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TAXES ON TELECOMMUNICATIONS? COMPLEX ISSUE CONFRONTS BOARD

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The issue of taxing telecommunications services is so complicated the Utah Board of Business and Economic Development plans to devote more time to gather information.

Board members, charged with pushing economic development through a variety of programs, believe that some changes in the state's taxing policy could have a negative impact on economic development, something they want to avoid. But some members also believe there should be a "level playing field" for taxes for all businesses operating in the state.During the board's recent meeting, Joseph Jenkins, Utah Department of Community and Economic Development executive director, said the Tax Review Commission is looking at the issue and will make recommendations to the Legislature on the taxing of telecommunications services.

He said the commission has held two hearings and some of the people testifying have indicated that the telecommunications industry in Utah could be severely impacted by taxes on services.

Rick Mayfield, Utah Division of Business and Economic Development director, said many telecommunications companies located in Utah in recent years because of inexpensive labor and an abundance of people available to do that type of work. If taxes on that industry become too burdensome, Mayfield said, they could leave just as quickly as they came.

Jenkins said Utah is noted for its diversified tax base, with equal amounts coming from sales, income and property taxes. He said the tax policy attempts to be "fair and equitable" but in the instance of telecommunications it would be difficult to make taxing fair.

State Tax Commission Chairman W. Val Oveson said state taxation is dynamic and becoming increasingly more important to business. As a result of technology, it is difficult to determine how some services should be taxed.

For example, how do you tax a company that sells a satellite dish to a Utah family and provides the signal when the company doesn't have an office or any employees in the state. Besides, he said, you can't force out-of-state companies to collect sales taxes for another state.

He believes Utah is losing between $20 million and $30 million annually in sales tax for telecommunications services such as cable television, access to the Internet and satellite dish programming.

Oveson cited a study by Richard McHugh, Georgia State University Policy Research Center consultant, which recommended that cable television be taxed; direct broadcast services be taxed; and interstate and international long distance telephone calls be taxed.

McHugh also recommends the taxation of access charges for telecommunications services such as the Internet; not offer an exemption from sales tax on the purchase of telecommunications equipment; and reduce the general sales tax rate from 4.876 percent to 4.75 percent.

Since 17 states already tax interstate telephone calls, board members asked Jenkins to provide more information on how various taxes on telecommunication services would impact the state in being competitive to attract and keep businesses.

In a July 11 letter to the Tax Review Commission, Jenkins said a tax shouldn't be imposed on an industry just because it is doing well, is another source of revenue or other states are doing it. He urged the review commission to proceed cautiously.