It Depends on How You Define "Is"

You can always tell when lawyers, accountants, and politicians meander into the realm of engineering. One way or another, things always get fouled up.

In Missouri, for instance, the question is whether a cell phone is really a telephone -- or is it something else? Actually, the answer sounds (no pun intended) straightforward. According to dictionary.com a telephone is "an apparatus, system, or process for transmission of sound or speech to a distant point, esp. by an electric device." That seems general enough to cover all kinds of phones, mobile and otherwise. Right?

Well, maybe for you and me, but not for phone companies like Sprint Nextel and Verizon Wireless. They say that their companies don't sell "telephone service" but instead sell "radio transmissions." So what's the big deal? Money, and lots of it. Millions of dollars, in fact.

As it turns out, Missouri has had for decades laws on the books that tax telephone services. The justification for the tax was that public utilities -- including telephone companies -- compensated governments for the use of publicly owned rights of way, which the companies needed for poles, lines, or other equipment. And, you guessed it, they want to collect taxes on cell phone services. That's where Sprint Nextel and Verizon draw the line, saying they aren't phone companies, but radio transmission companies.

For Missouri, that would mean about $80-$100 million a year in tax revenues for local governments. However, the cell phone companies refuse to pay, and unpaid back taxes and penalties are currently estimated at from $300-$600 million. Okay, Sprint Nextel and Verizon are now paying, but under protest.

Verizon is basing its claims on the fact that its wireless service travels through radio transmissions rather than wires or fiber-optic cables. Furthermore, the company says its towers are outside public rights of way.

Of course, consumers will lose no matter how it turns out. If the phone companies win, then the public is out useful tax dollars. If the state and local governments win, the cost of the taxes will be passed on to consumer.

So is a cell phone a phone or not? I guess it all depends on how you define "is".

Posted by Jon Erickson at 04:32 PM  Permalink