding $140 million in annual property taxes due to the loopholes and outdated language in the current law. The continued use of loopholes will also result in the future loss of revenue to cities and towns. “New growth” revenues that would normally accrue with the addition and replacement of property will be lost as telecommunications companies use the law to keep once-taxable property off local tax rolls.

Current tax law governing telecommunications property was written decades ago to apply to very different business conditions. A reform of the law is urgently needed to make it fair and applicable to the modern telecommunications industry and to avoid this unjustifiable shift in tax burden to homeowners and other businesses.

H. 2408 would eliminate the exemption for machinery owned by telephone companies. It would bring the tax treatment of this machinery, mainly switches and routers, into conformity with the treatment of machinery owned by non-telephone telecommunications companies, such as cable television companies, and with electric utilities. It would create a level playing field and tax neutrality across utility businesses.

This legislation would also eliminate the unwarranted and discriminatory exemption for poles and wires owned by telephone companies located over public ways. Poles and wires over private ways are taxable. The same property owned by an electric company is taxable.

In creating a new level playing field for all telecommunications companies, this legislation would end the loophole used by non-telephone telecommunications companies to be classified by the Department of Revenue as a telephone company and consequently gain exemption for once-taxable personal property. It would also end the loophole that allows companies to gain exemption by changing the form of ownership to a corporation from another form of ownership, such as a partnership or a limited liability company (LLC).

This legislation is an urgent issue of tax fairness and tax burden for all cities and towns. If the Legislature does not reform property tax law as it governs the taxation of telecommunications companies, the property tax burden will continue to shift to other taxpayers and local revenues will be lost. We ask that the Committee give H. 2408 a favorable recommendation following today’s public hearing.

Thank you for your continued interest in the financial condition of the cities and towns of the Commonwealth. If you have any questions or need further information, please contact MMA Deputy Legislative Director John Robertson at (617) 426-7272.

Thank you.

Sincerely,
Geoffrey C. Beckwith
MMA Executive Director