Texas Warning: Beware Tax Changes


San Antonio, Texas— Cable operators who've enjoyed tax advantages by doing business as something other than a corporation or limited liability partnership in this state will see that benefit — and other tax loopholes — disappear soon.

Due to an estimated state budget shortfall of $10 billion to $12 billion over the next three years, Texas legislators will tighten up tax policy, operators were warned at CableConnects 2003 (previously the Texas Show) here.

For instance, the state presently levies no property tax on such tangible items as switches, cable, machinery or other equipment. Operators have had to account for such items, noted Bill Allaway, president of the Texas Taxpayers and Research Association, but owners have not had to pay levies on that property.

With the legislature on a hunt for revenues, that will change, he warned.

"The governor [Gov. Rick Perry] is insistent on this, [Lt. Gov. David Dewhurst] is insistent on this," Allaway said. "It will pass."

Significant penalties will doubtless be incorporated into the tax policy, he added.

Draft legislation has indicated that legislators could approve a 10 percent penalty for taxes due on items that aren't accounted for, and that the penalty could grow to 50 percent if the tax man determines the omissions to be fraudulent.

Texas businesses can thank SBC Communications Inc. for bringing a huge loophole in state tax policy to lawmakers' attention, Allaway said. State law currently requires only corporations and limited liability partnerships to make franchise-tax payments.

The policy apparently seemed benign to legislators until six years ago, when San Antonio-based SBC declared its Texas operation to be a partnership, backing the regional Bell operating company out of the franchise-tax pool, Allaway said.

Now legislators propose elimination of that exception, a move that could recapture $350 million to $400 million in tax revenues over the next two years.

State officials have expressed a "no new taxes" sentiment, the tax advocate said, but added legislators believe it's not a new tax if it should have been paid all along.

Analysis due

Kathy Grant, vice president of government affairs for the Texas Cable & Telecommunications Association, said the trade group is doing a "sophisticated analysis" of the tax burden on its members. That study will have a special focus on how operators fare in comparison to their direct-broadcast satellite competitors, but will also compare cable's tax burden to that of the general business base in Texas, Grant said.

Lobbyists will use that data to fight tax policies that the industry believes will place an unfair burden on cable operators.

Cable lobbyists have not yet determined their position on another new SBC-proposed bill to deregulate broadband services.

SB 377, a measure that would end state regulation of wholesale digital subscriber line service, has been introduced and forwarded to the Senate Business & Commerce Committee. SBC is promoting the bill as a way for telcos to achieve "regulatory parity" with cable companies.

Texas presently has the second-highest penetration rate for competitive local-exchange carriers in the U.S. The state Public Utility Commission currently serves as referee for disputes between incumbent phone carries and competitors, in areas ranging from interstate access to unbundled elements.

Most cable telephony is delivered over facilities-based hardware, but there is some line sharing between telephone companies and cable operators, panelists said.

Texas is not alone in mulling this issue, according to panelists. SBC and BellSouth Corp. are pursing similar bills in Missouri, Connecticut, South Carolina, Tennessee and Oklahoma.

Lobbying focus

No cable-specific bills face the industry because of the focus on tax issues, so cable operators in Texas plan to focus on educating legislators about cable's role in the state, said Connie Wharton, Cox Communications Inc.'s vice president and general manager in West Texas and the incoming TCTA president.

Such action is important because many cable regulations are due to lapse in three years, she noted. The strategic planning process, designed to support the best possible terms of new regulation, has begun.

Officials of the CableConnects 2003 show said they met their goal of matching last year's attendance figure of about 1,900. This was due in part to strong support from Cox, which sent 200 employees from nine states; and Time Warner Cable, which sent 250 workers. Both MSOs scheduled management meetings in San Antonio, Wharton said.

Show-floor attendees were drawn to technological improvements like a high-definition-capable set-top shown for the first time by Pace Micro Technology plc.

"Every Time Warner Texas division has come by," said Steve Cimino, Pace's director of national accounts.