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Don't Preserve the Personal Property Tax - Replace It by Dennis Bone

The Personal Property Tax (PPT) is Exhibit A in the case for comprehensive tax reform in New Jersey.

This is a tax left behind by time and technology, a tax that applies only to three telecom companies: Verizon, Embarq and Warwick Valley. The PPT is no longer the dependable source of revenue that it once was and has been consistently generating less money for New Jersey’s municipalities with each passing year. It’s unfair to the telecom providers who are subject to this tax and to the state’s 566 municipalities, whose continuing dependence on PPT revenue is the equivalent of clinging to the side of a sinking lifeboat.

New Jersey’s fiscal crisis and the deepening national recession underscore the need to reform taxation of communications services as a prelude to cleaning up the hodge-podge of laws that make up our tax code. That’s a goal Verizon supports and apparently shares with League Electric Deregulation Counsel Joel Shain.

Mr. Shain’s article last month and the November League resolution were largely based on a strong case for the legislature to eliminate the PPT and enact new tax legislation based on the reality of today’s communications market. Verizon agrees and stands ready to help.

The PPT was created back in the days when Verizon, Embarq and Warwick Valley were the exclusive or dominant providers of phone services in the New Jersey areas they served. Today, consumers can buy phone service in a competitive market that includes phone companies, cable-TV companies and Internet phone providers.

None of these newer competitors is required to pay any money in PPT, not even the two cable companies that have become a major source for phone service. This free ride for our competitors is costing municipalities millions of dollars a year in lost revenue.

Expanded competition and investment in new broadband networks has been great for consumers and good for the industry, even though it has inevitably cut into Verizon’s market share. When our market share drops below 51 percent in any municipality, the law makes it clear that we are no longer subject to the PPT in that community. We reached that point in five municipalities in 2008 and expect more this year.

No municipality wants to hear that it’s losing a source of tax revenue, especially not in an economy like this one. So Verizon’s cessation of paying PPT in the affected towns triggered some angry, inaccurate charges that a corporate giant was somehow wiggling out of paying its fair share of taxes, charges repeated in Mr. Shain’s article.

This indignation is misplaced. It should be channeled into support for tax reform that would replace the PPT with a more equitable tax that applies to all competitors in the communications market. Other states are updating their tax codes as it relates to the communications business and New Jersey should do the same. No one is benefiting by keeping the status quo. Municipalities need a stable and equitable source of tax revenue which cannot be achieved by maintaining the PPT.

As New Jersey’s second largest employer, Verizon has 18,000 men and women working in New Jersey. We live in the same municipalities as the League’s members and worry about the same property taxes. Our kids go to the same schools and our families depend on the same public services that support the quality of life in New Jersey.

We want to partner with New Jersey’s municipalities for a healthy fiscal future. Working together for tax reform is an important step in that direction.

This article was originally published in New Jersey Municipalities magazine. Vol. 86, No. 3, March 2009

 

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