TTA members should begin seeing a lower tax bill next year thanks to the passage of a property tax bill from the state legislature.
The mechanics of the legislation are complicated, but the net effect should lead to a total tax savings of about $2 million annually for the TTA membership.
“We hear so much about the slow pace of change in government, but I am very proud to see that our representatives in Nashville moved quickly and decisively to even out the tax rate for broadband providers in Tennessee,” said TTA Executive Director Levoy Knowles.
The new legislation is a result of TTA and its members making lawmakers aware of the disparity in ad valorem tax rates between telcos and their competitors. For years, cable companies or other providers designated as “commercial” companies paid ad valorem taxes at 40 percent of the assessed value of their real property and 30 percent of their personal property. Telcos, which were still classified as utilities, paid taxes at 55 percent in both categories. The difference amounts to approximately $15 million in taxes annually for Tennessee telcos, some of which was offset by redirecting long-distance sales tax.
At the urging of TTA and its members, Rep. Charles Sargent, R-Franklin, introduced House Bill 1367 this session, with the intent of dropping the rates for telcos and Tier 2 companies like iRis Networks down to the commercial rates. Sen. Paul Bailey, R-Sparta, introduced a similar bill in the Senate and was instrumental in the passage on that side of the legislature. It was passed by the House on May 9 and then the Senate on May 10.
“This is great news that puts money in the pockets of TTA members that they can now invest in improving the networks that serve thousands of Tennesseans,” Knowles said. “For years now, TTA members have been paying a significantly higher tax rate than our competitors. Now that the playing field is level, I’ll be pleased to see what TTA members can accomplish with this extra capital.”
The legislation — which applies to cooperatives, regulated companies and their subsidiaries — passed 88-0 in the House and 32-0 in the Senate.
While the new rules take effect on Jan. 1, 2018, the legislation includes additional requirements to offset the full amount of the savings in the first four years. To ease the drop in tax revenue on the state and local governments collecting it, telcos agreed to pay two separate “privilege taxes” of $4 million in 2018, $3 million in 2019, $2 million in 2020 and $1 million in 2021 before phasing out the tax. The second privilege tax is $750,000 annually for the first three years and then $500,000 annually for the next two.
Even with the privilege tax — of which large providers will pay the majority — the new legislation should mean several hundred of thousands of dollars in savings for TTA members as a whole starting with their 2018 taxes.