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Mass. Gov. Accuses Verizon of Making Threats in Tax Dispute

From Dow Jones, April 23, 2007
By Corey Boles

“Verizon says that without the exemption telecommunications companies will not build broadband in western Massachusetts. But we’ve had this exemption in place for more than 90 years and western Massachusetts still doesn’t have broadband in place.”

Verizon Communications (VZ) is locked in a dispute with Massachusetts Governor Deval Patrick over attempts to close a tax loophole that would cost the phone giant upwards of $50 million a year.

Cyndi Roy, a spokeswoman for the Governor’s office, said Monday that Verizon has said that it will not deploy broadband services in western Massachusetts if the tax reform is implemented.

Patrick has proposed the Municipal Reform Act, a wide-ranging piece of legislation that would end an exemption telecommunications companies have from property tax.

“Verizon says that without the exemption telecommunications companies will not build broadband in western Massachusetts,” said Roy. “But we’ve had this exemption in place for more than 90 years and western Massachusetts still doesn’t have broadband in place.”

Patrick, during his April 10 testimony before the Massachusetts Joint Revenue Committee, said he was aware of veiled threats Verizon was making regarding prices and jobs in the state if the tax measure is implemented.

A top Verizon executive addressed the issue in an April 10 Boston Globe newspaper column. Donna C. Cupelo, a Verizon regional president, wrote that businesses would have “another reason to avoid Massachusetts” if taxes continue to rise.

A Verizon spokesman said that the company covers much of the western part of the state with its broadband product already, and said there are no plans to halt this rollout.

“The point we hope Beacon Hill will understand is that demanding an additional $100 million in taxes at the very time Verizon is investing heavily to deploy our fiber-optic network does nothing to help,” said David Fish, a spokesman for Verizon. Beacon Hill is a reference to the Massachusetts State legislature.

Patrick and Boston Mayor Thomas M. Menino are behind an initiative to reform the state’s property tax laws in a move that would lower taxes for individuals and small businesses but increase them for telecommunications companies like Verizon.

Ending the exemption would allow cities and towns in the state to charge telecommunications companies property tax for the use of telephone poles, wires and other equipment for the first time.

The exemption was granted in 1915 in a bid to foster the expansion of telephone service in the state.

The Act was submitted to the state legislature along with the state budget in February. It is not certain they will be successful in their bid — laws must be approved by lawmakers in the state legislature.

Official estimates have put the windfall for municipalities at $87 million annually if the exemption is revoked, the majority of which would be incurred by Verizon as it is the dominant phone company in the state.

Combined with a recent court decision that allows Massachusetts’ cities and towns to begin charging property tax to wireless operators as well, the telecommunications industry faces around an additional $140 million tax bill each year.

Verizon’s portion of that would be around $100 million, nearly doubling Verizon’s annual $180 million tax bill.

“This loophole should be closed,” said Phineas Baxandall, of Masspirg, a public interest group. “There should be a level playing field in tax policy” between utility and telecommunications companies, he added.

Utility companies already pay property taxes for the use of poles and wires in the state.

Verizon has been investing heavily in the rollout of its fiber optic network to support the growth of its broadband and video service, known as FiOS.

It has spent $300 million each of the last three years in Massachusetts in rolling out the service.

Should the attempt to end the tax break be successful, Verizon would be left with three options.

It could increase its expenditure in the state by $100 million to reflect the new tax; keep its total spending the same but decrease its investment in broadband deployment; or it could choose to divert its resources to another state where taxes are lower.

It is this third option that Governor Patrick’s office believes Verizon is attempting to use as leverage in negotiations with lawmakers.

According to Mike Widmer, president of the non-partisan watchdog Massachusetts Taxpayers Foundation, it’s a matter of “Economics 101” if the tax break is removed.

“There is major internal competition within companies like Verizon for capital spending,” said Widmer. “When you impose a major new tax on a given industry, it would be naive to think it won’t have an impact on companies’ willingness to spend in the state.”

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