Verizon Communications Inc. has stopped paying millions of dollars in taxes to at least 143 New Jersey towns as customers retreat from the company's traditional copper telephone lines, state and local officials say.
For decades, Verizon, the state's legacy Baby Bell, has paid taxes on its telephone poles, wires, and switching facilities.
But as customers move to cell and cable-based phones, Verizon has increasingly stopped paying taxes on its older equipment, leaving more towns in the lurch every year.
Hopewell Borough in Mercer County has sued over the lost revenues, so far unsuccessfully, though many officials are pulling for it to win. At its most basic level, the case shows the perils of local governments' relying on a tax that hasn't kept pace with technology.
Verizon so far has prevailed in the case against Hopewell involving the business personal property tax, or BPPT, which the firm had paid since 1940.
State law says the company can cease BPPT payments in towns once its market share for landline phone service falls below 51 percent, Verizon spokesman John Bonomo said.
That state tax case will now move to its next phase to determine how Verizon calculates its local phone-market share.
But town officials say Verizon holds all the cards in the dispute. The company, one of the largest and most profitable corporations based in New Jersey, is doing its own math to determine when its market share falls below 51 percent and it can stop paying the tax.
Local officials also say Verizon's position has shifted the tax burden onto homeowners and other property owners as towns are forced to replace lost Verizon revenue - ranging from $15,000 to more than $1 million a year for a municipality. The company, the officials add, continues to benefit from the use of municipalities' poles, utility lines, and switching facilities even when it no longer pays taxes.
Verizon paid more than $50 million a year in BPPT to New Jersey towns, according to a 2009 published report. Verizon has not commented on how much it has stopped paying, but the amount is substantial based on anecdotal reports.
The loss is dramatic for tiny Palmyra, where Verizon will pay $3.32 in BPPT taxes this year, down from $15,977 in 2013.
The tax payment "gets you a cup of coffee, but it doesn't get you a cup of coffee and two doughnuts," noted borough administrator John J. Gural.
Verizon, he believes, is "balancing its books on the backs of Palmyra residents."
Willingboro in Burlington County has lost $143,000 in BPPT taxes in recent years - which could finance about two police officers, says Township Manager Joanne Diggs - and Gloucester City in Camden County lost $96,000 this year.
"The effect is like any major tax appeal or loss of a large ratable property, and the burden of making up the lost revenue falls on the other taxpayers," said Gloucester City chief financial officer Frank Robinson. He said the loss would mean an additional $20 a year in taxes on Gloucester's residential taxpayers.
Camden County tax officials estimate that Verizon has taken $44 million in ratables off the books in Gloucester City and other Camden County towns over the last four years, which represents an estimated $1 million in lost BPPT tax revenue for Brooklawn, Collingswood, Lindenwold, Somerdale, and others. They expect another batch of Camden County towns to lose the BPPT this year.
Kevin Werbach, an expert in telecom law at the Wharton School at the University of Pennsylvania, says tax policy in New Jersey seems to be trailing the nation's rapidly evolving infrastructure of Internet phone, high-speed broadband, and mobile services. "The tax system may need to be rethought," he said.
Pennsylvania has no state tax on telephone poles and lines. But the state does collect the Pennsylvania Utility Realty Tax, or PURTA, on utility-owned real estate. Verizon and other utility firms pay the tax to the Department of Revenue, which then distributes the money to towns. The state's PURTA collections have remained relatively stable in recent years, though the state would not disclose Verizon's contributions.
In New Jersey, the Hopewell tax case isn't the first time that Verizon has upset town officials. For years, the company has chosen to put its more advanced FIOS services in higher-income towns and neighborhoods, leading to charges that it is cherry-picking affluent customers and leaving poorer towns out in the cold.
Verizon began its tax pullback in 2008, when it informed five New Jersey towns - Dover, Hopewell Borough, Victory Gardens, Wrightstown, and Wharton - that it would no longer pay the BPPT because its local phone market share had slipped below 51 percent.
Hopewell appealed the decision to tax court. Though the case is not fully resolved, Verizon has added each year to the roster of no-BPPT towns.
"The tax court agreed with Verizon's interpretation of the statute," firm spokesman Bonomo said in an email. "Once a provider subject to the tax no longer provides greater than 51 percent of the local exchange service in a municipality, the BPPT obligations cease."
Bonomo wouldn't say how 51 percent was calculated - if it included phone service through high-speed fiber-optic lines - because of the tax appeal. At the local level, Verizon still pays the BPPT in towns where it has not abandoned it and franchise fees for FiOS TV. And it still is subject to state and federal taxes.
The New Jersey League of Municipalities now cites 143 towns that have lost BPPT and expects that Verizon eliminated more towns for the current fiscal year, taking the total to over 150 municipalities. Verizon says the number of New Jersey towns that lost the BPPT tax was below 200. The state incorporates 565 towns, boroughs, and villages. Verizon has long been the largest phone provider in the state and the largest BPPT payer.
Brian C. Wahler, the mayor of Piscataway in Middlesex County and league president, said "the biggest bone of contention" for local officials is that Verizon decides if it should pay the tax without outside scrutiny.
Verizon has the money to hire lawyers and lobbyists "to drag this out for years, and the towns don't have the resources to do the same," Wahler said. "It's almost like the towns are being taken to the cleaners by guys in $3,000 Armani suits."
The BPPT tax "is one of the very few revenue streams outside of property taxes for New Jersey towns," he added.
All eyes now are on the Hopewell case, which has not been scheduled for a hearing in state tax court. "We don't know why it hasn't been scheduled," borough administrator Michele Hovan said. "We are all frustrated."
As for the final outcome, Hovan said, "we gave it our best shot."