The Legal Battle Over Verizon’s Tax Status in Ridgewood

In the midst of the Ridgewood Village Council’s post-op discussion on Sandy power outages and PSE&G’s handing of recovery after the storm, a dispute with another utility lingered in the background. At the meeting, the Council adopted a resolution, joining other New Jersey municipalities, in support of legal action to recoup tax revenue lost from Verizon.

At stake is over $8 million in statewide municipal revenues, of which Ridgewood’s share was about $128,000 in 2012, according to Village officials. The revenue loss is the result of a June court ruling that changed Verizon’s tax status in 65 towns.

The case, Verizon v. Hopewell Borough, goes back to a 1997 state statute that required telecommunications companies servicing more than 51% of telephone service in a given municipality to pay personal property taxes on the poles and wires used to provide that service. This is in addition to the assessments on land and buildings that all businesses are subject to. Verizon claimed that it had fallen below the threshold for the tax in Hopewell, resulting in the dispute.

The court ruled in favor of Verizon, rejecting Hopewell's claims that Verizon's status as subject to the tax was determined as of 1997 and can only be revised by legislature. The ruling said that once Verizon ceased providing the majority of service in a given municipality, its poles and telephone lines could not be assessed for tax purposes there.

The law was an effort to raise revenues for municipalities from companies that at the time had near monopolies on local telephone markets. But, as Verizon points out, competition has been “fierce” in New Jersey and the company  “serves less than 50 percent of the landlines it did 10 years ago.”

Verizon also contends that the law is unfair because other phone companies would not be subject to the tax if they did not have a 51% market share in 1997, but gained dominance subsequently.

Verizon informed Ridgewood in an August 2011 letter that they would not be filing tax forms for the following year, having determined that they no longer provided enough service in the Village to be subjected to the tax. Ridgewood proceeded by filing a Tax Court complaint in March, arguing that Verizon had not provided evidence to that effect.

 “We are not completely accepting their unilateral determination,” said Village attorney Matt Rogers. He added that the Village has “no idea how they made [the] calculation.”

The Village is seeking back taxes as well as legal fees from the company in the suit, which is consolidated with other effected towns and supported by the New Jersey League of Municipalities.

In addition to waging the battle through the courts, the League, supported by Ridgewood in its recent resolution, is promoting a bill that would do much of the same things a successful appeal would. A bill proposed to the legislature by Assemblyman Ralph Caputo would change the wording of the 1997 law, and tax telecommunications companies, primarily Verizon, at the level of service provided in 1997.

Village Manager Ken Gabbert told Patch in an email that the calculation on Verizon’s reduced level of service has to do with changes in the industry brought by cell phones and computers.

But the legal rationale for taxing the company according to its level of service provided in 1997 is that the amount of personal property maintained by the company to provide landline access has gone largely unchanged.

“They haven’t removed any of their materials, which they’re permitted to have on our polls and rights of way while they’re providing the 51 percent,” said Rogers. “They can’t have it both ways.”

Even if the legislation passes, Rogers says, the issue is likely to return to the courts.

Chief among Verizon’s gripes with the law is that even as their original dominance in the industry has been siphoned off by others, the tax has not been broadened to include others telecommunications companies. “This is a unique law, and most businesses in New Jersey do not pay personal property taxes,” a company spokesperson said. “None of Verizon’s competitors is subject to this tax.”

If the legislation passes and the law is amended, Verizon could have a viable legal argument that the tax is not collected in a fair and uniform way.

Complicating matters, the Village appears to have no legal authority on its own to change property tax collection procedures on telephone polls and wires to cover the hole left in municipal revenues. So the options to recoup revenue already lost and preserve future income are limited to the efforts of the League in the courts and legislature. And the focus of preserving that revenue is likely to remain focused on Verizon.

Asked if there were any efforts to collect taxes from a broader range of telephone, a senior legislative analyst for the League said, “We have, in the past, discussed comprehensive telecommunications tax reform. We would be happy to support legislation that protected property taxpayers and changed the tax regimen on Verizon and all other providers of telecommunications services. To date, no such bill has been advanced.”