Read about this on Slashdot and though that it was a good read.
for the report....
Overlooked Tax Provision Gets Attention
By DAVID WASSON
dwasson@tampatrib.com
Published: Apr 15, 2004
TALLAHASSEE - At the urging of Tampa and a handful of other cities, a nearly forgotten provision in Florida's tax code is being dusted off by the state Revenue Department and could lead to the nation's first communications tax on multiuser computer networks.
Business lobbyists and others are scrambling to block the move, which some predict could trigger one of the largest tax increases in Florida history unless lawmakers eliminate the provision or halt its enforcement before adjourning April 30.
``This is a true example of the law of unintended consequences,'' said state Rep. John Stargel, R-Lakeland, who has introduced a bill that would abolish the 1985 provision but has been unable to get it past its first committee stop. ``This is a poster child for bad tax policy.''
The provision was intended to make sure companies operating their own land line communication systems, which two decades ago was limited to large utilities and railroads, were paying the same taxes paid by those who rely on commercial phone carriers. About 10 companies pay more than $1.2 million annually based on that definition.
However, the statute is so broadly worded that it could be interpreted to describe a local area network, which in computer lingo is known as a LAN. Thousands of Florida companies as well as a growing number of private homes have LAN computer systems.
Finding A Solution
Senate leaders oppose such a broad application of the provision but are leery of hastily eliminating it, in part because it would abolish the $1.2 million in tax revenue that has been paid under what is known as the Substitute Communications Services Tax.
The upper legislative chamber is expected to propose a temporary suspension of its enforcement and then look for ways to limit the provision's application without undermining its original intent.
``Back in 1985, there might have been a few engineers at Bell Laboratories who might have understood what a local area network was but not many others,'' said state Revenue Department spokesman Dave Bruns. ``That was essentially pre-Internet.''
Complicating matters is that lawmakers kept the provision intact when they revamped communication services taxes in 2000 as part of an effort to simplify and modernize the tax code. That's what sparked the current problem.
Cities Seek Enforcement
Internal auditors at the city of Tampa noticed a couple of years ago that the substitute communications service provision was still there and asked state officials why it wasn't being enforced.
Cities and counties get a hefty cut of the $2.1 billion in communications taxes collected by phone companies each year. A portion of the money also is earmarked for school construction.
No one knows exactly how much more would be collected by enforcing the broader definition of the tax. The rate varies statewide, ranging from 9.17 percent to 18.07 percent depending on local option assessments.
Stargel predicts it would be hundreds of millions of dollars annually, while some business lobbyists say it would easily exceed $1 billion.
Bruns said that while no one at the state agency believes the provision was ever intended to apply to computer networks, the agency's job is to enforce the policies created by the Legislature. He said the agency asked the Legislature to re-examine the provision last year but lawmakers adjourned without touching it.
With cities continuing to push for collection, the Revenue Department drafted a proposed enforcement rule but delayed implementation until after this year's legislative session to give lawmakers a second chance to amend or abolish the provision. With barely two weeks remaining, bills in the House and Senate are essentially stalled in committees.
``We are awaiting guidance from the Legislature,'' Bruns said.
Among those pushing the issue is Sharon Fox, the city of Tampa's tax revenue coordinator.
Although she never imagined the provision would be interpreted to require taxing even the most simplistic computer networks, she makes no apologies for insisting that state policy be enforced. Fox had helped draft proposals for the 2000 revamp and is keenly aware that advancing communication technology is enabling companies to rely on computer networks for services that used to be available only from phone companies.
``The whole purpose was to level the playing field so that everyone would pay the tax and that would let us lower the rate,'' Fox said. ``Complicating things a little bit is technology has changed so much.''
Analysts worry that eliminating the provision would leave the state unable to respond to shifting technology. The Internet, with advances in voice-over protocols, is expected to weaken consumer reliance on standard phone services.
Because Florida relies heavily on communication services taxes to finance government operations, Senate staffers worry that eliminating the provision would make it more difficult for the state to respond to the coming shifts in consumer behavior.
Opponents counter that those concerns are based on too many what-ifs.
``Those kinds of things are four or five steps out,'' Stargel said. ``If that happens, there's time to address that.
``My concern is immediate. If we don't act in the next 2 1/2 weeks, this tax will happen.''