Contact your House and Senate members and urge them to oppose legislation that would grant certain industries (e.g. wireless, rental car, and online travel) preferential tax treatment and threaten the fiscal health of local governments.
In recent years, a growing number of industries have actively urged Congress to preempt state and local government taxing authority over their particular business model. While local taxing authority and practices differ by state, local governments tailor their tax policy by accounting for the sources of revenue available and the needs and desires of their residents. Representatives from the wireless, rental car and online travel industries are asking Congress to restrict the ability of state and local governments to decide their own tax classifications for businesses. If preferential tax laws are enacted according to industry wishes, state and local governments would be forced to impose the same tax rate for every industry and every service. This could reduce revenues for local services and undermine the existence of independent state and local taxation authority in our system of federalism.
Several preemption bills were introduced in the 114th Congress that would have negatively impacted state and local taxing authority. The Wireless Tax Fairness Act of 2015 (H.R. 4287) would have prohibited state and local governments from imposing any new “discriminatory” taxes on wireless service providers and property. The End Discriminatory State Taxes for Automobile Renters Act of 2015 (H.R. 1528, S. 1164), would have preempted state and local governments’ ability to impose “discriminatory” taxes on automobile rentals and property related to renting automobiles. The End Discriminatory State Taxes for Automobile Renters Act was reintroduced in the 115th Congress as H.R. 2024 and S. 1159. The others have not been reintroduced as stand-alone bills. Finally, the Digital Goods and Services Tax Fairness Act of 2015 (H.R. 1643, S. 851) sought to regulate state and local governments’ taxation of downloaded music, movies and online services.
Further complicating these issues is the sharp rise in the sharing economy where operations like Airbnb (users can shop for rooms in private residences to rent versus traditional hotel rooms) and Uber (individuals can provide rides in personal vehicles much like a taxi to users) have introduced a new economic dynamic that traditional tax systems did not originally contemplate.
KEY TALKING POINTS:
WIRELESS INDUSTRY KEY ISSUES:
- A study released by NACo and other national local government associations disputes the telecommunications industry’s argument that it is subject to a greater tax burden than general businesses nationwide. The industry unfairly mixes taxes with user fees and fails to disclose that telecommunications companies pay significantly lower corporate income taxes than other businesses.
- Arguments that current tax policies have stymied the growth of the wireless industry are undercut by data that demonstrates otherwise. In mid-year 2005, there were only 194 million wireless subscribers, representing 66 percent of the nation’s total population. But by mid-year 2010, there were over 292 million cell phone subscribers in the U.S., representing 93 percent of the nation’s total population.
- State and local taxes of wireless services are not an obstacle to wireless broadband deployment – it is the broader economics of the wireless communications industry that is the reason for slower (or non-existent) deployment in rural areas. Providers target areas of deployment where they will receive the greatest return on their investment – areas with dense population that will lead to greater penetration and higher revenues per mile of construction.
RENTAL CAR INDUSTRY KEY ISSUES:
- Rental car taxes may be placed on cars rented from airport locations that are then used for capital improvements and tourism campaigns that directly benefit the rental car companies themselves.
- Revenue collected may also go towards a variety of government services and programs, including infrastructure development, public safety and emergency services that benefit areas in and around airports.
ONLINE TRAVEL INDUSTRY KEY ISSUES:
- Online travel companies such as Expedia and Travelocity purchase room rentals from hotels at wholesale rates. The companies then sell those same room rentals to customers at a higher retail rate. Many jurisdictions became aware that the online travel companies chose to calculate the state and local hotel occupancy tax using the wholesale rate rather than the retail rate paid by the customer. Online travel companies have
- sought legislation that would allow them to continue this misleading practice, which results in lower taxes collected by state and local jurisdictions for rooms booked online rather than directly with a hotel and without cost savings to consumers.
- State and local governments are estimated to be losing $275 million to $400 million in revenue each year because of this practice.
- Many counties use this revenue for infrastructure and public safety needs, as well as for programs to boost local tourism.
DIGITAL GOODS AND SERVICES KEY ISSUES:
- The Digital Goods and Services Tax Fairness Act (H.R. 1643) is being pushed by companies engaged in the growing area of consumer and business purchases of goods and services like downloaded music and movies, online photo storage and payroll processing.
- Proponents of the bill claim it is necessary to ban multiple and discriminatory taxes on digital goods and services even though no evidence has been presented thus far that demonstrates state and local governments are engaging in this practice.
- If the legislation ever becomes law, state and local government tax collections would see an immediate and significant reduction. Furthermore, with the increasing shift to online technologies by more types of entertainment, information and business services, the revenue losses would continue to grow over time. For counties, this is much needed revenue that goes towards a variety of essential public services for local communities.
- In 2015, the Congressional Budget Office (CBO) scored H.R. 1643 as imposing an unfunded mandate on state and local governments. CBO estimated that the cost in foregone revenues to state and local governments would total approximately $1 billion in the first full year of enactment and at least that amount in each subsequent year, far exceeding the threshold established in the Unfunded Mandates Relief Act for intergovernmental mandates ($77 million in 2015, adjusted annually for inflation).