Verizon has avoided paying local taxes on telecom equipment in many New Jersey municipalities over the past decade, but a proposed state law would force the company to pay back taxes for all the payments it didn't make.

The bill, filed on May 23 by Assemblyman John Burzichelli (D–Paulsboro), "would force Verizon to pay local taxes on telephone poles, lines, land, and other equipment that the telecom giant has refused to fork over in an increasing number of New Jersey municipalities, starving them of tens of millions of dollars a year in tax revenue," The Philadelphia Inquirer reported. As of 2015, Verizon had reportedly stopped paying the tax in more than 150 of the 565 municipalities in New Jersey.

The tax Verizon has avoided ranges from $15,000 to more than $1 million a year for each municipality, taking revenue away from local budgets or forcing residents and other businesses to cover the shortfalls. Despite not paying tax in many cities and towns, local officials point out that Verizon "continues to benefit from the use of municipalities' poles, utility lines, and switching facilities even when it no longer pays taxes," a 2015 Inquirer article said.

Verizon miscounted market share

The tax dispute centers on a 1997 amendment to state tax law that required "business personal property" payments from landline phone companies that provide "dial tone and access to 51 percent of a local telephone exchange."

Verizon started notifying some towns in 2008 that it would stop paying the tax. The company said its market share had dropped below the 51 percent threshold.

After that, a municipality of 2,000 people known as Hopewell Borough began a 10-year legal battle against Verizon. The borough alleged that Verizon violated the state tax law, and in January 2019, Hopewell scored a victory in a New Jersey Tax Court. The "trial revealed that Verizon had substantially underestimated its market share," the Inquirer wrote. "Instead of the 44 percent to 48 percent of the borough that Verizon claimed to serve, Verizon's share was closer to 90 percent, [Judge Mary Siobhan Brennan] concluded."

Verizon underestimated its market share in part by counting 10,000 phone lines at a large Merrill Lynch complex served by AT&T, but those were outside the Hopewell boundaries.

The Tax Court ruling said:

At the time Verizon notified the Borough that it was not going to pay the tax, Verizon was unaware that the entire block of 609-274 [Area Code] numbers had been obtained by a single competitor to service a single customer that was geographically located outside the boundaries of the tariff exchange map associated with the Hopewell Rate Center.

The court agreed with Hopewell's assessment that Verizon owed taxes on $1,897,655 worth of property for the tax year, which amounted to a tax bill of $38,655. But the Verizon/Hopewell court ruling applies only to taxes in 2009, and Hopewell would have to prove Verizon's market share for each subsequent year was at least 51 percent in order to collect taxes past 2009. Hopewell reportedly estimates it has spent at least $200,000 on legal fees in fighting Verizon.

"We did our neighbors a huge favor," Hopewell Mayor Paul Anzano told the Inquirer after the court victory, referring to other New Jersey towns seeking similar payments from Verizon. "We showed the way. We were never mad at Verizon. We knew what they were doing. We did not think we should pass on a revenue stream at the expense of taxpayers."

Legislature could force Verizon to pay

Assemblyman Burzichelli wants to make sure that Hopewell Borough can collect for all subsequent years without further legal battles and that towns throughout New Jersey can collect from Verizon for all those years as well. Burzichelli's legislation says that the Tax Court "incorrectly construed" the 1997 changes to tax law to mean that "a telecommunications company has to meet the 51 percent test every year as of the assessment date in order for the business personal property tax to be assessed and levied by the municipality in which the business personal property was located."

In reality, according to Burzichelli, the 1997 change to state law "was intended to permanently make part of a municipality's property tax base the business personal property of all incumbent local exchange companies that were then subject to that tax and were a telecommunications carrier then meeting the definition of providing dial tone and access to 51 percent of a local telephone exchange."

The incorrect interpretation of the law has led to an "unintended erosion of the local property tax base," forcing other taxpayers to pay more to cover the gaps, he wrote. Burzichelli's statement on his bill said it will reinstate the legislature's original intent:

This bill will restore the local property tax status quo intended to be determined in 1997 by revising the definition of "local exchange telephone company" to mean a telecommunications carrier which held the regional monopoly on landline service before the market was opened to competitive local exchange carriers by the federal Telecommunications Act of 1996 or the corporate successors of such a local exchange telephone company. This will accomplish two important purposes: first, it will require that the dominant telecommunications carrier in each region pay the business personal property tax on its business personal property regardless of the percentage of a local telephone exchange that it serves, and will permanently enshrine that business personal property into the tax base of the municipalities in which it is located.

The bill would be retroactive to 2007, forcing Verizon to pay a decade's worth of back taxes to many towns. The proposed law would also force companies like Verizon to reimburse towns for attorneys' fees if towns prevail in future court cases over the tax.

When contacted by Ars today, a Verizon spokesperson declined to comment on the bill or on allegations that it violated existing tax law.

No votes have been taken on the bill yet, but Burzichelli told the Inquirer that its chances are "very good." Burzichelli is chair of the Assembly's Appropriations Committee and was described by the Inquirer as a "powerful legislator."