Cellular Phone Industry Fights Local Taxes

Montgomery County officials want to tax cellular phones, much to the distress of the local cell-phone industry

Fairfax County wouldn't do it, but Montgomery County may soon impose a tax on the cellular phones used by consumers and companies.


Cellular-phone companies are lobbying county executive Douglas Duncan to veto the proposed new tax, which will cost each consumer 92 cents a month, or $11.14 a year.

"It is going to hurt our company because... our customers are not captive to our system," said Anne Schelle, a spokeswoman for American Personal Communications Inc., Bethesda, Md., which operates the Sprint Spectrum digital cellular-phone network in the Washington-Baltimore region.

The tax may slow the growth of the cellular-phone industry, reduce the infotech industry's investment in the county and prompt some customers to switch back to conventional telephones, she said.

Six members of Montgomery County's council voted on May 16 for the tax, which extends the current excise tax on phone lines to cellular phones. County officials estimate the tax will add $1.9 million to the county's coffers every year. Two council members voted against the tax and one abstained. The six votes for the tax are enough to override a veto attempt by Duncan.

Among the companies that would be hurt by the proposed tax are APC, Bell Atlantic-NYNEX and Cellular One.

The council's decision to impose the tax followed last month's decision by the Fairfax County Board of Supervisors to drop a proposed tax on cellular phones. Fairfax's 10 percent tax on cellular phone bills would have raised $1.2 million, according to county projections, or $36 per consumer per year, according to industry officials.

Fairfax County supervisors dropped the tax after heavy lobbying by industry. The tax "would send the signal that the county was not receptive to technology companies," argued Mark Looney, a lobbyist with the Fairfax Chamber of Commerce.

"If this county becomes a high-tax zone... we can easily focus our efforts on other areas of Northern Virginia, Maryland or the district," according to a APC statement sent to Fairfax County supervisors before the vote.

APC's lobbying was aided by Ericsson Inc., which builds cellular phones. "We have selected Fairfax County as the site of our eastern regional headquarters.... If a new tax turns away even one company like Ericsson, it will cost Fairfax County more in lost jobs and lost tax revenue than it ever could bring in from companies paying the tax," said Kent Sander, who runs Ericsson's local operations from an office in Reston, Va.

The Fairfax tax proposal was intended to help close a $125 million gap in the county's $2.2 billion budget. Growing school enrollment and other rising expenses forced the county's 10-member Board of Supervisors to consider a package of spending cuts and tax increases.

Many counties nationwide, such as Fairfax, are trying to pay their growing bills by taxing emerging industries, such as communications or software.

But industry officials often win these fights by threatening to move to rival jurisdictions with lower taxes.

During the Fairfax County budget debate, government-sector unions, teachers and parents argued against cuts in education spending, which is the largest item in the county's budget. In turn, the local business community opposed the tax increases. "They need to look at their spending," said Looney.

One reason for Fairfax's decision to drop the tax proposal was the recently announced transfer of America Online Inc.'s headquarters from Vienna, Va., in Fairfax County to Sterling, Va., in Loudoun County. The company has grown from 500 employees in 1994 to more than 4,000 today.


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