Maryland’s Complex Communications Tax Structure, Part 1

As previously reported on Conduit Street, the Communications Tax Reform Commission, which was created by Chapters 261 and 262, Acts of 2012 held its first meeting on October 3, 2012.  This Commission has been charged with assessing the “feasibility and fiscal implications for the State and local governments of a modernized, competitively neutral communications tax and fee system that eliminates disparate treatment of similar communications service providers” and the “efficacy of tax and other incentives to encourage investment in broadband networks and emerging technologies.”

The Commission plans to hold three meetings during the 2012 interim to provide of an overview of Maryland’s communications tax and fee structure and those of other states, to detail investment incentives, and begin restructuring discussions.  A final report is not due from the Commission until June 2013.

This blog post is the first of a series which will follow along with the Commission’s schedule of meetings to educate members on Maryland’s communication tax and fee structure and discuss the implications for local governments if the current structure is changed.

Communications Tax Structure in Maryland

The current communications tax structure has evolved over time as the market has changed or new technologies have been introduced.  The result is communication services being delivered through many different modes, with each being taxed slightly differently.  In a report prepared for the Commission, the Comptroller’s Office identifies communications services as those listed below.

Long Distance (Interexchange) – Two-way voice communication that does not originate and terminate in the same local calling area and that is transmitted via the public switched telephone network. Long distance does not include VoIP service.

Local Exchange – Two-way voice communication that originates and terminates in the same local calling area and that is transmitted via the public switched telephone network. Local exchange does not include VoIP service.

Wireless (Cellular) – Communications services through a mobile phone, which connects to a cellular network or satellite via a radio link.

Voice-over-Internet-Protocol (VoIP) -Any two-way voice communication that originates from or terminates to the subscriber end user’s location requiring Internet protocol or any successor protocol to Internet protocol and requiring a broadband connection from the user’s location.

Cable Television -Television services distributed to subscribers via radio frequency signals transmitted through coaxial cables or digital light pulses through hybrid fiber coaxial networks.

Satellite Television – Television services delivered to consumers by means of a communications satellite and received by an outdoor antenna, referred to as a satellite dish.

The report then describes each of the taxes or fees that one or more of these services are subject to, with an explanation of each tax and how it has evolved over time.  The taxes and fees specifically examined in the report include: 1)Public Service Company Franchise Tax; 2) State Sales Tax; 3) Property Tax; 4) Income Tax; 5) Miscellaneous Surcharges (9-1-1 Fees); 6) Local Sales Taxes; 7) Local Fees, Surcharges, and Excise; 8) Cable Franchise Fees; 9) Public, Education, or Government (PEG) Channel Fees; and 10) Boxing and Wrestling Tax.

While the property tax, state sales tax , and income tax are imposed on all communication services, they may vary based on the industry.  Other taxes and fees may apply to some services, but not to others.  The link below contains a chart specifying which taxes and fees are imposed on each communication service.

Over the course of the next year, the Commission will examine these taxes further and approaches of other states to develop recommendations for a modernized, competitively neutral communications tax and fee system.

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