TELECOM Digest OnLine - Sorted: Cellphone Tax Started in Alexandria, VA

Cellphone Tax Started in Alexandria, VA

Lisa Minter (
Thu, 16 Jun 2005 23:22:21 -0500

By Robert MacMillan
Special to The Washington Post

Using a cell phone is Alexandria is about to become more expensive --
$3 a month more expensive.

The City Council approved a new tax on cell phones as part of the
fiscal 2006 budget. It will help make up some of the money that the
city will lose after the real estate tax rate was lowered in order to
provide relief to homeowners. Residents will see the new charge on
their cell phone bills starting in September.

The tax will bring in an estimated $1.7 million in fiscal 2006, city
officials said, about one-third of 1 percent of the city's $468
million budget. Residents will pay $3 a month on cell phone bills of
more than $30, while those on lower-cost plans will be charged 10
percent of their monthly bill.

Other measures passed to offset the real estate tax cut include a
20-cent increase in cigarette sales tax and a new entertainment
surcharge on items such as movie tickets.

Taxing the growing number of cell phone users should help offset the
losses created by a reduction in the real estate tax rate, Mayor
William D. Euille (D) said.

"I was just sitting in my car at the intersection. I looked around at
15 or 20 other cars, and everybody had a cell phone," said Euille, who
estimates that he spends more than $100 a month on cell service.

Barry Murphy, a 46-year-old realty agent and Alexandria homeowner,
said the tax amounts to about a latte a month for him. He carries two
cell phones -- one that runs on Cingular's network and another on the
Verizon Wireless network-- and uses whichever one gets better
reception in a given part of town.

"I don't mind paying some taxes as long as [we get] more value" from
the city, said Murphy, who pays several hundred dollars a month in
cell phone bills.

But some residents said $3 could make the difference between being
able to afford a cell phone and going without.

Tawanda Moore said she works 25 hours a week at the Fuddruckers
restaurant on Duke Street for $7.50 an hour. She said the tax will
make it difficult for her to buy a cell phone.

"There are other ways for [the government] to get their money," said
Moore, 33.

For years, Alexandria has relied on a dependable 25 percent tax on
local phone service, bringing in an average of $7.50 per phone line
every month. But the revenue stream has been drying up as more
residents drop their regular phone service for a cell phone-only
lifestyle. There were about 113,000 residential and business land
lines in operation in the city as of July 2004, a drop from more than
120,000 two years earlier, according to Bruce Johnson, director of the
city's Office of Management and Budget.

Federal Communications Commission statistics show a similar change
nationwide -- a 6 percent drop in U.S. land lines from 2000 to
2004. Four percent of U.S. households say they have cut the cord
altogether in favor of cell phones, but that number could swell to 12
percent by next year, according to a report released in May by
Cambridge, Mass.-based Forrester Research Inc.

In another indication of an accelerating shift from hard-wired phones
to mobile handsets, there were 173.2 million active phone lines as of
the end of 2004, while cell phone companies counted 178.2 million
users, according to IDC, a research firm also based in Cambridge.

"Obviously, a lot of people have figured out that they have two phones
in their life and they both serve the same purpose," said Kevin
Burden, a telecommunications analyst with IDC.

Fairfax, Loudoun, Prince William and Spotsylvania counties already
have cell phone taxes. In Maryland, however, cell phone taxes sparked
an ongoing multimillion-dollar lawsuit by four cellular service
providers against Montgomery County and the city of Baltimore.
Montgomery County collects a $2 monthly tax on cell usage,
while Baltimore collects $3.50 per month for each phone. Cell phone
companies argue that the fees amount to an illegal sales tax.

Montgomery County expects to raise more tax dollars from cell phones
than from land lines in 2005, the first time this has happened, said
Robert Hagedoorn, chief of the county's Treasury Division.

Verizon Wireless is one of the companies suing Baltimore and
Montgomery County, along with Cingular, Sprint and T-Mobile. It also
sued Pennsylvania to force the state to repeal a 5 percent
gross-receipts tax on cell phone use. That lawsuit is also pending.

Verizon officials say they do not plan to sue Alexandria or any other
Virginia jurisdiction because the state has a law in place that allows
local cell phone taxes, said Annabelle Canning, assistant general
counsel for tax policy for Verizon Wireless.

Instead, the cell phone industry will try to persuade the Virginia
General Assembly to approve legislation next year that would require
all telecommunications services to be taxed the same way throughout
the state.

A similar effort to set a straight 5 percent state tax failed earlier
this year after satellite companies such as DirecTV started a
letter-writing campaign, urging customers to write their
representatives and ask them to oppose what the companies said would
be a new tax on their service.

The Virginia effort highlights a debate about how different services
should be taxed when technological advances allow people to
communicate through a variety of devices. For example, people who use
cell phones, BlackBerrys and land-line phones will be taxed in
Alexandria, but not people who use increasingly popular Internet-based
phone services such as Vonage, because calls made over the Internet
are protected by a seven-year-old nationwide ban on Internet access

Robert MacMillan is a staff writer for He writes the Web
site's Random Access column, available at

Copyright 2005 The Washington Post Company

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