WASHINGTON-Top wireless carriers asked a federal court to block the state of Kentucky from enforcing a new law set for Jan. 1 that would prohibit operators from passing to subscribers a 1.3-percent gross receipts telecom tax.
Cingular Wireless L.L.C., Verizon Wireless, Sprint Nextel Corp. and T-Mobile USA Inc., which filed the lawsuit in the U.S. District Court for the Eastern District of Kentucky, said they are not challenging the tax itself. But the carriers argue the tax legislation, signed into law March 18 by Gov. Ernie Fletcher, would make it illegal for them to pass through the new tax as a separate line item on consumers’ bills.
The pass-through restriction is pre-empted by federal law, the cellular operators claim.
“To preserve the national rate plan model, plaintiffs [mobile-phone companies] would have to recover the cost of Kentucky’s new gross revenues tax in their monthly service rates across the nation, thus forcing non-Kentucky customers to bear almost all of the cost of the new tax, while receiving none of the benefits from the tax revenues,” carriers stated in the 23-page filing. “Other states would have an incentive to pass similar muzzle provisions in order to reap the windfall of tax revenues that are ultimately collected from residents of another state.”
In addition to claiming the pass-through provision is pre-empted under the telecom act, the wireless carriers say the new law diminishes their right to free speech and thwarts constitutionally proscribed interstate commerce.
“In view of the inherently interstate nature of wireless telephone service, the interstate nature of CMRS [commercial mobile radio service] providers’ facilities and operations, and the interstate structure of the CMRS market, laws regarding the rates charged by CMRS providers clearly affect interstate commerce,” the cell-phone operators stated.
Federal pre-emption is the legal card of choice the cellular industry often plays in tax, consumer, antenna-siting and health litigation. Sometimes the strategy is successful, sometimes not. One possible downside of the wireless lawsuit is that a legal precedent would be set if the courts rule on the sides of states in a pre-emption argument.
The mobile-phone industry is also fighting wireless taxes in other states, which have become keenly aware of the trend of rising wireless subscribers and a decline in subscribers to traditional telephone access lines. State and local officials have begun to adjust the tax code accordingly.
