This week, the New Jersey Supreme Court affirmed a decision from the Appellate Division (Verizon New Jersey v. Borough of Hopewell) regarding the ability of municipalities to collect the Business Personal Property Tax (BPPT) from Incumbent Local Exchange Carriers (ILEC).
The affirmed decision maintains the lower court rulings, holding that an ILEC is no longer obligated to pay the BPPT to a municipality if they provide less than 51% of the dial tone access, finding that the dial tone calculation must be done on a yearly basis. The decision also upholds the lower court’s ruling related to how this calculation should be done, supporting the method advanced by the municipality’s expert.
The matter involved Verizon’s unilateral decision to no longer pay the BPPT to the Borough of Hopewell. Verizon took this action after it determined they no longer provide 51% of the dial tone access to the Borough.
New Jersey law requires that certain telephone companies like Verizon, known as Incumbent Local Exchange Carriers (ILEC), must pay the BPPT to the local municipality. Under the law the requirement to pay the BPPT was limited to those ILECs “that were subject to tax as of April 1, 1997.”
Verizon and the Borough disagreed on the interpretation of the law, with Verizon taking the position that only ILECs that currently provide 51% of dial tone access to a municipality would be subject to the tax. In other words, once the ILEC stopped providing access to more than half the Borough, they were under no obligation to pay the BPPT. The Borough, and the League as amicus, took the position that the obligation to pay the tax continued as the law obligated the ILEC that provided 51% of dial tone access as of April 1, 1997, to continue to pay the BPPT in perpetuity.
The two sides also disagreed on how to calculate whether an ILEC provides 51% of the dial tone access to a municipality. Any calculation requires both technical knowledge of telephone systems and knowledge of the individual ILEC’s business operations. Further, the percentage of dial tone access provided by an ILEC changes each year as customers are added and leave.
The ruling will play an important part as other municipalities that have been receiving BPPT payments could begin to no longer receive this revenue as ILECs continue to take the position that they no longer provide the necessary dial tone access. This ruling will also serve as guidance to those municipalities that challenge the ILEC’s calculation.
Legislation to clarify the collection of the BPPT in contrast to the Supreme Court’s holding has been introduced. S-1535 would restore the collection of the BPPT on ILEC regardless of the percentage of local telephone exchange it serves and will permanently enshrine that business personal property into the municipal tax base. S-1535 would also require that if a municipality is a prevailing party in a court proceeding between it and an ILEC concerning the taxation of business personal property, then the municipality and related amicus entities shall be awarded attorney’s fees.
The League supports S-1535 and has prepared a sample resolution for our members to adopt in support of the legislation.
The League would like to thank Joel Shain, Esq., and Larry Li, Esq., of the Shain Schaffer law firm in Bernardsville for representing the Legue as amicus in this matter.
Contact: Frank Marshall, Esq., Associate General Counsel, fmarshall@njlm.org, 609-695-3481, x137.