As early as next year, Metuchen could stand to lose $166,000 in tax revenue, borough officials say. The money represents revenue from the Business Personal Property Tax (BPPT), which up to now has been paid each year by telecom company Verizon to the borough.
“Most of you are probably aware that there have been some concerns about the potential of loss of the Business Personal Property Tax from Verizon,” said Business Administrator William Boerth at the Oct. 5 Borough Council meeting. “There is a potential the borough may lose this money, which amounts to $166,000, though we don’t know this yet. Obviously, that would impact us considerably. It is fairly technical, and I don’t understand it all, but I have met with a representative from Verizon to be brought up to date in terms of what is happening and what the potential could be for the borough.”
Verizon plans to soon notify fifty to sixty municipalities around New Jersey that the company will not pay them this tax in 2010, which is an increase from five municipalities that Verizon stopped paying in 2008. By the end of 2010, Verizon plans to stop paying these fees to up to 150 municipalities for the following year.
The tax is substantial, with Verizon paying municipalities around the state a total of $47 million in 2007.
“It is anticipated that as time goes on, more and more municipalities are going to lose this as the current legislation allows for Verizon to eliminate payments to municipalities if their provisional dial tone and access falls below 50 percent,” Boerth said. “We are not there yet. It may not happen next year, but it is anticipated that it is going happen to all municipalities as forms of communication change and as people don’t have land lines, etc.”
What Boerth means is this: Verizon has interpreted a 1997 amendment to a 1940s-era state law to mean that when the company’s market share for its phone service drops below 51 percent in any municipality, it no longer has to pay the BPPT tax in that town. However, whether or not Verizon is correctly interpreting the law’s intent has been the subject of much ongoing debate around the state.
The New Jersey Legislature’s Office of Legislative Services, a nonpartisan service that provides legal research and advice to the state’s elected leaders, has said that the BPPT is actually a tax on the net book value of the physical equipment Verizon has in a given community, (telephone poles, switches, etc.), “regardless of the revenue generated by the equipment.” (See the last four pages of the documents in the linked .pdf file for the Legislative Service’s opinion).
In other words, Verizon’s market share may have nothing to do with the BPPT tax, and one could even argue that Verizon may owe municipalities more money, not less, due to the company’s development of a state-wide physical infrastructure (fiber optic cable, etc) for its FiOS service.
Moreover, compounding the problem is the fact that it is very difficult to accurately confirm Verizon’s claims on market share in a municipality beyond taking the company’s word for it. So, even if Verizon’s interpretation of the law were correct, there currently exists no easy way to independently audit Verizon’s claim that its market share for phone service in a given town has dropped below 51 percent, if and when it does.
Regardless, the New Jersey Legislature is now considering drafting legislation that would tax all video services, including cable and satellite, along with any future entrants into the telecommunications market, Boerth said.
Verizon has said that it supports changes to the tax law that replaces the BPPT with a tax that applies to all companies in the communications market. The company wants tax law governing the BPPT to be changed, saying that it was passed before technological changes that have allowed cable, satellite, and Internet companies to offer phone services and Verizon to offer video services.
“There are most likely going to be various proposals before the draft legislation is introduced, but this is something we should be very wary of in the future,” Boerth said. “We should look to support legislation if that is in our best interest to do so. Although we don’t know if we are going to lose funds next year, we will get our funding this year, so we won’t have a deficit of revenue.”
One such proposal mentioned by Boerth is to create a flat six percent tax on all such telecom services, which should actually increase the amount of revenue for the borough.
“They estimate this would provide Metuchen with $49,000 more in revenue above the $166,000, so it could be, depending on how [the legislation] is crafted, a very good thing for the borough,” he said. “Obviously, it is a fee that would be paid by subscribers, so it would not be so good for them, however. So there are pros and cons on this.”
