The Maryland Communications Tax Reform Commission held its second meeting on November 7 to discuss cable franchise and public, education, and government access (PEG) fees; communications tax reform of other states; and incentives to encourage investments in broadband networks.  As previously reported, 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.”

Suellen Ferguson, who represents the Maryland Municipal League on the Commission, presented on the basics and benefits of local cable franchising.  This will be explored further in a forthcoming post.

Mitsuko Herrera, MACo’s representative, discussed incentives to encourage investment in broadband networks.  Studies have found that right of way fees and taxes do not discourage broadband investment. However, the costs associated with the build out of networks and the small number of customers in some areas of the state do.  To encourage companies to invest in the networks, Ms. Herrera proposed the following:

1) labor tax breaks; 2) rural area tax incentives; 3) expanded build out requirements; 4) addressing pole attachment issues; 5) broadband training; 6) computer subsidies; and 7) price subsidies.

Members were also briefed on reforms in other states – Virginia, Florida, North Carolina, and Delaware.  In examining these states, the presenter drew the following conclusions:

1)Successful models exist, but no two states are alike;2)Process is very important; and,3)Reform is necessary due to changes in technology and the marketplace – revenue losses (especially local) will occur under status quo.

The final presenter discussed communications tax reform implementation challenges in Virginia. As described in the presentation:

The reforms in Virginia replaced the following locally collected taxes and fees with a single state collected tax: 1) landline and wireless telephone;2) cable television utility tax; 3) cable franchise fee; and 4) the local E-911 wireless fee. Local governments then received a distribution which was calculated based on totaling all local communications taxes collected in 2006 and determining each local government’s 2006 percentage of the total.

The problem with this approach is that the distribution percentages were set in law with no a true-up provision to account for changes once the state tax was implemented.

Now counties that had little to no tax collection in 2006 now pay 5% but receive their share of the state tax based on the 2006 level of taxation.

The next meeting of the Commission will be  held on December 5 at 1:00 pm in the Assembly Room of the Louis L. Goldstein Treasury Building.