    [House Hearing, 110 Congress]
    [From the U.S. Government Publishing Office]

                         CELL TAX FAIRNESS ACT OF 2008

    =======================================================================

                                    HEARING

                                   BEFORE THE

                                SUBCOMMITTEE ON
                       COMMERCIAL AND ADMINISTRATIVE LAW

                                     OF THE

                           COMMITTEE ON THE JUDICIARY
                            HOUSE OF REPRESENTATIVES

                           ONE HUNDRED TENTH CONGRESS

                                 SECOND SESSION

                                       ON

                                   H.R. 5793

                                   __________

                               SEPTEMBER 18, 2008

                                   __________

                               Serial No. 110-209

                                   __________

             Printed for the use of the Committee on the Judiciary

          Available via the World Wide Web: http://judiciary.house.gov

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                           COMMITTEE ON THE JUDICIARY

                     JOHN CONYERS, Jr., Michigan, Chairman
    HOWARD L. BERMAN, California         LAMAR SMITH, Texas
    RICK BOUCHER, Virginia               F. JAMES SENSENBRENNER, Jr.,
    JERROLD NADLER, New York                 Wisconsin
    ROBERT C. ``BOBBY'' SCOTT, Virginia  HOWARD COBLE, North Carolina
    MELVIN L. WATT, North Carolina       ELTON GALLEGLY, California
    ZOE LOFGREN, California              BOB GOODLATTE, Virginia
    SHEILA JACKSON LEE, Texas            STEVE CHABOT, Ohio
    MAXINE WATERS, California            DANIEL E. LUNGREN, California
    WILLIAM D. DELAHUNT, Massachusetts   CHRIS CANNON, Utah
    ROBERT WEXLER, Florida               RIC KELLER, Florida
    LINDA T. SANCHEZ, California         DARRELL ISSA, California
    STEVE COHEN, Tennessee               MIKE PENCE, Indiana
    HANK JOHNSON, Georgia                J. RANDY FORBES, Virginia
    BETTY SUTTON, Ohio                   STEVE KING, Iowa
    LUIS V. GUTIERREZ, Illinois          TOM FEENEY, Florida
    BRAD SHERMAN, California             TRENT FRANKS, Arizona
    TAMMY BALDWIN, Wisconsin             LOUIE GOHMERT, Texas
    ANTHONY D. WEINER, New York          JIM JORDAN, Ohio
    ADAM B. SCHIFF, California
    ARTUR DAVIS, Alabama
    DEBBIE WASSERMAN SCHULTZ, Florida
    KEITH ELLISON, Minnesota

                Perry Apelbaum, Staff Director and Chief Counsel
          Sean McLaughlin, Minority Chief of Staff and General Counsel
                                     ------

               Subcommittee on Commercial and Administrative Law

                    LINDA T. SANCHEZ, California, Chairwoman

    JOHN CONYERS, Jr., Michigan          CHRIS CANNON, Utah
    HANK JOHNSON, Georgia                JIM JORDAN, Ohio
    ZOE LOFGREN, California              RIC KELLER, Florida
    WILLIAM D. DELAHUNT, Massachusetts   TOM FEENEY, Florida
    MELVIN L. WATT, North Carolina       TRENT FRANKS, Arizona
    STEVE COHEN, Tennessee

                         Michone Johnson, Chief Counsel

                        Daniel Flores, Minority Counsel

                                C O N T E N T S

                                  ----------

                               SEPTEMBER 18, 2008

                                                                       Page

                                    THE BILL

    H.R. 5793, the ``Cell Tax Fairness Act of 2008''.................     3

                               OPENING STATEMENTS

    The Honorable Linda T. Sanchez, a Representative in Congress from
      the State of California, and Chairwoman, Subcommittee on
      Commercial and Administrative Law..............................     1
    The Honorable Chris Cannon, a Representative in Congress from the
      State of Utah, and Ranking Member, Subcommittee on Commercial
      and Administrative Law.........................................    10
    The Honorable Zoe Lofgren, a Representative in Congress from the
      State of California, and Member, Subcommittee on Commercial and
      Administrative Law.............................................    11

                                   WITNESSES

    Ms. Gail W. Mahoney, Commissioner, Jackson County, Michigan,
      Jackson, MI, on behalf of the National Association of Counties
      Oral Testimony.................................................    19
      Prepared Statement.............................................    22
    The Honorable James F. Clayborne, Jr., Illinois State Senator,
      Belleville, IL
      Oral Testimony.................................................    25
      Prepared Statement.............................................    27
    Scott R. Mackey, Esquire, Kimbell Sherman Ellis, Montpelier, VT
      Oral Testimony.................................................    31
      Prepared Statement.............................................    33
    Tillman L. Lay, Esquire, Spiegel & McDiarmid, LLP, Washington,
      DC, on behalf of the U.S. Conference of Mayors, the National
      League of Cities, the Government Finance Officers Association,
      the National Association of Telecommunications Officers and
      Administrators
      Oral Testimony.................................................    41
      Prepared Statement.............................................    43

              LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

    Letters of Support from the National Black Chamber of Commerce,
      the Chamber of Commerce of the United States of America, and
      the National Association of Neighborhoods (NAN)................    13
    Prepared Statement of the Honorable Lamar Smith, a Representative
      in Congress from the State of Texas, and Ranking Member,
      Committee on the Judiciary.....................................    59
    Prepared Statement of the Honorable John Conyers, Jr., a
      Representative in Congress from the State of Michigan,
      Chairman, Committee on the Judiciary, and Member, Subcommittee
      on Commercial and Administrative Law...........................    60

                                    APPENDIX
                   Material Submitted for the Hearing Record

    Answers to Post-Hearing Questions from Gail W. Mahoney,
      Commissioner, Jackson County, Michigan, Jackson, MI, on behalf
      of the National Association of Counties........................    64
    Answers to Post-Hearing Questions from the Honorable James
      Clayborne, Illinois State Senator, Belleville, IL..............    66
    Answers to Post-Hearing Questions from Scott Mackey, Esquire,
      Kimbell Sherman Ellis, Montpelier, VT..........................    67
    Answers to Post-Hearing Questions from Tillman L. Lay, Esquire,
      Spiegel & McDiarmid, LLP, Washington, DC, on behalf of the U.S.
      Conference of Mayors, the National League of Cities, the
      Government Finance Officers Association, the National
      Association of Telecommunications Officers and Administrators..    72

                         CELL TAX FAIRNESS ACT OF 2008

                                  ----------

                          THURSDAY, SEPTEMBER 18, 2008

                  House of Representatives,
                         Subcommittee on Commercial
                                and Administrative Law,
                                    Committee on the Judiciary,
                                                        Washington, DC.

        The Subcommittee met, pursuant to notice, at 1:08 p.m., in
    room 2141, Rayburn House Office Building, the Honorable Linda
    Sanchez (Chairwoman of the Subcommittee) presiding.
        Present: Representatives Sanchez, Lofgren, Watt, Cannon,
    Jordan, and Keller.
        Staff present: Michone Johnson, Majority Chief Counsel;
    Norberto Salinas, Majority Counsel; Adam Russell, Professional
    Staff Member; and Stewart Jeffries, Minority Counsel.
        Ms. Sanchez. The Subcommittee on Commercial and
    Administrative Law will now come to order. Without objection,
    the Chair will be authorized to declare a recess of the
    hearing. And I will now recognize myself for a short statement.
        In a world where text messaging, Internet capability,
    digital music and instant voice communication at the push of a
    button are commonplace, wireless services are becoming more
    prevalent than ever. In fact, over the last decade, the number
    of cell-phone subscribers has quadrupled to over 250 million.
        Not only have wireless phones become required for many
    businesses, but they have also become ingrained in daily life.
    Cellular phones provide a platform for friends to
    instantaneously chat, for businesses to pitch proposals, and
    for those who are in distress due to natural disasters, to make
    emergency contact. Couple these benefits with cell phones' ease
    of use and competitive pricing, and it is no wonder that the
    public has quickly come to rely on them.
        But as the popularity of cell phones has grown, the
    wireless industry maintains that local and State tax rates on
    wireless services have steadily increased. The wireless
    industry has raised pointed concerns that local and State
    governments have disproportionately raised these tax rates and
    fees, when compared to other services and goods.
        State and local governments generally dispute those
    charges. They suggest that they are simply restructuring their
    tax bases, in light of the trend away from landline
    communication. Further, they contend that the tax burden should
    not necessarily be applied evenly across different industries.
        Many types of industries are subject to their own special
    taxes, including not only tobacco and alcohol, but also travel,
    hotels, entertainment, transportation and public utilities.
        Today's legislative hearing will provide us with the
    opportunity to hear testimony on the taxes and fees imposed on
    wireless services and providers. The testimony will also assist
    us in determining whether the tax-and-fee burden is truly
    unfair, and not justifiable.
        Additionally, we will examine H.R. 5793, the ``Cell Tax
    Fairness Act of 2008,'' which seeks to impose a 5-year
    moratorium on new, discriminatorily imposed taxes and fees on
    wireless services and providers.
        As we hear today's testimony, we must remember to balance
    the competing interests concerning the issues addressed by this
    legislation. As consumers, we want to pay lower taxes and fees
    on our wireless services, but as legislators, we understand
    that State and local governments need revenue to provide the
    services we need and expect from them. Accordingly, I am very
    much looking forward to hearing today's testimony.
        [The bill, H.R. 5793, follows:]

        Ms. Sanchez. At this time, I will now recognize my
    colleague, Mr. Cannon, the Ranking Member of this Subcommittee,
    and the lead Republican co-sponsor of the legislation, for his
    opening remarks.
        Mr. Cannon. Thank you, Madam Chair. It is a pleasure to be
    here today.
        And I would like to thank the witnesses for joining us at
    this hearing.
        The Chair may recall that, at the markup of the State Video
    Tax Fairness Act in July, I requested that we hold one final
    hearing on H.R. 5793, the ``Cell Tax Fairness Act of 2008,''
    which was introduced by the gentlelady from California, Ms.
    Lofgren, who is with us, here, today.
        At the time that I asked for the hearing, the bill had 75
    co-sponsors, including 12 Members of the Judiciary Committee.
    Today, there are 130 co-sponsors, including 15 Members of the
    Judiciary Committee. And, hopefully, when this bill comes up
    for markup in the 111th Congress, we will have a majority of
    the House as co-sponsors.
        As you know, I am one of the 130 co-sponsors, and I support
    this legislation because it is my belief that States and
    localities unfairly burden phone consumers with excess taxes.
    In my home, for instance, when my home phone rings, nobody
    answers it, because all my kids know that if the call was for
    them, it would be on their cell phone. And I know the same darn
    thing.
        So I occasionally answer the phone. And what do I end up
    doing? Talking to people that want to talk to my wife, who
    hasn't quite--well, actually, she does know how to text--but
    she is not quite at the same level as the rest of the family,
    technologically. She does have a cell phone.
        In fact, maybe what I ought to do is start answering by
    saying, ``Yes, my wife's cell-phone number is--do you have a
    pen? Would you like me to text it to you?'' Because, other than
    that--I mean, if I call home, it--it can ring 30 times before
    we get the--in fact, we took off the answering machine because
    nobody would ever listen to the messages.
        So the world has changed. And nationwide, the average tax
    rate on wireless services is now 14.14 percent, which is more
    than double the average sales-tax rate for all businesses,
    which is about 7.04 percent. These tax rates are more in
    keeping with what we call ``sin taxes,'' that is, taxes on
    alcohol and tobacco, than with a general business taxes.
        And, you know, ``sin taxes,'' we sometimes say, ``are taxes
    on the stupid.'' But this is just a plain tax on poor people--
    let us say the most regressive tax--among the most regressive
    taxes that we could possibly have, and suggests to the mind
    that when we have the Federal telephone tax of 3 percent to
    fund the Spanish-American War, which never went away. And, at
    that time, it was, ``Let us tax those rich people who have
    telephones.''
        It is not rich people anymore. Everybody has telephones.
    And what we really hope is that we empower people who don't
    have as much money today, in the--because we want them to have
    more money with new ideas and new technology, and a robust
    economy tomorrow, as opposed to saying, ``We are just going to
    tax everybody and take money from them.'' This is not like a
    ``sin tax'' in that most profound sense.
        It is my understanding that these taxes on the wireless
    industry are estimated to be nearly $5 billion a year. That is
    an astounding number, and something that warrants the attention
    of the Subcommittee.
        In my time on the Subcommittee, I have seen many hearings--
    and, in fact, I have Chaired many hearings--on the subject of
    discriminatory State taxes. I know that discrimination, at
    least in this context, is often in the eye of the beholder.
    However, to my mind, imposing taxes on the wireless providers
    that are more than double to the general business taxes are, by
    definition, discriminatory.
        In that regard, I am actually relieved to see that one of
    our witnesses here today, County Commissioner Mahoney,
    acknowledges that State and local taxation schemes have not
    kept pace with changing technology. It is refreshing that we
    can have at least a point of agreement in some cases. And
    similarly, it is refreshing that State Senator Clayborne has
    taken the position that a State's revenue is not sacrosanct,
    and that it is possible to tax a class of business too much.
        I know that many States are hurting financially. We just
    read today my State's calling a special session to deal with a
    $200 million budget shortfall. And I respect those concerns,
    and the fact that this bill is going to further reduce tax
    revenues. However, I think this legislation has many features
    that will ensure that it does not diminish the State's
    revenues; rather, it will merely require that States tax
    business uniformly, going forward. I think that it is
    worthwhile--a worthwhile purpose that--one that will benefit
    consumers in the long run.
        And, again, I would like to thank the Chair for exceeding
    to my request for a hearing on this issue, and yield back what
    time remains.
        Ms. Sanchez. The gentleman yields back. And I thank him for
    his statement.
        I would now like to recognize my colleague, Ms. Zoe
    Lofgren, the distinguished Chairwoman of the Immigration
    Subcommittee, for her opening remarks on H.R. 5793, which she
    introduced.
        Ms. Lofgren. Thank you, Chairwoman Sanchez. And, just as
    Mr. Cannon has requested this hearing, I also requested that
    you have this hearing. And I am very appreciative that you have
    carved out time to do this. I know that the schedule is
    unbelievably tough. And I really wanted to thank you and credit
    you for taking the time to do this.
        I decided to introduce the Cell Tax Fairness Act because I
    see that wireless services and mobile devices are going to play
    an essential and, actually, a growing role in affordable
    broadband access in this country. And the FCC has estimated
    that in 2007, last year, 68 percent of all broadband
    subscriptions were wireless subscriptions, which is an
    astonishing percentage.
        And given that the United States is slipping in broadband
    penetration--the last I looked, we were 16th in broadband
    penetration--it is important that we visit this issue.
        The access to broadband is going to be accelerated with the
    spectrum--the 700-megahertz auction. And so it is timely to
    take a look at what impediments we have put into place for
    broadband access.
        I think it is important to note that the tax burden is
    particularly significant for those who use wireless phones.
    Thirty-nine million Americans have--wireless subscribers--have
    incomes of less than $25,000 a year. And so if you take a look
    at the need to penetrate broadband broadly through America, the
    growing opportunity that the spectrum sale is going to give us,
    and the fact that we are slipping, and still way behind,
    especially among low-income Americans--this discriminatory tax
    system that we have identified here, on cell phones--we
    shouldn't even call them cell phones, because they are data
    devices now--is very important.
        Some have suggested that this is really a bill for the
    telecommunications industry. And, as a matter of fact, I have
    been on the opposite side of so many issues when it comes to
    that industry, from net neutrality to spectrum policy, open
    access and the like--this isn't about the cell-phone industry.
    It is about the American people, who need to have access to
    broadband. And taxes do have an impact, and impact behavior.
        Now, I want to say just a word about local government,
    because this is the last year I can say this. I served longer
    on the Board of Supervisors of Santa Clara County than I have
    yet to serve in the United States House of Representatives. And
    I do know that the times are tough in local government. And
    revenue is necessary for the essential services that counties
    and cities do.
        I am very sensitive to that. And I also know that local
    governments are, you know, at the bottom of the feeding chain,
    really, when it comes to local-government services. It all
    rolls to you. And it is very tough to meet the obligations that
    are so important.
        I know that it is almost impossible to avoid taxing
    something that you can tax, when you are facing the needs that
    you have, which is why a Federal law is something we need to
    take a look at.
        Now, it is important to note that this bill, if enacted
    into law, would not prevent--it wouldn't take any taxes away
    that are currently in place. And it wouldn't prevent additional
    taxation, provided that it was the same rate as other goods and
    services. Because, if a local government needs to have a half-
    cent sales tax, then it should apply broadly to whatever is
    taxable in the State. In California, you don't tax food. Other
    States do.
        But for discriminatory taxes, there would be a time out, a
    break. And I think that, as States and local governments
    struggle with telecommunications-taxation policy, and we have
    tried to do that with the Internet-tax moratorium and the like,
    this time-out is highly necessary. Because if we don't do a
    time-out, at the rate of taxation increase on cell taxes, we
    are going to have a huge--an even bigger problem than we have
    today.
        So I want to thank, again the Chairwoman.
        I want to thank Mr. Cannon and his staff for all their hard
    work in making sure that the 130 co-sponsors are bipartisan.
    This is not a partisan issue.
        And I would ask unanimous consent to place in the record,
    letters of support from the U.S. Chamber of Commerce, the
    National Association of Neighborhoods and the Black Chamber of
    Commerce, who have all asked that we support this bill.
        Ms. Sanchez. Without objection, so ordered.
        [The information referred to follows:]

      Letters of Support from the National Black Chamber of Commerce, the
     Chamber of Commerce of the United States of America, and the National
                       Association of Neighborhoods (NAN)

        Ms. Lofgren. And with that, I will yield back, Madam
    Chairwoman--again, thanks for this hearing.
        Ms. Sanchez. I thank the gentlelady for her statement.
        Without objection, other Members' opening statements will
    be included in the record.
        I am now pleased to introduce the witnesses on our panel
    for today's hearing. Our first witness is Gail Mahoney.
    Commissioner Mahoney serves as the county commissioner for
    Jackson County, MI. She is also the deputy director for South
    Central Michigan Works.
        Commissioner Mahoney has served as both chair and vice
    chair of the Human Services Committee, and as chair of the
    Personnel and Finance Committee. Commissioner Mahoney is
    currently a member of that committee.
        Commissioner Mahoney has also been a member of the National
    Association of Counties, Finance, and Intergovernmental
    Steering Committee, since 1996. She serves on numerous boards
    and commissions, including the Jackson County Fair Board, the
    Armory Arts Alliance, Mid-South Substance Abuse Commission,
    which she chairs, Region Two Planning Commission, Passages
    Center for Women's Health of Foote Hospital, and the National
    Association of Black County Officials.
        Welcome, Ms. Mahoney, to our panel.
        Our second witness is James--is it Clayburn or Clyborne?
        Mr. Clayborne. Clayborne.
        Ms. Sanchez. Clayborne. State Senator Clayborne represents
    the 57th district of Illinois. Elected in 1995, he sits on
    several committees, including the Senate Committee on the
    Whole, Executive Appointments, Insurance and Pensions and
    Investments Committees. State Senator Clayborne chairs the
    Environment and Energy Committee, as well.
        Prior to his election to the State senate, Senator
    Clayborne was a partner at Hinshaw & Culbertson in Belleville,
    Illinois, and served as a St. Clair County assistant State's
    attorney.
        Welcome to you.
        Our third witness is Scott Makay--or, I am sorry--Mackey.
    Pardon me. I just made you Irish. [Laughter.]
        Mr. Mackey is a partner at Kimbell Sherman Ellis, KSE, and
    assists clients in designing and implementing successful
    strategies in State capitals. Mr. Mackey joined KSE in 2000,
    and became a partner in 2005.
        Prior to joining KSE, Mr. Mackey was the National
    Conference of State Legislature's chief economist. There, he
    spent 10 years working with legislative leaders on critical
    State issues like the taxation of electronic commerce and
    telecommunications-tax reform. Prior to joining NCSL, Mr.
    Mackey was legislative assistant to U.S. Senator James
    Jeffords, where he handled environmental issues and dairy
    policy.
        Our final witness is Tillman Lay. Mr. Lay is a partner in
    the Washington, D.C. law firm of Spiegel & McDiarmid--did I
    pronounce that correctly?
        He has substantial experience in litigation and counseling
    on telecommunications, cable television, anti-trust and
    constitutional-law matters, before administrative agencies,
    Federal courts and Congress.
        For several years, Mr. Lay has represented and advised the
    National League of Cities, the National Association of
    Counties, the U.S. Conference of Mayors, the National
    Association of Telecommunications Officers and Advisors, and
    other local government organizations and individual
    municipalities, on communications-tax-law matters.
        He has represented municipal organizations in connection
    with, among other communications-tax-law-related matters, the
    Telecommunications Act of 1996, the Internet Tax Freedom Act
    and its extensions, the Mobile Telecommunications Sourcing Act
    of 2000, and previous bills in Congress to reform State and
    local telecommunications taxes.
        I thank you all for your willingness to participate in
    today's hearing. Without objection, your written statements
    will be placed into the record in their entirety. And we are
    going to ask that you limit your oral testimony to 5 minutes.
        You will note that we have a lighting system. And when we
    remember to employ it, you will be given a green light at the
    beginning of your time. You will get a yellow light when you
    have a minute remaining in your time, and then, of course, when
    your time expires, you will see the red light.
        If you are caught mid-sentence or mid-thought, we will, of
    course, allow you to finish that sentence or thought before we
    move on to the next witness. So with that, I--and after each
    witness has presented their testimony, we will have a round of
    questioning from the Members here, subject to the 5-minute
    limit.
        So, with that, I am going to go ahead and invite
    Commissioner Mahoney to please give us her oral testimony.

      TESTIMONY OF GAIL W. MAHONEY, COMMISSIONER, JACKSON COUNTY,
    MICHIGAN, JACKSON, MI, ON BEHALF OF THE NATIONAL ASSOCIATION OF
                                COUNTIES

        Ms. Mahoney. Thank you Chairwoman Sanchez, and the
    distinguished Members of the House Subcommittee on Commercial
    and Administrative Law.
        My name is Gail Wallace Mahoney, and I am a county
    commissioner from Jackson County, Michigan, currently
    completing my seventh term. I am also a member of the Board of
    Directors for the Michigan Association of Counties, and also
    the National Association of Counties, NACo. I am currently
    serving as the chair of the Finance and Intergovernmental
    Affairs Steering Committee.
        I appreciate the opportunity to be before you today on
    behalf of NACo, also the National League of Cities, the United
    States Confronted of Mayors, the National Association and
    Telecommunication Officers and Advisors, and the Government
    Finance Officers Association.
        We are witnessing an explosion in the telecommunications
    technology. Every day, we see new products being introduced to
    the marketplace; new, better, faster services being marketed to
    America's public.
        In a recent report from the FCC, it was stated that there
    were 33.8 million cell-phone subscribers in 1995. Simply 12
    short years later, we have seen a 700 percent increase, up to
    255.4 million subscribers. Along with that explosion, we have
    also seen an explosion in the companies' profits.
        Even to the casual observer, it is clear that the current
    tax statement of cell-phone services by the Federal, State and
    local authorities has not hindered the product innovation and
    services for financial growth. But that is not to say that the
    improvements to the telecommunication-tax schemes can not be
    made.
        Local governments have called for comprehensive reform that
    would ensure revenue's neutrality, and ensure that functionally
    equivalent services that make use of different technologies are
    treated in a similar manner. But the telecommunications-tax
    reform should not be a disguise for Federal preemption of State
    and local governments' taxing authority, nor does comprehensive
    reform mean that a piecemeal approach would give preferential
    treatment to any services, or a means of its delivery. That is
    what H.R. 5793 will do.
        Unlike the Federal Government, which has a projected
    deficit of about $407 billion--really, we believe it is about
    $700 million--most States and local government are required to
    balance their budgets. This job has become more and more
    increasingly difficult across the country, and in many
    jurisdictions.
        It is reported by the Center on Budget Policy Priorities
    that at least 29 States face a combined budget shortfall of $48
    billion for fiscal year 2009. California, alone, nearly has
    about half that amount. It is expected that more States will
    join that list in revenue forecasts updated, probably after the
    election.
        If the combined house collapse and ever-increasing number
    of home foreclosures--throwing in a little bit of unemployment,
    a stagnant growth in economy, a pinch of high fuel costs and a
    dash of investment--bankruptcies from investment firms--you
    have a recipe for economic mess, currently confronting State
    and local governments.
        To make up revenue shortfalls, many local governments find
    themselves in a position of spending reserves, cutting services
    such as fire, police, teachers, and also increasing taxes.
    Jackson County's unemployment rate is higher than the national
    average. We are reaching nearly an 8 percent increase in
    unemployment. In addition, the county has been particularly hit
    hard by mortgage foreclosures and, also, mortgage fraud.
        Because of this situation, along with the downturn of the
    national economy, we will have to make some significant
    reductions in county expenses. We are looking at a possible
    $1.5 million shortfall in 2009. As a county commissioner,
    completing my 14th year, it is my job to make these very
    difficult decisions. This is going to affect our coworkers,
    people that I love and people that, you know, worked for the
    county for over the past 14 years, that I have become
    acquainted with.
        These people are facing a possible 83 people we are going
    to have to cut from our budget. That is why it is so important
    that the officials actually do everything that they can to try
    and provide an opportunity to have every revenue opportunity
    that we can. We cannot afford to have anything taken off the
    table.
        Faced with these looming economic problems, the last thing
    Congress needs to do is to enact legislation that would preempt
    the taxing authority of State and local governments, especially
    such preemptions that will result in the preferential treatment
    of any one technology over another.
        The true aim of this legislation is Federal preemption that
    reduces the level of taxes that cell-phone industry pays the
    State and local governments, and an increase to everyone else's
    taxes. The consumers which have switched their services from
    local landlines, now, to a cell phone--these revenues are
    eroding the city and county's income.
        This may force localities to rely even more heavily on
    property and income taxes. Congress must not take actions that
    will make an already-difficult job even harder.
        Thank you for the opportunity to provide this testimony
    today on behalf of NACo. And I would ask that my full written
    statement be made part of the record. And I look forward to
    answering any questions. Thank you.
        [The prepared statement of Ms. Mahoney follows:]
              Prepared Statement of the Honorable Gail W. Mahoney

        Ms. Sanchez. Thank you, Ms. Mahoney.
        At this time, I would invite Mr. Clayborne to give his
    testimony.

     STATEMENT OF THE HONORABLE JAMES F. CLAYBORNE, JR., ILLINOIS
                     STATE SENATOR, BELLEVILLE, IL

        Mr. Clayborne. Thank you, Chairman Sanchez, Ranking Member
    Cannon, and Members of the Subcommittee.
        My name is James Clayborne. I am the assistant majority
    leader in the Illinois State Senate. I am also a member of the
    National Conference of State Legislator's Communication,
    Financial Services and Interstate Commerce Committee, which
    recently reaffirmed its Communications Policy Statement,
    calling for fair and equitable taxation of communication
    services.
        Thank you for the opportunity to appear before you today to
    testify regarding the importance of H.R. 5793, the ``Cell Tax
    Fairness of 2008.'' To my constituents and the more than 9.5
    million wireless consumers in Illinois, Congresswoman Lofgren
    and Congressman Cannon, are to be commended for the broad
    bipartisan support they have garnered for this bill.
        As you might imagine, as a State senator--a State
    legislator--my Federal bill limiting a State's ability to tax
    is something I take quite seriously. Our system of federalism
    provides State and local policymakers with the authority to
    decide how the State should impose taxes on individuals,
    businesses that reside within their jurisdiction.
        The State's authority to impose that revenue--raise revenue
    to fund government services is a concept that I strongly
    support. However, I believe that another fundamental tenent of
    our Nation's tax system is that taxes should be levied fairly
    on citizens, particular in situations where multiple levels of
    government may have the authority to tax.
        One only needs to look at his or her own wireless bill to
    see that there is nothing fair about the countless number of
    taxes and fees that wireless customers pay today. H.R. 5793 is
    a carefully crafted piece of legislation that calls for a
    temporary 5-year time-out on any new discriminatory tax or fee
    from being added on top of existing levels of taxes imposed
    upon wireless services.
        H.R. 5793 is entirely prospective, meaning that any tax or
    fee that is currently being collected by States and localities
    will continue to be collected. I believe that the prospective
    nature of this legislation is extremely important because it
    recognizes the revenue needs of States and municipalities.
        Last year, the wireless consumers paid nearly $21 billion
    to State, local and Federal Government. None of the $21 billion
    would be rescinded under this legislation.
        My focus here today would be to discuss how we got to where
    we are today, and why I believe that taking a time-out from
    additional discriminatory taxes imposed upon wireless consumers
    is important to my constituents, and consistent with the
    principles adopted by the NCSL.
        The average rate of Federal, State and local taxes and fees
    on wireless is 15.2 percent, compared to the average rate
    imposed on goods, services--which is just over 7 percent--this
    means the tax rate on wireless services are more than double
    the rate on other goods and services.
        Looking at my home state of Illinois, it is ranked the
    ninth-highest in the country, with an average rate of close to
    17 percent. A tax rate of 17 percent upon service that I
    believe is critical to many of my constituents is a financial
    burden. But imagine adding an additional tax on wireless
    consumers.
        Last year, Cook County, Illinois, which encompasses most of
    the city of Chicago, sought to impose a $4-per-line-per-month
    tax on communication services. There was no specific purpose
    given to justify the tax aimed solely at communication
    services. Rather, the revenue was going to be used to plug a
    hole in the county's general-fund budget.
        Had the proposed Cook County tax been added, the rate of
    taxes and of fees on wireless services, if purchased by the
    citizens of Chicago, would have increased to an average of 24
    percent.
        When the people of Cook County learned of the proposed tax
    increases, 3,300 consumers took time to contact their county
    officials to voice their opposition. The actions of these
    consumers in Cook County demonstrate just how unpopular these
    targeted wireless taxes are with consumers.
        As we all know, wireless services are no longer considered
    a luxury. For millions of Americans, these services are crucial
    to their everyday lives, and yet they are taxed at levels that
    are double or even triple the rates imposed on other goods and
    services. Imposing regressive consumption taxes on consumers of
    an essential service such as wireless disproportionately
    impacts low and middle-income consumers, with--unfortunately,
    can put this critical service out of financial reach for some
    of my constituents, who need it the most.
        Had the proposed tax by Cook County go into effect, the
    Chicago residents will be paying an additional $12 on a $50
    bill. Taxing on wireless services at that rate is more than
    double the rate imposed upon goods and services--artificially
    increases the cost of services, and which hurts the economic
    gains that could be achieved by having a more rational tax
    policy.
        Over the past 8 years, NCSL has made communications-tax
    reform a major priority for States to consider. The committee,
    as well as separate tax force, has spent considerable time
    educating state-policy makers on the need to simplify and
    modernize the taxes imposed upon communications services. Even
    though the communications-tax reform has been a major topic of
    NCSL, little progress in achieving such reforms has been made.
        I believe this Subcommittee is uniquely situated to address
    the disparate tax treatment of an inherently interstate
    service. As someone who comes from a State that imposes a 17
    percent tax on wireless services, I know that once these taxes
    are in place, it is very difficult to reduce them. Preventing
    the imposition of new, additional discriminatory taxes on
    consumers, while we try to fix the existing system, will be
    both an economic benefit to consumers, and will also help those
    who cannot afford a computer enjoy the benefits of wireless
    broadband.
        Last year, it was estimated that wireless consumers in my
    State paid almost $1 billion in State, local and Federal
    taxes----
        Ms. Sanchez. Yes.
        Mr. Clayborne [continuing]. And fees imposed upon their
    wireless services. By anyone's measure, be it from State or
    Federal perspective, that is a lot of money, from the one
    subset of consumers, to pay on an essential service.
        That is why I strongly support the passage and enactment of
    H.R. 5793, the ``Cell Tax Fairness Act of 2008.''
        Thank you again for this opportunity to speak to you today.
    I would be happy to answer any questions you may----
        [The prepared statement of Mr. Clayborne follows:]

          Prepared Statement of the Honorable James F. Clayborne, Jr.

        Chairwoman Sanchez, Representative Cannon, and members of the
    Subcommittee, my name is James Clayborne, and I am the Assistant
    Majority Leader of the Illinois State Senate. I am also a member of the
    National Conference of State Legislator's (NCSL) Communications,
    Financial Services & Interstate Commerce Committee which recently
    reaffirmed its communications policy statement calling for fair and
    equitable taxation of communications services.
        Thank you for the opportunity to appear before you today to testify
    regarding the importance of H.R. 5793, the ``Cell Tax Fairness Act of
    2008'' to my constituents and the more than 9.5 million \1\ wireless
    consumers in Illinois. Representatives Lofgren and Cannon are to be
    commended for the broad bi-partisan support they have garnered for this
    bill.
    ---------------------------------------------------------------------------
        \1\ FCC, Annual Report and Analysis of Competitive Market
    Conditions with Respect to Commercial Mobile Service: Twelfth Report,
    FCC 08-028 (Feb. 4, 2008).
    ---------------------------------------------------------------------------
        As you might imagine, as a state legislator, any federal bill
    limiting a state's ability to tax is something that I take very
    seriously. Our system of Federalism provides state and local
    policymakers with the authority to decide how states should impose
    taxes on individuals and businesses that reside within their
    jurisdictions. The states' authority to impose taxes that raise
    revenues to fund government services is a concept that I strongly
    support.
        However, I believe that another fundamental tenet of our nation's
    tax system is that taxes should be levied fairly on our citizens,
    particularly in situations where multiple levels of government may have
    authority to tax. One only needs to look as far as his or her own
    wireless bill to see that there is nothing fair about the countless
    number of taxes and fees imposed upon wireless services today.
        The purpose of H.R. 5793, precluding new discriminatory taxes from
    being added on top of the existing excessive level of taxes imposed
    upon wireless services, is an idea that is hard to disagree with. While
    convergence, competition and the dynamic changes that have taken place
    within the communications industry makes it critical for state
    policymakers to simplify and reform the current state and local taxes
    imposed upon all communication services and property, that goal is
    going to take some time to accomplish. It makes sense that state and
    local governments should not be enacting new discriminatory impositions
    when policymakers and the industry are continuing to work towards
    eliminating the ones that currently exist. Specifically for services
    that consumers rely upon for their communication, information and
    public safety needs
        My focus here today will be to talk about how we got to where we
    are today and why I believe that taking a ``time-out'' from having new,
    additional discriminatory taxes imposed on wireless services is
    important to my constituents and consistent with the principles adopted
    by NCSL at its annual meeting.

                            HIGHLIGHTING THE PROBLEM

        The tax structure imposed upon the communications industry today is
    a carryover from the days when the industry was operated by Ma Bell as
    a rate regulated utility. This tax structure was created well before
    the first wireless call was ever made. As regulated utilities,
    providers were subject to taxes under statutes applicable to ``public
    utilities.'' The taxes imposed included gross receipts, franchise and
    other industry-specific taxes that were then passed on to consumers in
    the rates as part of the regulatory rate setting process. The phone
    company never had to worry about the consumer looking for a cheaper
    alternative because there was no competition in the marketplace. State
    and local governments could tax telecommunication services at much
    higher rates than any other goods and services without worrying about
    an outcry from unsuspecting constituents, because ``it was just the
    phone company raising rates again.''
        Since the introduction of wireless services in the late 1980's and
    the passage of the Federal Telecommunications Act of 1996, the
    marketplace for communication services has changed substantially.
    Communications services are no longer provided by only a single
    provider, the ``rate-regulated'' utility. Consumers now have many
    options to choose from for their communications services as a number of
    extremely competitive industries bring innovation and change to
    consumers at a rapid pace.
        The wireless industry alone provides communication services to over
    260 million consumers. That is a staggering number of consumers
    enjoying the benefits of wireless mobility when you consider that only
    fifteen years ago there were just 13 million wireless consumers. The
    days of wireless services being considered a luxury that only the
    wealthy can afford are over. Today these services are critical to my
    constituents and, as with many other wireless consumers across the
    country, are considered a necessity. Likewise, wireless broadband
    services may be the only access that many consumers have to the
    internet. For better or worse, we can all be ``connected'' 24/7 if we
    choose to do so.
        Unfortunately, the tax structure hasn't kept pace with all the
    exciting innovation and technological changes taking place in the
    industry. The January 2008 issue of Governing magazine stated ``And
    yet, state tax structures, developed at a time when computers--
    ``thinking machines''--were the stuff of science fiction, and the
    American economy flourished with the automobile industry, have failed
    to evolve. To take one example, there is the outmoded way in which
    telecommunications companies are taxed. A reliable, high-quality and
    affordable telecommunications system is essential to the economic
    competitiveness of states--to say nothing of the nation. And yet, these
    systems are subject to very high taxation rates in a number of states--
    by a tax approach set when the industry, dominated by one telephone
    company, was highly regulated.'' \2\
    ---------------------------------------------------------------------------
        \2\ Katherine Barrett & Richard Greene, Growth & Taxes, Governing
    Magazine (January 2008).
    ---------------------------------------------------------------------------
        Instead of undertaking the difficult task of reforming the tax
    structure for the industry in total, the wireless industry and its
    consumers have seen many of these antiquated ``utility'' taxes from the
    last century simply extended to wireless services under the guise of
    ``leveling the playing field.'' I support this bill because I don't
    believe that making the situation worse before we tackle the difficult
    task of making it better for my constituents is the right answer.
        The study published by Mr. Mackey earlier this year indicated that
    the national average rate of federal, state and local taxes and fees on
    wireless services is 15.19% compared to the average rate imposed upon
    other goods and services of 7.07%.\3\ That means the rate of tax on
    wireless services is more than double the rate on other goods and
    services! When I look at my home state of Illinois, it is ranked the
    9th highest in the country with an average tax rate of close to 17%. It
    appears that we have some work to do to in my state to try to lower the
    rate imposed on wireless services to the rate imposed upon other goods
    and services, which averages about 8-9%.
    ---------------------------------------------------------------------------
        \3\ Scott Mackey, Excessive Taxes & Fees on Wireless: Recent
    Trends, State Tax Notes (Feb. 18, 2008).
    ---------------------------------------------------------------------------
        A tax rate of 17% imposed upon services that I believe are critical
    to many of my constituents is burdensome, but imagine adding an
    additional tax on wireless services to that rate. I was very surprised
    to learn that a County in my state actually attempted to do just that
    last year. Cook County, Illinois, which encompasses most of the City of
    Chicago, was seeking to impose a $4 ``per line, per month'' tax on
    communication services. There was no specific purpose given to justify
    the imposition of this tax solely on communication consumers--rather,
    the revenue was going to be used to plug a hole in the County's general
    fund.
        Had the proposed Cook County tax been enacted, the rate of taxes/
    fees on wireless services purchased by citizens in the City of Chicago
    would have increased to, on average, a rate of 24%. Now, if consumers
    in Cook County had the opportunity to approve this new tax, then I
    might not question the fairness of it. However, the county council was
    deciding for wireless consumers--the county was not going to put this
    proposal to a vote of the people. After the wireless industry educated
    its consumers about this new proposed ``phone tax,'' over 3,300
    consumers took the time to contact their county officials to speak out
    against this tax. The actions of these consumers in Cook County
    demonstrate just how unpopular these targeted wireless taxes are with
    consumers.
        When you consider how important wireless services have become to
    consumers today, taxing these services at such an excessive level is
    counterintuitive to me. Rates frequently approach the level of so-
    called ``sin'' taxes. Policymakers typically impose sin taxes when they
    want to discourage consumption of certain products, such as alcohol and
    tobacco. It is hard to understand why a service that many of my
    constituents consider a safety lifeline is taxed at nearly 20% per
    month. A rate meant to discourage usage, not encourage it.
        I believe we all can acknowledge that communication services, and
    wireless services in particular, are a vital component of this
    country's economic growth and stability. Mr. Mackey cites several facts
    in his testimony on the productivity benefits that the wireless
    industry provides to the overall economy. It is hard to believe that
    any reasonable policymaker would continue to think that imposing new
    discriminatory taxes on wireless services is appropriate.

     PROTECTING WIRELESS CONSUMERS FROM EXCESSIVE TAXES IS IMPORTANT TO MY
                                  CONSTITUENTS

        As has been mentioned before, wireless services are no longer
    considered a luxury. For many Americans, these services are crucial to
    their everyday lives and yet they are taxed at levels that are double
    or even triple the rates of tax imposed on other goods and services.
    Imposing regressive consumption taxes on consumers purchases of
    wireless services disproportionately impacts low and middle income
    consumers which can put this critical service out of reach for some of
    my constituents that need it the most.
        According to the Pew Internet & American Life Project, when
    respondents were asked how hard it would be to give up a specific
    communication service, cell phones received the top ranking over the
    Internet and television.\4\ The Pew study also found that 84 percent of
    English-speaking Hispanics, 71 percent of African-Americans and 74
    percent of non-Hispanic white Americans have cell phones.\5\
    ---------------------------------------------------------------------------
        \4\ John Horrigan, Mobile Access to Data and Information, Pew
    Internet & American Life Project (March 2008).
        \5\ Id.
    ---------------------------------------------------------------------------
        As was stated before, wireless devices are being used to do far
    more than just make phone calls. Wireless technology also provides
    people with the ability to remain connected to friends, family and, in
    this new information age, to be able to access the Internet. Recent
    studies have shown that minorities constitute a growing proportion of
    total demand for wireless, particularly the newest data services, like
    broadband.
        On a typical day, 77 percent of all Americans with cell phones have
    sent or received text messages, taken a picture, played a game, sent or
    received e-mail, accessed the Internet, recorded a video, played music,
    sent or received an instant message, used a map, or watched a video on
    their cell phone.\6\ Breaking down the details, the highest percentage
    of use is from minorities: 90 percent of English-speaking Hispanics and
    77 percent of African-Americans have done at least one of these
    activities compared to 73 percent of non-Hispanic white Americans.\7\
    ---------------------------------------------------------------------------
        \6\ Id.
        \7\ Id.
    ---------------------------------------------------------------------------
        Adoption of new technologies, in particular the use of wireless
    phones and wireless broadband, has driven and improved productivity,
    economic growth, and household income in the United States. Recent
    studies have demonstrated that policies supporting affordable wireless
    services that allow for increasing wireless use should lead to income
    and productivity gains by all Americans, particularly low income
    wireless users.
        Whether it is a small business owner tracking orders ``on the go,''
    an employee answering e-mails on a wireless device outside of the
    office, or a family physician using a handheld device to input patient
    information and prescriptions, wireless has delivered enhanced
    efficiencies and greater convenience. Taxing wireless services at a
    rate that is more than double the rate imposed upon other goods and
    services is artificially increasing the cost of these services which in
    turn hurts the economic gains that could be achieved by having a more
    rational tax policy.

         CONCEPT IS CONSISTENT WITH NCSL TELECOMMUNICATIONS TAX REFORM
                                   PRINCIPLES

        Over the past eight years, NCSL has made communications tax reform
    a major priority for states to consider. The Committee as well as a
    separate task force has spent considerable time educating state
    policymakers on the need to simplify and modernize the taxes imposed
    upon communications services as well as the benefits in doing so.
        The most recent set of principles for communications tax reform
    that have been unanimously endorsed by the NCSL are set forth below:
    TAXATION OF COMMUNICATIONS SERVICES
        Transaction taxes and fees imposed on communications services
    should be simplified and modernized to minimize confusion, remove
    distortion and eliminate discrimination regarding the taxability of
    telecommunications services. The National Conference of State
    Legislatures encourages elected policymakers at all levels of
    government to work together to simplify, reform and modernize
    communications taxes based upon the following principles:
        Tax Efficiency: taxes and fees imposed on communications services
    should be substantially simplified and modernized to minimize confusion
    and ease the burden of administration on taxpayers and governments.
        Competitive Neutrality: transaction taxes and fees imposed on
    communications services should be applied uniformly and in a
    competitively neutral manner upon all providers of communications and
    similar services, without regard to the historic classification or
    regulatory treatment of the entity.
        Tax Equity: Under a uniform, competitively neutral system,
    industry-specific communications taxes are no longer justified, except
    for fees needed for communications services such as 911 and universal
    service.
        State Sovereignty: Other than the prohibition of taxes on Internet
    access, NCSL will continue to oppose any federal action or oversight
    role which preempts the sovereign and Constitutional right of the
    states to determine their own tax policies in all areas, including
    communications services.\8\
    ---------------------------------------------------------------------------
        \8\ Unanimously passed the NCSL Communications, Financial Services
    and Interstate Commerce Committee Business Meeting, November 28, 2007--
    Passed on voice vote during the full NCSL Business Meeting November 30,
    2007--Passed on voice vote during NCSL Annual Business Meeting, July
    25, 2008.
    ---------------------------------------------------------------------------
        Except for the very last provision addressing state sovereignty,
    the concepts in H.R. 5793 are very consistent with this policy
    statement. Under a uniform and competitively neutral system, industry
    specific taxes are no longer justified. Unfortunately, without
    proceeding with the reforms needed to the current tax structure, the
    system will remain confusing and inequitable. Extending industry
    specific ``utility'' taxes to wireless services is not the right
    answer. The concepts in H.R. 5793 are intended to guard against having
    the taxation of communications services become more onerous before the
    reforms set forth in the NCSL policy statement can be implemented.
        Even though communications tax reform has been a major topic at
    NCSL, little progress in achieving such reforms has been made. One area
    where we have seen moderate success has been in the simplification of
    some of the existing taxes by reducing the number of returns
    communications providers are required to file. Illinois was one of
    those states, where several local impositions were consolidated into
    one tax that is filed with the state, significantly reducing the number
    of returns required to be filed that was required when returns were
    filed with the local governments.
        While the simplification effort was helpful, the state still has
    not engaged in serious discussions with stakeholders about formulating
    a plan to reduce the high rate of taxes imposed upon communication
    consumers. Given the budget deficits that many states will be facing, I
    believe it will be difficult to quickly accomplish the reform that is
    required to reduce the existing excessive rates of taxes on
    communication services any time soon.
        Having said that, it is an issue that we must continue to focus on.
    In the interim, we should ensure that no new discriminatory taxes will
    be imposed on wireless services. As a state that currently imposes an
    onerous tax burden on communication services, I can honestly state that
    once these taxes are in place they are very hard to eliminate.
    Preventing the imposition of new burdensome taxes on consumers while we
    try to fix the existing system makes a lot of sense.
        Last year, it was estimated that wireless consumers in the state of
    Illinois paid almost $1 billion in state, local and federal taxes and
    fees imposed upon their wireless services. By anyone's measure, be it
    from a state or federal perspective, that is a lot of money for one
    subset of consumers to pay on an essential service. That is why I
    strongly support the passage and enactment of H.R. 5793, the ``Cell Tax
    Fairness Act of 2008.''
        Thank you again for this opportunity to speak to you today. I would
    be happy to answer any questions that you might have at the appropriate
    time.

        Ms. Sanchez. Thank you, Mr. Clayborne.
        We have just received notice that we have votes pending
    across the street. But I think we do have time to have Mr.
    Mackey give his oral testimony, assuming that you can squeeze
    it in between the 5- and 6-minute mark.

                STATEMENT OF SCOTT R. MACKEY, ESQUIRE,
                 KIMBELL SHERMAN ELLIS, MONTPELIER, VT

        Mr. Mackey. Thank you very much, Chairwoman, and Members of
    the Committee.
        I will stay within my time. I just want to reiterate two
    important points that Ms. Lofgren made during her opening
    remarks.
        First of all, this bill would not preempt any existing
    taxes. So there would be no fiscal impact from this bill on any
    State or local government that is currently, today, imposing
    taxes--even discriminatory taxes--on wireless consumers.
        And it would allow new taxes, provided that those new taxes
    were not singling out wireless consumers, but were part of a
    broad-based tax increase to meet revenue needs for local
    government. So this bill only affects new discriminatory
    taxes--the ones that, as we have heard, are burdening
    consumers.
        I am going to just skip over some of the things I said in
    my prepared remarks, and just focus on a couple of things that
    some of the folks claim that this bill would do, because I
    think, in some of the testimony, some of the local governments
    are claiming that we have not made the case that there is
    excessive or discriminatory taxes on wireless consumers.
        And as a side note, I would say, if there are no
    discriminatory taxes imposed today, then governments have
    nothing to worry about from this bill, because it only affects
    discriminatory taxes.
        In terms of whether there is a problem, NCSL, the
    Governor's Association, Governing Magazine--many, many people
    have said that there is, indeed, a problem. So I don't think we
    can just say that this something--that the wireless industry
    has somehow cooked the numbers to show that there is a problem.
        There is a problem. And, you know, I would not tell a
    consumer in Baltimore City, that has, you know, a typical $50
    plan with two lines, that is paying $11.50 in taxes a month
    versus if they walked into the hardware store and bought
    something for $50--they would pay $2.50. Or, in Chicago, where
    a same--similarly situated consumer--would pay $12 a month on
    their wireless bill, and only pay $5 if they bought something
    from the store. So, clearly there is a problem here.
        But there is not a problem in every State. It is limited to
    certain States that have really targeted wireless consumers.
        As has been mentioned, these are regressive taxes. There
    are many, many lower and moderate-income people that have plans
    and--that, in particular--the trend toward a per-line charge,
    instead of a percentage of your bill--is very, very burdensome
    on lower-income people, who have multiple lines on the same
    plan--family share plans and the like.
        Consumers are really spending a lot, and, really, this
    bill, as has been suggested, is about the consumer. The notion
    that the local governments are willing to talk about reform,
    and that this bill would actually discourage reform--I worked
    on this issue for the last 10 years of my career, and the facts
    would really suggest otherwise. When the industry and others
    have sat down with local governments to talk about reform, we
    have not been able to make any progress.
        We are facing new taxes right now from local governments in
    California, Oregon, Missouri, Maryland and New York. And one of
    the reasons why we haven't had consensus on reform is, because,
    to a lot of local governments, reform means, ``Let us make
    wireless consumers pay all the taxes that are legacy from the
    regulated era that are now being levied on the landline
    phones.'' And reform means, ``Let us bring everybody up to the
    highest level of taxation.''
        And we think reform means, ``Let us bring everybody down to
    a level that is being imposed broadly on all goods and services
    that are subject to the tax, and not single out specific
    services for those types of discriminatory taxes.''
        And then, finally, the issue of, ``Why wireless? Why should
    the Congress look at wireless as an industry that deserves--the
    consumers deserve protection from new discriminatory taxes?''
    Well, clearly, the wireless industry is federally licensed and
    regulated. Congress and the FCC have set the rules and granted
    the licenses that dictate how and where wireless providers are
    able to sell their service.
        So Congress is already heavily involved in this industry.
    And it is a fundamentally interstate industry. I mean, this is
    an industry where folks with wireless phones start a call in
    one jurisdiction, can cross a boundary--and that, in fact, is
    why Congress decided it had to get involved and actually make
    the rules for allocating which jurisdictions were able to tax.
    And that is the Mobile Telecom Sourcing Act that Congress
    passed 5 or 6 years ago.
        So, clearly, this is an interstate service, and the Federal
    role is already well established.
        And then, finally, more and more economic studies have
    showed that wireless industry has a disproportionate share in
    our economic growth. And if we are going to do the kind of
    things that Representative Lofgren said, instead of--in terms
    of setting the stage for new technologies, new ways that
    American businesses and--are going to be more productive--then
    we can't have taxes that discourage investment and force
    consumers to have to choose not to adopt and purchase certain
    services because the tax burden is too high, and they can't
    afford to choose them.
        So, in summary, thank you, again, for the opportunity to
    testify. I look forward to questions. This bill is really about
    protecting the consumer. And it needs to be passed. And I hope
    you will move to a markup as soon as possible.
        Thank you.
        [The prepared statement of Mr. Mackey follows:]

                     Prepared Statement of Scott R. Mackey

        Ms. Sanchez. Thank you for your testimony, Mr. Mackey.
        At this time, we will recess to walk across the street to
    vote. And we will resume the hearing as soon as the last vote
    is finished.
        [Recess.]
        Ms. Sanchez. The Subcommittee will now come to order. And
    we thank the witnesses for their patience while we were across
    the street voting.
        We are going to try to finish the hearing--have a thorough
    hearing, but finish it within the hour, if possible, because we
    are expecting another round of votes.
        So I am going to just jump in very quickly, and ask Mr. Lay
    to give his oral testimony.

            STATEMENT OF TILLMAN L. LAY, ESQUIRE, SPIEGEL &
         McDIARMID, LLP, WASHINGTON, DC, ON BEHALF OF THE U.S.
       CONFERENCE OF MAYORS, THE NATIONAL LEAGUE OF CITIES, THE
         GOVERNMENT FINANCE OFFICERS ASSOCIATION, THE NATIONAL
     ASSOCIATION OF TELECOMMUNICATIONS OFFICERS AND ADMINISTRATORS

        Mr. Lay. Thank you. Good afternoon, Chairwoman Sanchez, and
    Members of the Subcommittee.
        I am Tillman Lay, of the D.C. law firm of Spiegel &
    McDiarmid, and I am testifying on behalf of the U.S. Conference
    of Mayors, the National League of Cities, the National
    Association of Counties, the National Association of
    Telecommunications Officers and Advisors, and the Government
    Finance Officers Association.
        We oppose H.R. 5793. Its proposed moratorium on State and
    local wireless taxes represents an unwarranted Federal
    intrusion into the long-recognized authority of State and local
    governments to establish tax classifications. And it would open
    the door to other industry sectors asking for similar
    preemption of State and local tax-classification authority.
        The Supreme Court has long recognized that State and local
    governments have broad discretion in the field of taxation,
    where they possess the greatest freedom of classification. H.R.
    5793 departs radically from this longstanding principle of
    federalism.
        It would single out one subpart of the telecommunications-
    industry sector, wireless services, for preferential,
    preemptive protection from State and local tax classifications.
    That would set a precedent that would endanger State and local
    tax authority and tax-classification authority in at least two
    ways.
        First, it would move us further away from State and local
    government efforts at telecommunications-tax reform. The bill
    would require that State and local governments treat wireless
    services more preferentially than their landline-
    telecommunications-service competitors. Narrowing the
    permissible tax base for telecommunications to landline service
    would put upward pressure on State and local landline-
    telecommunications-service taxes, and, likely, on State and
    local public-utility taxes as well.
        Second, the bill would set a dangerous standard for Federal
    intervention into State and local-government tax
    classifications. If taxing any industry sector or service at a
    rate different from the general business-sales-use tax rates
    constitutes a discriminatory tax, then there would be no limit
    at all to Federal preemption of all State and local tax
    classifications.
        And you can expect other industries that are subject to
    different, and, often, higher, State and local tax
    classifications, such as the utility, petroleum distribution,
    entertainment, transportation and other industries, to ask
    Congress for similar preemptive relief from State and local tax
    classifications.
        Moreover, the legislation is a solution in search of a
    problem. Supposedly excessive State and local wireless fees and
    taxes notwithstanding, the wireless industry has enjoyed
    remarkable growth in terms of subscribership, revenues, and
    investment--over the past 7 years.
        According to the FCC, wireless-industry subscribership has
    grown 158 percent since 2000, and wireless-industry revenue has
    grown 124 percent over that same time period.
        The wireless industry's claim of excessive taxes and fees
    are based upon an apples-and-oranges mix of Federal, State and
    local fees and taxes, many of which would not be affected by
    H.R. 5793 at all.
        CTIA has claimed that about 15 percent of each customer's
    monthly bill already goes to taxes and fees. But this 15
    percent figure includes Federal taxes and Federal Universal
    Service Fund charges. The 15 percent figure also includes State
    Universal Service Fund and State and local 911 fees--two more
    categories of fees that the bill exempts from its reach. And
    the 15 percent figure also includes State and local general
    sales-and-use taxes, which, of course, would also not be
    subject to the bill's moratorium.
        By singling out State and local wireless taxes for
    preemption, industry is seeking to shift all of the blame and
    all of the fiscal burden to local governments and their general
    funds, not for the taxes they have imposed, but for the various
    user fees imposed by the Federal and State and local
    governments that the bill would not preempt.
        Eight years ago, local government organizations and the
    wireless industry worked together to develop and support the
    enactment of the Mobile Telecommunications Sourcing Act. The
    MTSA assures political accountability. A State or wireless tax
    will end up being paid by the constituents of the State or
    local government that imposes the tax.
        No elected official enjoys imposing or increasing any tax.
    And that is just as true of State and local elected officials,
    as it is Members of Congress. There is one difference, however.
    State and local governments must balance their budgets. And
    political accountability ensures that if State or local
    government constituents who pay a wireless tax feel that that
    tax is excessive, there is a very effective cure. It is called
    the ballot box.
        H.R. 5793 violates all principles of political
    accountability. It would enable the Federal Government to place
    a preemptive ceiling on State and local taxing authority, while
    leaving to State and local elected officials the difficult task
    of deciding what other taxes to raise or what services to cut
    to compensate for action that the Federal Government, not they,
    took.
        We, therefore, ask that the Subcommittee vote against
    approving H.R. 5793. Thank you for your time. And I would be
    happy to answer any questions you may have.
        [The prepared statement of Mr. Lay follows:]

                      Prepared Statement of Tillman L. Lay

        Ms. Sanchez. Thank you, Mr. Lay. We appreciate your
    testimony.
        We will now begin the round of questioning. And I will
    recognize myself first, for 5 minutes of questions.
        I am going to start with Ms. Mahoney.
        If Congress were to pass this legislation, what impact
    would it have on State and local revenues?
        Ms. Mahoney. One of the issues is, for me, and for
    Michigan--if the Federal Government decides to limit this tax,
    the way we collect our current fees or try and balance our
    budget--for instance, you know, for me, if we were to have what
    Illinois has, at 17 percent, I think this would be a really
    good idea. But we don't.
        And, if, for our constituents and the people within our
    State--to keep fire departments going, to keep police stations
    going--and we are able to say to our constituents, ``We need
    this tax for that reason--you know, to increase 1 percent
    versus laying off police officers.'' I think that we should be
    able to do that.
        And those are the kinds of things that I think--imposing it
    from a Federal level preempts us from being able to do that.
        Ms. Sanchez. Thank you, Ms. Mahoney.
        Mr. Clayborne, what do you hope to accomplish with the
    passage of H.R. 5793, and the 5-year moratorium? Because I am
    interested in knowing if this 5-year moratorium will actually
    just sort of lead the movement toward a permanent moratorium,
    or a ban on all taxation of wireless services.
        Mr. Clayborne. I think what, essentially, happens is that
    you force the State, local and county governments to come
    together to begin to address this issue.
        Obviously, if we continue to--if this bill does not pass,
    then if every county in the State decides to raise it by 2
    percent--there are 102 counties in the State of Illinois. That
    tax will continue to go up. And it is obviously a burden on the
    poor.
        So we believe that the moratorium----
        Ms. Sanchez. Do you see it, primarily, as a leverage to try
    to get people to sit down and talk about some real reform?
        Mr. Clayborne. That is correct.
        Ms. Sanchez. Okay.
        I am just interested in knowing from you, Mr. Clayborne--as
    the Chairman of the Subcommittee, I have had various industries
    come to me to say, ``We are being discriminated against in
    terms of taxes.'' And just some of the industries that have
    come to ask for relief are the hotel industry, the car-rental
    industry, the satellite-television industry, Internet-access
    providers and big businesses, among several others.
        So I am interested in knowing your perspective. You know,
    why the carve-out for wireless, and not all the other
    industries that are coming to ask for the same kind of relief?
    Because the cumulative effect, I believe, if we were to say,
    ``Yes,'' to everybody, would be what Ms. Mahoney has mentioned;
    that, budgets for fire departments and police departments would
    be particularly hard-hit, especially at a time when, I believe,
    most States are facing huge economic problems.
        Mr. Clayborne. I think it is--the distinction between the
    other entities that you discussed is the fact that most of
    those are actually luxury. This has become essential.
        As Ms. Lofgren had stated--Congresswoman Lofgren stated--
    ``At my house, no one answers the house phone, because if you
    are intending to call my sons, then you either text them or you
    call them on their cell phone.'' So it has become essential
    item in our daily use.
        I have two sons in college. I don't even know the number to
    the dorm room, because they won't answer it. This has become
    such an essential part of communicating, between texts, emails,
    as well as the actual phone itself. So that is the difference.
        Ms. Sanchez. That is the distinction? Okay.
        Mr. Lay, in his written statement, State Senator Clayborne
    suggests that it would be difficult for State and local
    governments to reform and reduce excessive rates of taxes on
    communication services. And that is sort of the justification
    why Federal legislation is necessary.
        Do you think that passage of this 5-year moratorium would
    lead to effective reform?
        Mr. Lay. No, I don't.
        The difficulty is this: As I recall in his answer--and
    maybe you are confusing his with Mr. Mackey's--the view of
    telecommunications-tax reform that industry has, as the only
    acceptable reform, is that industry be taxed just--just be
    subject to a generally applicable sales-and-use tax, no
    differential tax rate. And that is the difficulty.
        I don't think the moratorium would result in that. In fact,
    for fiscal reasons, it would probably force local governments
    to raise taxes on landline telephone, which is a shrinking tax
    base, because that is all they would have left. They can't
    increase or extend the telephone tax to wireless service
    anymore.
        Ms. Sanchez. Okay. Thanks.
        Mr. Lay. They would put us further away.
        Ms. Sanchez. Thank you, Mr. Lay.
        My time has expired, so I will recognize the Ranking
    Member, Mr. Cannon, for 5 minutes of questions.
        Mr. Cannon. Thank you, Madam Chair.
        And, you know, I was just sitting here, thinking. I had
    said earlier in my opening statement that these are regressive
    taxes. I think that is particularly difficult because I
    actually think that you are not smarter because you are rich.
    And if we want to tap into the genius of people who are not yet
    rich, you have to give them access to systems.
        And my understanding is that there are some jurisdictions
    that are taxing cell phones like $1.50--in some case, even more
    than that--per line. So in the case of my family, I have a
    family plan. Actually, we have a big family, so we have two
    family plans. And each additional person we put on that family
    plan costs about $5 for the plan.
        And I see Mr. Mackey is nodding his head. Apparently, that
    is common. And, you know, if you add $1.50 tax on that line,
    that is like a 30 percent tax for that phone.
        And, now, I bought my 10-year-old, now, a phone when she
    was 8, because I figure that is one of the best ways to protect
    her. You know, she can dial, or we can locate--if she keeps the
    phone with her and she gets lost, we can locate her with,
    perhaps, the phone GPS system.
        So there are a lot of reasons to have a phone, but if you
    start putting a 30 percent tax on it, at some point, you
    actually really affect people's ability to buy that, especially
    when you are in a--when your incomes are more marginal.
        I am in--you know, late in my career, as opposed to a young
    family that has two or three kids, and that tax could be more
    significant.
        Does that bother you, Mr. Lay, that we could be taxing at
    those kinds of rates on services that are profoundly important
    to the development of society?
        Mr. Lay. Well, I would first say that the fee you are
    talking about--and this is based upon Mr. Mackey's table--to
    say that it is common is not accurate--that a tax of that level
    is not common.
        Mr. Cannon. No, I don't think I said it is common. I just
    said that that is one of the fees, and that, you know----
        Mr. Lay. And, well, there is--I mean, I suspect--I guess my
    reaction to that is, one, that would not happen unless the
    voters who pay that tax allowed elected officials to do that.
    There is an effective check on that.
        The other question that I----
        Mr. Cannon. Let us go to that point, because, you know, my
    family has been through a number of plans over time, as almost
    everybody has, because it has been a pretty volatile market.
        So we ended up, at one point in time, where we had two very
    different plans. And within those plans, the bills went to
    different addresses. So my wife's phone went to my home address
    and my phone, which was the same phone, went to my business
    address.
        And the bill was significantly different on my wife's
    phone--higher. And the reason for that was because the local
    city taxed it at a much higher rate.
        And so it seemed to me that the only way to solve that was
    to move the address for the billing for her phone into my
    business, which, by the way, saves a lot of inconvenience
    anyway, because sometimes she doesn't get around to paying the
    bills, and my office does.
        But I guess my point there is that people actually don't--
    they are not going to change their elected officials over that
    kind of a thing. And, frankly, if--they may not even know about
    it or know what their bill is, compared to other people.
    Normally, they just take the bill and write out a check for the
    bottom line.
        Now, that doesn't mean it doesn't have an economic effect.
    But to say that voting is the way to change your phone bill
    seems to me to be a pretty tenuous relationship.
        Mr. Lay. Only if you say that it is tenuous, not just--if
    that is a statement that, basically, you can't count on the
    democratic process to protect against excessive taxes as--do
    people want to tax themselves? I would suggest that is a
    question of the basic form of democratic government. I mean,
    that is what we have.
        Mr. Cannon. Okay.
        Well, then, let me ask it this way: If you think that local
    voters should protect themselves by who they elect--I agree
    with that--is there a role for the Federal Government in
    eliminating the discriminatory taxes, especially in a case like
    cell phones, where you have this national market?
        I mean----
        Mr. Lay. I think there is a national market for lots of
    goods and services--petroleum distribution, electric, gasoline.
    All are subject to taxes that, under this definition of
    discrimination, would be called discrimination.
        I would say----
        Mr. Cannon. And we are working on several of those that you
    have just mentioned, of course.
        Mr. Lay. Yes.
        And, I guess, where I would have a problem is the notion
    that the Federal Government has the power, in our
    constitutional system, to, basically, rewrite and mandate all
    the State and local tax codes in this country.
        You have to remember that State and local governments,
    unlike the Federal Government, rely primarily on transaction
    taxes. The Federal Government relies more on income taxes. And
    on the issue of regressivity, I would suggest to you that,
    although all transaction taxes are somewhat regressive, utility
    and telecommunications taxes are actually a bit less regressive
    than general sales taxes, because their burden falls relatively
    more on businesses relative to residences.
        So if you shift it----
        Mr. Cannon. I see that my time has expired.
        But let me just point out, in response to that last point,
    that that is generally true. But the nature of
    telecommunications is different from the nature of electricity
    and other kinds of services like that, in that communication is
    the foundation for progress for people. That is individual
    progress I am talking about. And, therefore, the regressivity,
    I believe, that is reflected in these kinds of taxes on cell-
    phone devices, or what Ms. Lofgren calls ``computational
    devices,'' is profoundly important.
        And with that, Madam Chair, I yield back.
        Ms. Sanchez. The gentleman yields back.
        At this time, I would like to recognize Zoe Lofgren, for 5
    minutes.
        Ms. Lofgren. Thank you, Madam Chair.
        And I went and, over the break, I had my staff get a copy
    of the innovation agenda that was rolled out by Speaker Pelosi,
    Congresswoman Anna Eshoo and myself, in September of 2005,
    actually. And on the front cover, there is a quote from John F.
    Kennedy.
        And it goes like this: ``The vows of this Nation can only
    be fulfilled if we are first. And, therefore, we intend to be
    first. Our leadership in science and in industry, our hopes for
    peace and security, our obligations to ourselves, as well as
    others, all require us to make this effort.''
        And in the innovation agenda, we outlined, really, five
    things that we needed to do. And number three was ``Affordable
    Broadband Access for all Americans.'' That was right behind
    ``Basic Research'' and an ``Educated Workforce.''
        And the reason why is that this is not just another good
    and service. Broadband is an enabler of everything else. As we
    said in the innovation agenda, the deployment of high-speed,
    always-on broadband, Internet and mobile communications is
    going to fuel the development of millions of new jobs in the
    U.S.
        And just as railroads and highways did in the past,
    broadband and mobile communications are going to dramatically
    increase productivity, efficiency of our economy. And so this
    is an adopted policy of House Democrats. And it is our guiding
    principle of how we are going to sort through issues in the
    Nation's interest.
        This isn't just something that is of interest to cities or
    counties. This is a nationwide policy issue, which is why we
    are here today.
        Now, I just wanted to note--and then I will get into a
    quick question--the telecommunications companies aren't paying
    these taxes. I mean, they are here advocating, I think, because
    they are concerned that, at some level, when you get too high,
    usage will drop off. I am not saying they are a disinterested
    party. But they are not paying these taxes. It is individuals.
        And, actually, the reason why I got interested in this is
    that, especially for low-income people, this is going to be the
    way to the Internet superhighway. And if we prevent low-income
    Americans from having that access to broadband, then our
    ability to meet the innovation-agenda goals is going to be
    impaired.
        Now, it has been suggested that this is an unprecedented
    step to take this. I don't think that is correct. We did do the
    Internet-tax moratorium for exactly the same reason that this
    bill has been introduced. It is the same issue, which is
    broadband, and the enabler of innovation pursuant to our
    innovation agenda.
        But I am wondering, Mr. Mackey, do you have other examples
    where Congress, because of a national policy issue, took a
    similar type of action?
        Mr. Mackey. Thank you. And I agree 100 percent with the
    premise that you just laid out.
        Yes, there have been other examples where Congress has
    decided that there is a compelling national interest--back in
    the 1970's, when the railroad industry was in a lot of trouble.
    And what was going on is a lot of localities were sort of
    disproportionately taxing the property of railroads because
    they just had a sliver or ribbon of land that went through
    their community.
        Congress decided it was in the national interest to have a
    national framework where local governments would be permitted
    to tax railroad property, and tax railroads, but not in a way
    that discriminates. So there is somewhat of a parallel to this.
        There is also other instances, I think, with the airline
    and Interstate Motor Carrier Regulation, where Congress has
    stepped in and proscribed or prohibited local governments from
    taxing those things.
        But, clearly, you know, we don't ask you to take this step
    lightly. And we have tried to work with localities, as I have
    said earlier----
        Ms. Lofgren. Right.
        Mr. Mackey [continuing]. For the past decade. But it is our
    feeling, for the reasons you stated, Representative Lofgren,
    that there is a compelling national interest that, if we set up
    a framework where States and local governments can tax
    telecom--we can do so fairly, in a nondiscriminatory manner--we
    are going to grow the jobs. We are going to, actually, we
    think, create more tax revenue because of the applications that
    are going to run and the jobs that are going to be created----
        Ms. Lofgren. I am about to run out of time. And I do think
    the rationale--for example, hotel taxes--I mean, we did high
    hotel taxes when I was in local government, because it is
    always easier to tax somebody else's constituents.
        But, you know, actually, people don't really look at the
    hotel tax. It is not the same kind of enabler of growth. It is
    not a fundamental building block of a high-tech innovation,
    educated society. It is not an enabler of other things in the
    same way that this is.
        I had other questions, but I have run out of time, Madam
    Chairwoman. I don't want to abuse the process. So I yield back.
        Ms. Sanchez. The gentlelady yields back.
        Yes?
        Mr. Cannon. Madam Chair, I would like to ask unanimous
    consent to have included in the record the opening statement by
    the Ranking Member of the full Committee, Mr. Lamar Smith.
        Ms. Sanchez. Without objection, so ordered.
        [The prepared statement of Mr. Smith follows:]

     Prepared Statement of the Honorable Lamar Smith, a Representative in
    Congress from the State of Texas, and Ranking Member, Committee on the
                                   Judiciary

        Madame Chair, I would like to thank you for bringing attention
    during this Congress to a variety of discriminatory taxes.
        This is the latest in a series of hearings that have covered the
    Internet tax moratorium, the Mobile Workforce State Tax Simplification
    Act, the Business Activity Tax Simplification Act, and the State Video
    Tax Fairness Act.
        I would also like to thank Ranking Member Cannon for his leadership
    on this and so many other issues before the Commercial and
    Administrative Law Subcommittee. He has been instrumental in getting
    many bills passed during his tenure on the Committee and his insight,
    knowledge, and commitment will be missed next year.
        As for the ``Cell Tax Fairness Act of 2008'', through my
    involvement with the Internet tax moratorium and other matters it has
    become clear to me that telecommunications firms and consumers, and, in
    particular, wireless services, are taxed higher at the state level than
    many other businesses.
        In our increasingly mobile economy, we should encourage the
    deployment of cell phone and wireless devices and not inhibit them
    through higher taxes. The fact that these devices travel through
    interstate commerce and facilitate interstate commerce certainly gives
    Congress the authority to constrain the states' taxing authority.
        However, just because Congress has the authority to do something
    does not mean that it should necessarily exercise that authority in
    every case. I am well aware that the power to tax power has
    traditionally been within the purview of the states. And given our
    shaky economy, I can certainly sympathize with states' concerns about
    losing revenue because of Congressional intervention.
        So, I look forward to hearing from all our witnesses to see if
    there is a way that we can weigh the disproportionate taxation of
    telecommunications companies and consumers against the needs of states'
    treasuries.

        Ms. Sanchez. And I would also ask that the opening
    statement from the Chairman of the full Committee, Mr. Conyers,
    be entered into the record, as well----
        Mr. Cannon. Thank you.
        Ms. Sanchez [continuing]. And without objection, so
    ordered.
        [The prepared statement of Chairman Conyers follows:]

    Prepared Statement of the Honorable John Conyers, Jr., a Representative
      in Congress from the State of Michigan, Chairman, Committee on the
     Judiciary, and Member, Subcommittee on Commercial and Administrative
                                      Law

        As Members of Congress, we must carefully balance competing
    interests. We must ensure that the States do not burden interstate
    commerce through their taxing authority, while also ensuring that the
    authority of States to tax activity within their borders is maintained.
        Today, we consider H.R. 5793, the ``Cell Tax Fairness Act of
    2008,'' which seeks to impose a five-year moratorium on any new
    discriminatory taxes and fees on mobile services, mobile service
    providers, and mobile service property.
        According to reports, taxes and fees account for about 15% of a
    consumer's wireless services monthly bill. That burden seems higher
    than the burden imposed on other services and products. That burden
    could affect the free flow of commerce, stifle innovation, and be
    considered a regressive impact.
        However, we are in the midst of a dire economic environment, where
    State and local revenues are declining fast, especially in my home
    state of Michigan. According to estimates, state and local governments
    rely on revenue from telecommunications for about $20 billion per year.
    Thus, we need to look carefully at any legislation, including this one,
    that could further impact State and local revenues and a state or local
    government's ability to provide its residents essential services.
        I look forward to today's hearing, and hope it will achieve three
    critical objectives.
        First, it should serve as a venue where we examine the taxes and
    fees imposed on wireless services and providers.
        Second, this hearing should allow us to focus on H.R. 5793, which
    responds to concerns voiced by the wireless industry regarding what it
    perceives as a discriminatory burden imposed on them by State and local
    taxing authorities.
        Third, this hearing should serve to begin a dialogue on State and
    local taxation of communications. And I urge each state and locality to
    revisit, simplify, and modernize its communications tax structure in
    light of technological advances.
        I thank Chairwoman Sanchez for holding this important hearing, and
    I very much look forward to hearing today from the witnesses.

        Mr. Cannon. And may I also apologize. We were laughing up
    here. And that is sometimes a little coarse. I just wanted to
    let people know that I was reading to staff the very kind
    remarks that Mr. Smith had made about me, which were kind
    enough to be laughed at.
        Thank you, folks. We appreciate the seriousness of this
    panel, and our guests here. And I want to make it clear that we
    were laughing about something other than the subject matter
    here. Thank you.
        Ms. Sanchez. Okay; duly noted, for the record.
        At this time, I would recognize the gentleman from Florida,
    Mr. Keller, for 5 minutes of questions.
        Mr. Keller. Thank you, Madam Chairwoman.
        Senator Clayborne, let me start with you. How long have you
    been in the Illinois State Senate?
        Mr. Clayborne. About 13\1/2\ years.
        Mr. Keller. Thirteen years--so you served with Senator
    Obama?
        Mr. Clayborne. That is correct.
        Mr. Keller. As you can tell from our questioning, it is a
    pretty bipartisan issue, at least, on the House side. Over on
    the Senate side, Senator McCain has introduced the cell-phone
    tax moratorium, S. 166, which he successfully got through the
    Commerce Committee.
        Have you had a chance to talk with your colleague, U.S.
    Senator, Barack Obama, to see if you can persuade him along the
    same lines as Senator McCain, on this issue?
        Mr. Clayborne. No. No, I have not talked to Senator Obama
    about this issue.
        Mr. Keller. Do you have any sense of optimism that you can
    win him over?
        No?
        Ms. Mahoney, do you know where he is on this? You got him?
        Ms. Mahoney. I would say that you will not be able to
    convince the senator on this issue.
        Mr. Keller. All right. Okay--could have a vote present on
    this one here.
        Let me turn to you, Mr. Mackey.
        Now, I have noticed that my home state of Florida has about
    the third highest cell-phone taxes. And Virginia is sort of the
    middle of the pack--I think, around number 36. Yet, Florida
    sort of failed to pass their reform legislation to address this
    issue, while Virginia was quite successful.
        What do you attribute the two dynamics of that to?
        Mr. Mackey. Well, I mean, I think Florida is--because you
    don't have an income tax, it makes it that much more difficult
    to try to replace the kind of money that is on the table.
        I think, because Florida localities had, historically, been
    granted a large amount of tax autonomy, there was a--they were
    taxing at extraordinarily high rates. And so there was a lot of
    money that needed to be replaced. And, politically, they
    couldn't come up with--they got halfway to reform.
        They made it so telecom companies don't have to file
    hundreds or thousands of returns for local jurisdiction, and
    they centralized. But, unfortunately--and this is the problem
    we face everywhere--they were unable to get the rate down to
    where there is not a significant disparity.
        Mr. Keller. All right. Well, let me ask you: You seem to
    think that these taxes have been a pretty good target for
    localities to increase. Why do you think they are choosing to
    increase the cell-phone taxes by a significant amount?
        Mr. Mackey. Well, I think some of it is a historical relic
    to the old days of regulation. I mean, the localities, because
    telecom companies had to use their rights of way, they had the
    ability to tax them and impose fees on them. And, then, when
    wireless came along to compete, and wireless didn't have that
    same situation, they had already had a well-established right,
    if you will, to tax communications companies.
        And their argument was, ``Reform equals `Let us make
    wireless pay what we have historically made the wire-line guys
    pay'.''
        Mr. Keller. Now, Mr. Lay--and I am just paraphrasing--sort
    of says, ``Well, look. If you are city councilman comes up with
    some huge tax increase that you don't like on the cell phone,
    you have a remedy. Just vote him out.'' Why is that not a
    sufficient remedy under your view?
        Mr. Mackey. Well, in my opinion--and some of it gets back
    to what Mr. Cannon said. I think, a lot of times, you know,
    people are busy. And, you know, these bills come in. And,
    frequently, people don't focus on how much tax is being imposed
    on the bill.
        In some respects, you know, it is a hidden tax. It is on
    the bill, but who is--people don't always go through their
    bills. So I think one of the reasons is that it is a tax that
    can be raised without people paying a lot of attention to it.
        Mr. Keller. Ms. Mahoney, you are a local elected official.
    Would you have concerns if--you know, as someone sitting for
    election--if you had a big tax-increase vote on a cell-phone
    issue?
        Ms. Mahoney. I would be very concerned. And one of the
    things that, you know, I have said, is that I think it is so
    important if--I mean, if we are going to level the playing
    field----
        Mr. Keller. Right.
        Ms. Mahoney [continuing]. You know, let us level it.
        But, I mean, my fear is we start preempting these things,
    you know, and pulling people out and separating them
    individually--who is going to be before you next?
        Mr. Keller. Right.
        Ms. Mahoney. At the local level, for us to not have the
    ability to say to our constituents--and we have to show them
    how the money is going to be used--how we are going to use it.
        And so if I come to them and say, ``Oh, we are just raising
    it because we are going to give the employees a raise,'' that
    is totally different than saying, ``I am not going to be able
    to keep the fire department going. I am not going to be able
    to, you know, keep our 911 system going. I am not going to be
    able to do these things.''
        That is totally different. But that is the constituents
    that we speak to. And I think that is how you become elected--
    when you address the individual needs of the consumer.
        Mr. Keller. All right. Well, thank you.
        I am sorry, Mr. Lay, I didn't get a chance to get to you.
    But my time is expired. And I am sure my other colleagues will
    follow up with that.
        And I yield back to the balance of my time.
        Ms. Sanchez. The gentleman yields back.
        I really want to thank all of the witnesses for their
    testimony today, and, again, for being so patient through the
    interruption.
        Without objection, Members will have 5 legislative days to
    submit any additional written questions, which we will forward
    to the witnesses and ask that you answer as promptly as you
    can, so that we can make them a part of the record.
        Without objection, the record will remain open for 5
    legislative days, for the submission of any other additional
    material.
        Again, thanks to everybody for participating in this
    hearing. And this hearing of the Subcommittee on Commercial and
    Administrative Law is adjourned.
        [Whereupon, at 3:30 p.m., the Subcommittee was adjourned.]

                                A P P E N D I X

                                  ----------

                   Material Submitted for the Hearing Record

     Answers to Post-Hearing Questions from Gail W. Mahoney, Commissioner,
       Jackson County, Michigan, Jackson, MI, on behalf of the National
                            Association of Counties

     Answers to Post-Hearing Questions from the Honorable James Clayborne,
                     Illinois State Senator, Belleville, IL

         Answers to Post-Hearing Questions from Scott Mackey, Esquire,
                     Kimbell Sherman Ellis, Montpelier, VT

    Answers to Post-Hearing Questions from Tillman L. Lay, Esquire, Spiegel
     & McDiarmid, LLP, Washington, DC, on behalf of the U.S. Conference of
    Mayors, the National League of Cities, the Government Finance Officers
     Association, the National Association of Telecommunications Officers
                               and Administrators