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Towns may be left holding the bag if Verizon gets its way

by Maya Kremen

Verizon intends to stop paying millions of dollars in local taxes, a move that could cause already cash-strapped towns to shift the cost to homeowners, local officials say.

The company is using a provision of a 1940 state law to argue that utility poles, wires and other landline equipment should no longer be on tax rolls. They claim traditional usage has slipped significantly as more people turn to cable and the Internet for telephone service.

So far, five towns, including Dover and Victory Gardens in Morris County, have been informed that they will not receive their 2009 equipment taxes.

Verizon officials say that 150 towns will lose the tax by 2011, and the company predicts this number will continue to increase.

The losses, on top of state aid cuts and poor returns on investments, would force towns to raise property taxes, local officials say. Homeowners in Rochelle Park, which receives almost $500,000 in taxes from a Verizon switching station, could see an additional $115 per year in taxes, Township Administrator Mike Mariniello said.

"Communities always had this revenue stream," he said. "Where are we going to get $350,000 to $400,000 other than through taxes? It would be devastating, especially to the senior population. They’re on a fixed income."

Towns across the state stand to lose anywhere from a few hundred dollars to more than $1 million in fees, which are known as "personal property taxes."

Those with equipment like underground transfer stations and switching stations could lose the most. Hackensack could lose almost $500,000, and Wayne more than $300,000. Newark, which is a hub for telecommunications equipment, could see $1.9 million evaporate.

Verizon officials say the law requires the company to pay taxes on landline equipment only when it is the dominant provider in town. The company claims it is losing more than 35,000 residential telephone customers a month due to competition from other traditional providers, cable companies and Internet phone services such as Vonage.

"According to state law, once we fall below 51 percent, we are no longer required to pay taxes on personal property," said Verizon spokesman Rich Young. "Clearly the trend is that we’re falling below threshold in more and more communities as time goes on."

But lawmakers and local government advocates say that Verizon does not have the legal right to take its property off tax rolls. The League of Municipalities issued a formal opinion saying that if Verizon was paying taxes on its property in 1997 when the 1940 law was amended, it should still be subject to those taxes.

The 51 percent reference was only used to define a "telecommunications carrier," not to decide what taxes should be, they say.

"Verizon is interpreting the law to their advantage, and nowhere does it say that they’re allowed to stop," said Assemblyman Upendra J. Chivukula, head of the Telecommunications and Utilities committee. "The law does not say that. The law was only using that to define what a carrier is, and who should pay."

The state attorney general is looking into whether Verizon is following the statute, according to a spokesman at the Division of Taxation.

Verizon has launched an informational campaign, providing local officials with graphics showing dropping usage and lobbying for a wholesale elimination of the tax. The company says the tax is not evenly applied to competitors, such as cable companies and satellite companies.

"We’re on the brink of a communications explosion, and right now there’s no fairness," Young said.

"Verizon customers are taxed one way and Internet customers are taxed differently."

As a solution to the loss of revenue, Verizon suggests shifting the tax to satellite companies or raising franchise fees — all of which would fall back on users.

Those kinds of increases would be unlikely to happen in today’s shaky fiscal climate, lawmakers said.

"During these economic times, you’re not going to put another tax on the people to receive a service," said Assemblyman Gordon Johnson, D-Englewood.

Some municipalities could consider another option — challenging Verizon in court.

It’s a path Rutherford’s CFO Edward Cortright says the borough couldn’t help but consider if there is any question about the legality of Verizon’s move. Reduced state aid and a failure to find buyers for tax liens could mean the borough may finish this year with a deficit.

Rutherford receives $269,057 annually from Verizon in personal property taxes.

"That’s a heck of a revenue stream, I don’t think we want to lose it," Cortright said.

"This couldn’t have come at a worse possible time."